Tuesday, April 03, 2007

Arena, 2009? Forest City's timeline contradictions continue

Forest City Enterprises (FCE) CEO Chuck Ratner (right), who in early March indicated that the Atlantic Yards project could take 15 years and that the arena would open for the 2010–11 season, is certainly back on message.

During a conference call last Thursday, Ratner and colleagues assured investment analysts that the project would meet the announced schedule, with the arena opening in time for the 2009–10 season.

The certainty professed, however, was at odds with Ratner’s words earlier in March and the doubts Forest City executives expressed during other segments of the conference call regarding other company projects.

Indeed, Ratner seemed to talking out of two sides of his mouth, telling the analysts, “As you know, in our business, these things take a very long time, most often, frankly, longer than we anticipate.”

Also, while Atlantic Yards was described at one point as being under construction, later it was placed in a category of projects that are decidedly not yet under construction.

The conference call (link from here) featured several company officials, including Bob O’Brien, FCE’s Executive Vice President, Strategy and Investment Management, and Joanne Minieri, Executive Vice President and Chief Operating Officer of FCE’s New York-based subsidiary Forest City Ratner.

AY description

At about the 1:16 mark, Minieri (right) offered this boilerplate description of the Brooklyn project:
Atlantic Yards is a mixed-use development project in Downtown Brooklyn designed by Frank Gehry and includes approximately 6400 housing units, retail and office space, as well as an 850,000-square-foot sports and entertainment arena. Four thousand, five hundred of the housing units will be rentals; half will be affordable to low- and middle-income families.

In 2006, the Empire State Development Corporation, ESDC, completed an environmental review process and the Atlantic Yards project was unanimously granted its final public approval from the State of New York’s Public Authorities Control Board. In addition, last year, the Metropolitan Transit [sic] Authority also approved the sale of the Vanderbilt Yards to Forest City.

Currently, there are two lawsuits, one in federal and one in state court, challenging the state’s use of eminent domain. ESDC is vigorously defending these actions with our assistance. We anticipate additional lawsuits challenging the project under environmental review laws.

Less land under control

Though no executives pointed it out, the developer now owns or controls a smaller amount of land than it had claimed weeks earlier. Minieri continued:
Despite the litigation, political and community support remains strong and we are proceeding. Forest City now owns or controls approximately 85 percent of the land necessary for the development. Recently, we commenced demolition on certain buildings owned by Forest City, as well as construction of the temporary railyards located on the Long Island Rail Road’s property. The construction of the temporary yards is completed pursuant to our acquisition of the MTA land, for which we have agreed to in substantive terms.
(Emphases added)

In early March, the developer had claimed to own or control 90 percent of the land. However, a state court judge found that the developer did not control properties it had rented from the tenant of property owner Henry Weinstein, because Weinstein had not approved the assignment of the lease. (The tenant, Shaya Boymelgreen, will appeal the decision.)

Minieri continued:
The first contracts for the construction of the temporary yards, as well as the demolition, have been awarded to minority-owned firms in keeping with our Community Benefits Agreement. The Community Benefits Agreement is a voluntary and legally-binding agreement signed by eight local community groups, which provides for, among other things, jobs and job-training programs.

Construction has begun?

Minieri continued:
In addition to the commencement of construction at the beginning of this year, we announced the sale of the arena’s naming rights to Barclays, a UK-based global financial service provider, for a 20-year term. The 18,000-seat Barclays Center will be the new home of the Nets and is anticipated to open in time for the 2009-10 basketball season. Portions of the building on the arena block will be constructed with the arena, and the remainder of the development will follow the schedule outlined in the public approval process.

FCR has been using a rather broad definition of construction, since the project cannot be built until legal challenges are resolved. A 3/7/07 press release used the term “construction”:
Forest City Ratner Companies (FCRC) today announced that phase one of Atlantic Yards construction will proceed next week with the demolition of 12 buildings owned by FCRC.

However, a 2/20/07 press release was more vague, quoting CEO Bruce Ratner:
“While this is preliminary work in anticipation of the actual construction, it brings us a step closer to making Atlantic Yards a reality for all of Brooklyn…”

Indeed, later in the conference call, O’Brien suggested that the project was not actually under construction.

Timing issues

During the Q&A segment of the conference call, at about 1:28:30, the executives were asked when groundbreaking would begin on three projects—Frank Gehry’s Beekman Street tower in Manhattan, the Ridge Hill project in Yonkers, and the Gulfstream project in Florida—that have been delayed.

Chuck Ratner offered the same kind of admission he made earlier in the month:
We’re very deliberate, as I’m sure you notice, in not putting the shadow pipeline in our disclosure by project together with cost... As you know, in our business, these things take a very long time, most often, frankly, longer than we anticipate. I note that the San Francisco project that opened this year, with such overwhelming success, I think Jim [Ratner] got the first call from Federated 13 years ago. We would have never thought it would take 13 years to do San Francisco. Obviously, in both Beekman and Yonkers, we are behind where we had originally hoped to be. But they’re getting very close and I would think in both cases we hope to be under construction within the next 12 months.

Equity not there yet

The Atlantic Yards project is apparently not yet fully funded, as equity investors have not all been lined up. At about 1:47, the executives were asked “how far out into your under construction and under development pipelines the equity’s funded?”

O’Brien (right) responded with an indication that Atlantic Yards is not actually under construction, since it’s beyond even the “shadow pipeline”:
For everything that’s under construction, essentially, our equity is in… What our cash flow, our sales, our refinancing is trying to provide is liquidity to pursue the development pipeline that Chuck talked about, the shadow pipeline, as well as those things beyond that shadow pipeline, the Atlantic Yards, The Waterfront, The Yards in Washington, DC.

(Last October, the developer renamed a project originally called Southeast Federal Center as The Yards.)

O'Brien continued:
Obviously, we’re planning multi-years forward. As that pipeline grows, again 1.7 [billion dollars] under construction, most of the equity’s in for that piece, 2.5 [billion dollars] identified development projects, we have some of the equity in there, but certainly not all of it. Particularly in those larger, kind of multiple, vertical opportunity projects like Atlantic Yards, like the Waterfront, etc., we have to plan for not only equity to pursue kind of the master planning and also the overall entitlement piece of that business but also ultimately the vertical pieces that go up. We feel like we’re in good liquidity position, as I think we’ve indicated… the highest level of liquidity we’ve had in our history.

Entitlement concluded?

O'Brien continued:
That being said, as a development company, we often have an insatiable amount of capital needs here, and so we’re always trying to find that balance there. We feel very good--looking certainly well beyond ‘07 into ‘08 and ‘09, part of what Chuck [Ratner] talked about is, we’re not exact about the timing of these projects, when they’ll come on, how long it will take to get through the entitlement process, so we try to work with a significant cushion.

While Atlantic Yards has gone through approval by the Public Authorities Control Board, which meets one definition of entitlement, earlier in the month Chuck Ratner noted that “we’re still negotiating with the public authorities” regarding subsidies for affordable housing. That indicates that the entitlement process has not concluded.

Timetable clarification

At 1:53:25, an investment analyst indicated that there had been “a variety of press” about timetables and “potential profit numbers,” so he wanted the executives to offer any potential clarification. Chuck Ratner pointed to Minieri’s earlier statement, and let her restate her point.

Minieri said:
We do expect and anticipate to open in time for the ‘09-10 basketball season in Downtown Brooklyn. With respect to some of the information that has been published, the filings were based on assumptions that were utilized in connection with the EIS and have been included in the study and remain unchanged.

Ratner intervened:
I want to take Joanne off the hook at a bit. What Chris is referring to… at a recent investor conference, both Bob and myself made reference to the timing of the opening at Atlantic Yards. We were referring to the opening of the entire project, not the stadium. And the next day, I was apparently blogged. And the next day, in some of the New York publications, there was an indication that we had given some conflicting dates. We all stand behind the comments that Joanne made earlier in the call. We do expect the stadium to be open for the ‘9-10 season. It’s a large development, there’s more to develop on the arena block. Some of the buildings will open contemporaneously with the stadium, some will open later. I was referring to what was going happen on the whole project. Clearly the timetables that we have disclosed with the public [authorities] in New York are the ones that we’re standing by.

Remember, during the earlier conference call, O'Brien said:
We would expect and our goal is to have vertical construction up and operating within 30 to 36 months, and hopefully, the current timeline is to have the ball team open in 10-11?

Chuck Ratner confirmed: 10-11.

Under the best case scenario, 30 months, the arena could be open by September 2009, just before the beginning of the basketball season; at 36 months, however, the season would nearly be over.

Despite the rather clear indication that "ball team" referred to the basketball arena, Chuck Ratner issued a statement denying that interpretation:
When I referred to the project taking 15 years to build, I was referring to the total time, from the idea or conception of the development to completion of the final building. The actual construction of Atlantic Yards will take 10 years, and, as we have announced, preliminary work on the site has begun.
When I was discussing the arena, I was referring to the arena block which includes the Barclays Center as well as four surrounding buildings, including the iconic Ms. Brooklyn. We expect the office and residential buildings to come on line beginning in 2010. We remain committed to our goal of opening the arena in time for the 2009-2010 NBA basketball season.


Mixed uses

During the call last Thursday, the last question about Atlantic Yards referred to the mix of uses in the project and the timetable. Minieri responded:
On Phase 1, there is a scheduled commercial office tower to be developed as well as residential.

Ratner continued:
As we’ve indicated… the majority of the development at Atlantic Yards for several years to come will be residential, both for-sale condominiums as well as market rentals. Half the market rentals will be affordable or moderate housing. Obviously, we think the project is appropriate and healthy and good for the market. There is some piece of the project which is office and retail, but it’s a smaller piece. Some of that will open along with the arena.

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