Sunday, November 08, 2009

In profile, Crain's calls Ratner "tenacious;" wouldn't "desperate" and "strategic" also apply?

A Crain's New York Business profile, headlined Tenacious B: Bruce Ratner must clear yet more do-or-die hurdles at Atlantic Yards, offers a mostly admiring portrait of Forest City Ratner's CEO:
The annals of developing large projects in New York City are crammed with tales of the lengthy, torturous paths to completion. After only six years, the quest to transform Brooklyn's Atlantic Yards is already one for the books.

Developer Bruce Ratner has bought a basketball team, fought off at least seven lawsuits, dismissed star architect Frank Gehry—who had lent glamour and gravitas to the plan—and, at a time when funding is nearly impossible to obtain, tapped a Russian billionaire for $200 million.

Mr. Ratner is nothing short of tenacious.
Or, perhaps, desperate. Mikhail Prokhorov would acquire 80% of the New Jersey Nets and 45% of the Barclays Center project for $200 million and the willingness to assume another (estimated) $200 million-plus in debt.

In other words, while most team owners want to sell at a profit, and new facilities boost the value of a team, Ratner had to sell at a loss, before the Brooklyn arena ever got off the ground. Check out how he babbled in a September interview after the sale.

The article, focused on Ratner's struggle, fails to point out many elements of Ratner's strategy, including the widespread use of deceptive public relations mailers (aka "liar fliers") and the use of surrogates, rather than company officials, to testify in public and at press conferences.

(Also, as DDDB points out, if Ratner claims AY isn't a public project, shouldn't he give up public subsidies and renounce the use of eminent domain? (Well, it's a public-private project, but the private company holds the cards.)

Housing, jobs, and the corporate imperative

The article continues:
However, after all that maneuvering and what sources say is a $300 million investment, Mr. Ratner has yet to build anything. The 22-acre complex, which is slated to include an arena for the Nets basketball team, residential towers, office space, and shops, should have been half-done by now, according to the project's original schedule. Mr. Ratner, chief executive of developer Forest City Ratner Cos., insists it will all happen—someday.

Sitting in his sparsely decorated corner office overlooking downtown Brooklyn, Mr. Ratner tells Crain's, “This project is very important to me because as a civic project, it's an issue of providing housing and jobs.” But he adds, “When you come right down to it, this is work.”
Most of all, it's not about providing housing and jobs, or Ratner would not have continually been seeking concessions from the city and state. Most of all, and not surprisingly, it's the goal and responsibility of a corporation to seek profits.

Deadlines

Ratner told Crain's he wasn't nervous about the pending Court of Appeals case regarding eminent domain for the project or the challenge of selling $700 million worth of tax-exempt bonds for the arena by the end of the year.

In fact, the article ends with some not necessarily warranted optimism:
And what will he do if the court rules against eminent domain? “We'll figure something out,” he says with a weary shrug of his shoulders.
Left unsaid

Crain's pressed Ratner for some details and, not unexpectedly, was deterred:
Yet he doesn't know when many elements of the plan will progress, and he's agitated by questions about them. In light of a financial crisis that has hobbled many developers, Mr. Ratner refuses to discuss what the project will look like, whether or not it will include an office building and even who will design the first residential tower, which he's slated to break ground on early next year.

Initially, the project called for four office towers, but by early this year, only one was on the drawing boards. Asked when it will go up, Mr. Ratner responds with a question: “Can you tell me when we are going to need a new office tower?”

He has no intention of sharing the designs for the complex. “Why should people get to see plans?” he demands. “This isn't a public project. We will follow the guidelines.”
So it's a "civic project" but not a "public project." It's true that there are design guidelines, but it's also true that the developer used architect Frank Gehry and landscape architect Laurie Olin to sell the project.

(DDDB points out that opponents have long pointed out there's no demand for an office tower. I'd add that much of the project's economic return would come from the office tower--and thus would be further attenuated.)

In fact, Ratner tells Crain's that MetroTech, his first project, was his toughest challenge. Maybe.

The ACORN connection

After reporting on how Ratner played to politicians, Crain's reports:
Winning over the community was far harder. Bertha Lewis, CEO of housing advocate Acorn, says she initially feared further gentrification of the neighborhood. After negotiating with Forest City for a year, Acorn and seven other groups signed an agreement in June 2005 that included the developer's pledge to build 2,250 units of affordable housing.

“Bruce listened to us,” Ms. Lewis says. “I'll fight to the death to get this project done.”

His critics allege that he simply bought such support. In fact, Forest City has partially funded at least two of the groups, including Acorn, in addition to giving its national organization a $1 million loan.

Hold on. Forest City Ratner has funded all eight of the Community Benefits Agreement signatories, as FCR official MaryAnne Gilmartin acknowledged in July. And ACORN hasn't merely been funded, it was bailed out after a scandal led other sponsors to withdraw their support.

Money issues

Crain's says lawsuits organized and/or filed by Develop Don't Destroy Brooklyn have wounded the project by causing delays and thus preventing Ratner from getting once-plentiful loans. Crain's does not pause to consider whether there's any merit to the challenges to the environmental review and the pursuit of eminent domain, or whether the state's loose definition of blight needs reform.

And, regarding the arena, Crain's writes:
With cash scarce, Mr. Ratner has had to chop expenses. Frank Gehry was ousted earlier this year, after the cost of his arena alone almost doubled to $1.1 billion. A new design by two other architects, unveiled in the summer, is expected to cost 20% less.
Well, the price tag was once $950 million, but $1.1 billion is a new number. A 20% discount from that figure takes us only to $880 million--still the most expensive arena ever, by far.

Any explanation of why it would be so costly, especially given the new design and declines in the cost of materials and labor? That, apparently, will have to wait for another article.

2 comments:

  1. is it possible that ratner is OVERSTATING the cost of the brooklyn arena in order to obtain more tax-exempt bond financing than he otherwise could, with the intention of using the surplus funds to alleviate fce's corporate-wide liquidity problems?

    for example, if the arena had a $600 million price-tag, would ratner only be eligible for ~ $500 million in tax-exempt bonds, rather than the current $700 million figure?

    with the current nationwide credit crunch, it seems that ratner would have a very strong incentive to OVERSTATE the expected cost of the arena in order to acquire additional tax-exempt financing, which could then be used to fund items unrelated to arena construction, such as servicing fce's crushing debt load

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  2. answer is yes it is possible and even likely. especially if you consider his "value engineering" gave a $50 million hair cut to a $950 million arena, which is barely any savings but a good way to overstate the bonds required.

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