Tuesday, March 21, 2006

Ratner to investors: AY approval expected by fall, Nets losses downplayed, 15-year buildout?

Is the Atlantic Yards project on track? Despite delays from the original plan to open the arena in the fall of 2006, Forest City Ratner president and CEO Bruce Ratner told investors in the parent Forest City Enterprises that he expects goverment approval by mid-fall and construction to commence a few months after that. Ratner, sounding jovial and confident, also deflected concerns about losses suffered by the New Jersey Nets, saying he was confident the team would make money when it moved to Brooklyn. (Photo from Forest City Ratner web site.)

Ratner participated in a special investor event on 3/13/06. His portion goes from 1:22 to 1:54, but keep listening for another two minutes for an eminent domain anecdote. An investor conference call is scheduled for March 31.

The Atlantic Yards project, at 9.1 million square feet in its current configuration, would be larger cumulatively than the 37 projects that Forest City Ratner completed in the past 18 years. Those projects involve about 8.5 million square feet, with another 2.5 million square feet "in the development pipeline." Atlantic Yards is not yet in that pipeline, Ratner said, though he was optimistic.

Atlantic Yards

Ratner's discussion of the Atlantic Yards project came after he described several other projects, which I'll mention below. Either pressed for time or spinning for investors, Ratner left out some context: The Atlantic Yards project is 22 acres, it’s a great location, it’s an area that, as I pointed out, if you look across the street, for many years wasn’t developed, no one ever looked at it as a development opportunity. It’s kind of in the middle of various neighborhoods.
(If it wasn't developed, then whose responsibility was that? Also,Ratner is apparently not on board with the Downtown Brooklyn mantra.)

He continued: It’s an area where there’s railyards, older buildings and so on. It will include 4500 rental housing units, 2000 condos, retail, office and hotel. It’s a public-private partnership I would say in a lot of ways. What’s important to the city, which is affordable housing, residential housing, along with the importance of course of doing an arena and getting sports team.
(Has the number of condos been shrunk from 2800 to 2000, or was that just Ratner speaking casually? And what about the 600 to 1000 affordable condo units? If he didn't mention them, are they going offsite?)

Here's what he said about timing: That project is on its way to being entitled. Probably in early fall, middle fall of this year we should have our entitlement and start construction in the next four to five months after that.
(Maybe, but the environmental review process is still in the early phase, and legal challenges, including one over the use of eminent domain, could delay the process. Perhaps that's why Forest City Ratner has been renegotiating the lease on the Continental Airlines Arena, and may stay until 2010.)

Ratner hinted that the project, once launched, might take longer than initially planned: The master plan includes a basketball arena and 16 buildings designed by Frank Gehry. It’s multiphase, over ten to 15 years.
(Initially, a company press release stated: It’s estimated that the full Brooklyn Atlantic Yards development will take approximately 10 years to complete.)

He touted the Community Benefits Agreement: An MOU is a memorandum of understanding in our business, that’s been executed in 05, with a commitment of substantial funds. We signed something, which I think is terrific and extensive and I think will be a model for many other cities and many other developments. The Community Benefits Agreement, CBA, I can’t stress how important that is.
(Others, however, have their doubts.)

We sought it out. When we first announced this project, before any community came to us, I said 50% of rental units will be affordable and middle income, and we stuck to that it and will continue to stay with that.
(Actually, Forest City Ratner and supporters referred to all the residential units, which at that point were rentals.)

He offered a cursory account of the acquisition of the Metropolitan Transportation Authority's Vanderbilt Yard: We won the bid for the competition to purchase the MTA yards, there was one other bidder.
(Omitted was that the rival, Extell, made a higher cash bid, and both were below the appraised value.)

Regarding the Nets

Ratner was recruited to buy the Nets by Brooklyn Borough President Marty Markowitz, and it's well-known he wasn't a longtime hoops fan:We are the principal owner of the Nets basketball team, it’s been a real experience for me firsthand… There’s 41 games, I try to go to every one. It was really the linchpin of this devpment. Without the basketball team and arena, we wouldn’t be able to do this development. It created the opportunity… We very often start our projects with an anchor, in this case it’s an arena and a basketball team. I think both will be very successful.

Is the basketball team making or losing money, Ratner was asked. "It’s losing money," he replied, though he didn't offer specifics. The Star-Ledger reported 3/19/06 that, despite gains in ticket sales, the team will lose between $20 million and $30 million, and Ratner hopes "to sell $60 million of equity in the team to help cover his costs until he can build an arena in Brooklyn and move the team."
(Note that Ratner has required two previous loans in the past two years.)

But Ratner was optimistic:
When it moves to Brooklyn, it should make money… It’s doing actually quite well. We’ve got a 20% increase in ticket sales and revenue…. I think eventually we will break even on the operating side. And I think it’s actually a business you can do decently well with… I look at as a business challenge, I think it’s one we’re really up to.… The arena will be brand new, Frank Gehry, it will do extremely well. The arena’s going to also make money, together with the team, we project a decent amount of cash flow going out in 2009-10.
(Note: Projections by Andrew Zimbalist, the Smith College economist Forest City Ratner paid to provide a report on project benefits, assume revenues from the arena premised on several factors, including no arena in Newark. The latter is already under construction.)

Beginning in Brooklyn

Ratner first described the MetroTech project, the company's first:
I used to start all my presentation, Brooklyn has the best downtown in America. And they laughed. It has great transportation, great housing stock, right across the river from Manhattan. It has a tremendous artists' community.
...Here you see the MetroTech site in 1986. And much like Atlantic Yards site, it was a combination of older buildings, some parking lots, some buildings occupied, some buildings not occupied. And if you look at it today… It was a long hard road, because when we first talked about Brooklyn, people really didn’t believe it could be… It was high crime area…But we capitalized on something very important. We capitalized on the strong economics of New York City.


Atlantic Terminal empty?

He described the project over the transit hub at Atlantic and Flatbush avenues:
Atlantic Terminal retail and office. That was the site that was cleared by Robert Moses in the late 50s, and it was cleared to be housing, at one point, the Dodgers were going to move there. It really was fallow for 40 years.
(Note: the aboveground Long Island Rail Road wasn't demolished until 1990)

He pointed to changes in public safety as spurring changes in retail:
Crimewise, you couldn’t walk around this site ten or 15 years ago… In 1992, I lived in New York, there were 2200 homicides. Last year, there was something like 560 or 570 homicides…. That gives you an idea how New York has changed.

Brooklyn's lost Kmart?

Ratner showed a picture of the Atlantic Terminal mall: So we took a piece of vacant land… I remember this piece of land--it’s probably about six acres… I remember taking Kmart in 1994 to look on the top of the Williamsburgh Savings Bank, I said you could have this whole site if you wanted to put a Kmart on it all…Now this site today has 400,000 square feet of office space and almost 400,000 square feet of retail anchored by Target.
Part of our portfolio includes big box retail… We’ve done 37 projects in the city, and about half of that is retail. It’s all big box retail, nearly all…. We were the first after Home Depot to do big box in New York. That Target is between one and 10 nationally in terms of sales.


(Would there be big boxes at the Atlantic Yards project? The P.C. Richard/Modell's at Site V--currently slated to be demolished for a high-rise--are reviled as anti-urban. Forest City Ratner representatives have said they will encourage local businesses to have retail space at the Atlantic Yards project. Photo from Forest City Ratner web site.)

New developments

Ratner described five projects in the development pipeline, including Ridge Hill in Yonkers, East River Plaza in Harlem ("one of the most important largest retail developments in New York City for big boxes"), and Beekman Tower in Lower Manhattan. That building, which the company describes as "a 1 million square foot luxury condominium and rental building."
(Unlike with Atlantic Yards, there's apparently no affordable housing planned. Maybe company spokesman Joe DePlasco was only referring to Brooklyn when he told the New York Times, "Forest City Ratner Company believes firmly that supporting nonprofits and community groups, and working with them to identify and address needs, is at the foundation of what they do. It's that simple.")

Ratner's comments about the building likely apply to the residential component of the Atlantic Yards project:
We’re entering a very strong rental market. I think the NYC residential rental market, which has been good but relatively slack the last four or five years... as interests rates are going up, people are looking for other alternatives, and most importantly there’s been almost no development in the rental residential arena in New York City in five or six years.

On the Times

Ratner also described the Times Tower, designed by Renzo Piano built in collaboration with the New York Times Company, and expected to open at the beginning of 2007. The Timse will have 26 floors; FCR will rent 22 floors. “They’ve been wonderful partners, it’s a great company,” he said.

Given criticisms by me and others of the New York Times's coverage of Forest City Ratner, some might wonder if he was suggesting that the "wonderful" partnership extends to the pages of the newspaper. But it's clear he was referring to the parent company.

Eminent domain "wonderful"

After Bruce Ratner finished his presentation, a Forest City Enterprises official, apparently Bruce's cousin president/CEO Charles Ratner (I couldn't quite tell), offered an anecdote. “I have one wonderful story to tell you about public-private partnerships," he said. "We need those in order to make these projects competitive."

"As you all know there’s a lot of debate now about eminent domain. Clearly for us, in our business, eminent domain has been a wonderful avenue for development," he continued, noting that Chicago mayor Richard Daley called it the "most important tool" a mayor has to do development. (It wasn't clear if he meant the current mayor, Richard M. Daley, or his father, but it's likely the former, who, along with other big city mayors, signed a resolution supporting the use of eminent domain.)

The story, he said, had been told by Albert Ratner, co-chairman of the company board, when he was honored last year by the Urban Land Institute.

So Albert tells this story. In 1950s, he was in the office, putting his coat on, he was going out of the building. His father, Uncle Leonard, said, "Al, where are you going?"
"I’m going to meet the Ohio Department of Transportation."
"How come?"
"Dad, you know the land we have on Mayfield Road. They’re going to take that and put a highway right through that land."
And Uncle Leonard looked at Albert and said, "That’s going to be terrific for our land. How much do we have to pay them for that?"
Albert said, “No, Dad, you have it mixed up. We don’t pay them, they pay us."
At this point, Uncle Leonard said, “What a country.”


A difference between that exercise of eminent domain and the version that may be exercised for the Atlantic Yards project is that the former was clearly for public use rather than the "public purpose" of economic development, which is how the "public use" doctrine has evolved. Another difference: those who would have to sell their land for the Atlantic Yards project wouldn't be stakeholders in new development stimulated by the project.

The backlash

The backlash to the Supreme Court's Kelo decision, The Next American City suggests, is playing "into the hands of the anti-urban bias of conservatives." But the magazine suggests reforms:
State legislatures considering reducing eminent domain powers should be mindful of the fact that they could create another problem as serious as the one they are trying to solve: if denied the tools necessary to stimulate economic development, distressed municipalities will turn to the state for other forms of assistance. Instead, legislatures could consider requiring strict additional findings before private homes be taken but otherwise allowing eminent domain for economic development to continue.

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