Wednesday, December 10, 2008

At today's conference call, will investment analysts finally ask FCE some tough questions about Atlantic Yards?

If Fox Business News anchor Alexis Glick is the glam, smiling face of business news, unwilling to do much research to contradict the spin of guests like New Jersey Nets CEO Brett Yormark, her away-from-the-camera counterparts are the investment analysts who follow the fortunes of Forest City Enterprises (FCE) but don't do any fact-checking.

In periodic conference calls with FCE executives, the investment analysts have heard those executives continually revise the timetable for and the promises regarding Atlantic Yards without acknowledging the inaccuracy of past statements.

And the analysts--all four--don't call them on it. (Hmm--maybe that kind of behavior, writ large, is part of why the country's in its current financial mess.)

At the conference call and webcast today, perhaps the analysts will finally have done some homework. I've provided a cheat sheet below.

Timing of arena and project

Forest City Enterprises executives Bob O'Brien and Chuck Ratner had a notable exchange in March 2007.

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?"

Ratner seconded him: "10-11."

Later in the sequence, Ratner said, "This is going to be a 15-year buildout."

Of course Ratner quickly issued a convoluted clarification, claiming that the arena would open in 2009 and that the 15-year buildout referred to the total time from conception to completion.

(That's a dubious definition of the term "buildout." For example, in this 10/10/06 press release, FCE announced an agreement to develop a 160-acre life sciences office park near Denver: Build-out will occur over the next 20 years or more, with the first buildings expected to be completed by the end of 2008.
There was no indication that buildout had already begun just because the project had been conceived.)

In October 2007, Chuck Ratner told investors, that, according to FCR's MaryAnne Gilmartin, “I think her phrase was, begin construction in earnest on the arena and some of the adjoining stuff by the middle/end of '08, maybe earlier than that hopefully.”

Now Forest City is saying construction would begin in 2009 and the arena would open in 2011, though I think 2012 is a more likely best-case scenario.

Timing of legal resolution

In September 2007, O'Brien said of pending lawsuits, "We remain confident in our positions in all legal challenges and we are targeting resolution by the first half of fiscal year 2008."

In April 2008, FCR's Joanne Minieri told investment analysts, "We are proceeding with the expectation that the lawsuits may be resolved during the second half of this year."

Now Forest City does not (yet) officially predict a resolution, but it stated Monday that it considers it an important milestone that a hearing on the state eminent domain case is schedule for the first quarter of 2009.

There's also a pending state appellate court case involving the challenge to the Atlantic Yards environmental review. If the community challengers win a reversal, the Empire State Development Corporation of course will appeal. If the state prevails, the challengers of course will appeal. If the challengers get two of five votes--which is not impossible, based on comments at the hearing--they get an automatic appeal.

In other words, it could take a lot longer.

Land ownership

O'Brien said in March 2007 that "[we] own or control 90 percent of that land for the full development of that project," nearly two years later that percentage has gone down, rather than up.

That percentage declined to 85% thanks to a state Supreme Court judge's decision regarding a lease of Henry Weinstein's property. The decision is under appeal.

Suspension of work

O'Brien said in March 2007, "[W]e’ve begun to move some dirt on the site to relocate the Long Island Rail Road tracks so we can begin to build some of the infrastructure."

Robert Sanna, FCR’s Executive Vice President and Director of Construction & Design Development, said in October 2007, “[W]e've devised a plan to create a temporary yard, which we're in the process of constructing now and will complete so that we can begin construction on the arena site in earnest on that project. The temporary yard work is underway at the moment as we speak.”

Minieri said in April 2008, "[W]e continue to proceed with pre-development of Atlantic Yards, whereby certain site work and the construction of the temporary railyard are underway."

That work has come to a screeching halt. Forest City Ratner blames litigation--which defies sworn statements by company executives that work on the railyard could proceed despite litigation.

FCE acknowledges cash-flow difficulties. Perhaps at the conference call today, the analysts can press FCE executives to connect the dots.

More subsidies available?

Chuck Ratner said in April 2008, "[J]ust in these past six or eight months, we got the various governmental agencies, state, city, borough, in New York, to increase their commitments to Atlantic Yards by 105 million dollars on top of the 200 [million] they committed. We still need more."

There's no indication additional subsidies would be available, given the cuts in city and state budgets. City Comptroller William Thompson last month told the New York Observer he didn't think the project should get more government assistance.

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