Tuesday, May 21, 2013

Bruce Ratner: arena = "fortress real estate" because it can't be duplicated easily, has REIT-like qualities

There are a couple of interesting nuggets in the 5/15/13 CNBC Squawk Box interview with Forest City Ratner Chairman Bruce Ratner, focusing on Nassau Coliseum Getting a Facelift.

"It's more exciting than I thought it would be," Ratner said of the Barclays Center. "I knew it would be great, never thought it would be this great. It's become an icon almost overnight, in eight months. It's amazing. It has to do with everything: it has to do with the team, the architecture, Brooklyn, it all really did come together in the kind of way that I think was almost unexpected by most people. I knew it would be special, this special I didn't expect."

It has to do with the team, or the rebranding?

The need for competition

One host, mentioning how Madison Square Garden's exterior hasn't changed--actually, the interior makeover approaches $1 billion--asked, "isn't it important to weave competition in this market for big events in New York City?"

"This is an area that's 16 million people, the tri-state area. you have to have competition," Ratner responded. "And if you think about it, having basically one arena can't serve everybody... and that's what this created. and, of course, the brand is critical. The Brooklyn brand, the idea of an arena, which is iconic looking, that's important too. Everything is really new and up to date on our arena and that's what really makes a difference."

You have to have competition. That's a huge irony, given the story of the Atlantic Yards project--in which the city and state agreed to back Ratner's plan from the start.

Arena = "fortress real estate"

One host asked, "Are you surprised by the fact that live sporting events and concerts continue to draw such premium prices?"

"No, I'm not at all surprised. and I realized that for a long time," Ratner responded. "It is all about content. Content, content, content. Whether it's sports or content or concerts and live is critical. So I realize that and having an arena is a very special thing because I use the word fortress. It's fortress real estate in a way. meaning it is something when you create it that can't be duplicated easily. Look, in almost half a century, this is only the second arena after MSG in an area this large."

That's why a non-competitive process seems more glaring.

Arena like a REIT?

Ratner added, "I will say arenas today because they are in some sense franchises and they are live content, my guess is that they sell in the REIT [real estate investment trust] category. They're like REITs almost. That's the kind of multiple, I think."

What are the attributes of REITs? According to REIT.com:
REITs are required to distribute at least 90 percent of their taxable income to shareholders annually in the form of dividends. Significantly higher on average than other equities, the industry's dividend yields historically have produced a steady stream of income through a variety of market conditions.
In addition to the investment performance and portfolio diversification benefits available from investing in REITs, REITs offer several advantages not found in companies across other industries. These benefits are part of the reason that REITs have become increasingly popular with investors over the past several decades.
REITs' reliable income is derived from rents paid to the owners of commercial properties whose tenants often sign leases for long periods of time, or from interest payments from the financing of those properties.
Most REITs operate along a straightforward and easily understandable business model: By increasing property occupancy rates and rents over time, higher levels of income may be produced. When reporting financial results, REITs, like other public companies, must report earnings per share based on net income as defined by generally accepted accounting principles (GAAP).
In short, REITs over time have demonstrated a historical track record providing a high level of current income combined with long-term share price appreciation, inflation protection, and prudent diversification for investors across the age and investment style spectrums.

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