Monday, January 28, 2013

Ratner steps back as Forest City CEO as Gilmartin steps up; remember how Forest City was restructured in 2006 so Ratner could do more philanthropy?

Matt Chaban, the new real estate reporter for Crain's New York Business (ex-NY Observer), has a scoop headlined Bruce Ratner to step down as Forest City CEO: Developer of the vast Atlantic Yards project in downtown Brooklyn will be succeeded as CEO by company's Executive Vice President MaryAnne Gilmartin:
Brooklyn's biggest developer, Bruce Ratner, is preparing to step down as chief executive of Forest City Ratner, the New York City subsidiary of his family's Cleveland-based Forest City Enterprises. Taking his place will be MaryAnne Gilmartin, who became executive vice president in 2007. The switch will elevate her to Mr. Ratner's clear No. 2, as he continues on in his role as chairman.
With no comment from inside Forest City and no explanation of exactly how much the 68-year-old Ratner will give up--and how that might reconfigure the executive chairs below Gilmartin--there's not much more to the story.

But it is true, as Chaban writes, that it has been a "banner 2012 for Mr. Ratner"--not just the opening of the Barclays Center and the groundbreaking for a modular tower, but (unmentioned in Crain's) the surprising coup of luring the New York Islanders to the basketball-focused arena, thus ensuring another 41+ dates a year for a not-always busy venue.

Also significant is the astonishing rise in value (according to Forbes) of the Brooklyn Nets, which will make it that much easier for Forest City Enterprises, Ratner's parent company, to sell their share in the team, as has been contemplated.

Ratner's accomplishments, and the help he got

A source tells Crain's, "He's done an incredible amount for the city, and he's got a great team in position to keep up that great work."

As I commented: 
Ratner has accomplished much, but didn't even the NYTimes describe him as having a "reputation for promising anything to get a deal, only to renegotiate relentlessly for more favorable terms"? 
The last time Ratner made a move: philanthropy

On 8/4/06, Lumi Rolley of NoLandGrab analyzed an 8/3/06  Forest City Enterprises press release headlined, Forest City Announces Negotiations to Restructure Forest City Ratner Portfolio:
Forest City Enterprises, Inc. (NYSE:FCEA) (NYSE:FCEB) today announced that it is negotiating with Bruce C. Ratner to restructure their combined interest in a total of 30 retail, office and residential operating properties and certain service companies that currently are owned jointly by Forest City and Ratner. All of the properties included in this portfolio except one are located in the New York City metropolitan area. Currently Forest City owns a majority interest in its New York portfolio. Upon closing of the proposed transaction, Forest City will be entitled to substantially all of the remaining economic benefits of the underlying properties. The parties also are negotiating the restructuring of certain jointly owned projects under active development which will be valued when each development is completed. Beyond these development projects, Forest City will have the right to all future development.
Rolley's take:
What the press release fails to state in layman's terms is that Bruce Ratner's company was just purchased and assimilated into the Cleveland mothership.
Read: Bruce leveraged himself to the hilt on Atlantic Yards and the NJ Nets, and had to sell his company in order to keep afloat a project that hasn't yet been approved....
The question of why he felt he had to sell his equity to FCE is a good one. All signs lead to FCE wanting to increase their ownership position in exchange for the increased exposure on Atlantic Yards.
Judging from the fact that the press release didn't come out and clearly state that FCR is being wholly acquired up by FCE, we may see some positive spin from the developer in the future.
On 8/11/06, Rolley wrote, The spin is in, showing how a helpful investment analyst told two reporters that Ratner was going to spend more time on philanthropy!

From The Real Estate Observer, Bruce Ratner, Philanthropist?:
"What happened was that Bruce was getting to the point in his life where he wants to do some philanthropy," Rich Moore, managing director at RBC Capital Markets, told us. "There is no liquidity to joint ventures because he has to sell a building in order to make any money."
From the NY Sun, Ratner To Cash In on Stake in His Company:
“It will be the same people, the same entities, the same decision makers. He will run FCR just as he ran it before,” Mr. Moore said. “Basically, this was more designed for Bruce personally to have more liquidity to make philanthropic donations.
“He is getting older, and it is time for him personally to do things a little differently,” Mr. Moore said.
As Rolley wrote, "It's practically as credible as, 'the Congressman will be leaving office to spend more time with his family.'"

Needless to say, Ratner has not focused on philanthropy in the last six-plus years.

The aftermath

Forest City Completes Restructuring of New York City Portfolio
CLEVELAND – November 8, 2006 – Forest City Enterprises, Inc. (NYSE:FCEA) (NYSE:FCEB) today announced that it has completed the restructuring of the Forest City Ratner Companies portfolio. The portfolio is composed of Forest City Enterprises’ and Bruce C. Ratner’s combined interest in a total of 30 retail, office and residential operating properties, certain service companies and seven identified development opportunities, as well as the pursuit of new real estate opportunities, all in the greater New York City metropolitan area.
As previously announced, Bruce Ratner has contributed his ownership interests in the 30 operating properties, the service companies and participation rights in all future developments (except those named below) to a newly formed limited liability company. Forest City paid $46.3 million in cash and issued 3,894,000 units in the new limited liability company to Bruce Ratner. These units may be exchanged (after a one-year lock-up period) for an equal number of shares of FCEA stock or cash based on the value of FCEA stock at the time of conversion. For the first five years only, units that have not been exchanged will receive their proportionate share of an aggregate annual preferred payment of $2.5 million plus an amount equal to the dividends payable on the same number of shares of Forest City stock. After five years, the annual preferred payment on the outstanding units will equal only the dividends payable on Forest City stock. In addition, Forest City will indemnify Bruce Ratner for any tax liability he may incur as a result of the sale of any of these properties during the 12-year period following the closing of the transaction.

The cash and units exchanged for Bruce Ratner’s interest are net of $42.5 million of preferred returns in favor of Forest City. This transaction also takes into account $384 million of non-recourse project debt (as of January 31, 2006) attributable to Bruce Ratner’s ownership. All but $16.8 million of this debt is already reported on the consolidated balance sheet of Forest City’s GAAP financial statements.
....Forest City will conduct its New York operations in the same manner as it has for the past 20 years. Bruce Ratner will continue to be president and chief executive officer of Forest City Ratner Companies. He will continue to lead the Atlantic Yards project, with responsibility for the successful execution of the planned redevelopment. Bruce Ratner’s economic interest in this development opportunity will be realized through his substantial ownership of the units described above. He will also become a member of Forest City’s Board of Directors by no later than February 1, 2007. 

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