Wednesday, October 08, 2014

Missing from Bruce Ratner's softball WSJ interview: the modular mess, his Atlantic Yards deceptions, the complications of the Greenland deal

Forest City Ratner Chairman Bruce Ratner yesterday appeared in the Wall Street Journal feature BOSS TALK, headlined With Brooklyn’s Barclays Center, Builder Takes Global Stage: Forest City Ratner Negotiates a Deal With Unit Owned by Chinese Firm.

He talked about the decline in needed office space per person--no longer 225 to 250 square feet--the poor future for retail beyond cities, and touted the opportunities in residential and hotel real estate as well as a Democratic National Convention in Brooklyn.

About housing

Asked if New York City Mayor Bill de Blasio’s goal of building 80,000 new affordable housing units in ten years was realistic, Ratner responded:
He's got to build 8,000 a year. That’s hard to do. But I think it is attainable. I’ll tell you something else: It’s an absolute necessity. When you look at the housing, we’re in the process of having a housing crisis in the city only equaled by after World War II.
The city will grow, most studies show, from now through about 2035 to 9.3 million people. Now it’s 8.3 million, 8.4 million. That’s 50,000 new people a year.
Notably, Ratner failed to mention that his company's modular building plan might be a solution. Were the B2 tower not stalled at ten (of 32 stories), amid a bitter set of lawsuits, surely Ratner would have been talking up modular as a way to save money and time.

Naturally, Ratner was not asked about the lawsuit or, say, the claim in an affidavit from Skanksa's Richard Kennedy:
In early 2014, Skanska Building attempted to engage in constructive conversations with Forest City to resolve issues. Forest City's responses ranged from hostile to inattentive and accusatory. For example, at a meeting on January 28, 2014 when William Flemming, the President of Skanska Building, mentioned that design issues existed, Bruce Ratner's response was to use a vulgar street epithet followed by "I don't care if it costs you fifty million to finish the project ... I'll see you at the grand opening."
Rationalizing an unaffordable building

Asked why he came to housing relatively late in his career, Ratner responded:
Mr. Ratner: I come from a very social Democratic, left background. For many years, the idea of being a residential landlord was never appealing.
From my days as commissioner of consumer affairs [in New York City], I rationalized the big-box retail development. It turns out a family will save thousands of dollars shopping at a larger store. That’s like giving people raises. I loved the idea that by doing big-box stuff, I was saving people money.
One of the first residential projects we did was 20% affordable [housing] and I could handle that. Before that I did one that was half low income and half middle income and I could handle that one too. The first one I had to really rationalize was when I did the Gehry building [a 76-story apartment building in downtown Manhattan that hit the market in 2011] because it did not have any affordable housing.
He had to rationalize the Gehry building? In 2012, interviewed by Charlie Rose, Ratner was more smooth:
First of all, the way I think about myself as a developer is as a civic developer. We do a lot of civic projects. And every project that we do has to have some civic component. It can be architecture. It can be economic development. Or it can be something like the arena, where we're providing entertainment, where it's in some sense a public building.
As I wrote at the time, Ratner's been using the word civic a lot, but it's a weasel world. It means "relating a city," or to citizenship, but it does not necessarily denote the public interest. Ratner seems to be saying that, as long as he's building in the city, he's somehow helping the city. The reality is a bit more complicated, having to do with things like public subsidies, tax breaks, and eminent domain.

Ratner's colleagues, in a 4/7/08 conference call with investment analysts, were less reticent after analyst Sheila McGrath brought up the tower.

Forest City Enterprises CEO Chuck Ratner asked executives Bob O'Brien and Joanne Minieri to “give Sheila a little color” regarding the “tremendous demand on the part of the banks” for the tax-free Liberty Bonds.

JM: Like a billion-two demand for the 204 [million] that we put out there.

SM: And are all the units in that building, they’re all market-rate units?

JM: That’s correct, Sheila.

BO: That’s the beauty of the Liberty Bonds, tax-exempt rates and all market-rate units.

CR: Thank you, Bob.

SM: Gotta like that.

Massaging Atlantic Yards history

The Journal asked, "How did you feel when you came under attack for the Atlantic Yards development?"

Ratner's response:
In the beginning it was a little difficult. I was personally vilified.
Then I got used to it and I said, “You know what, I am who I am. I believe in what I’m doing. I’ll try to do the best I can do and people who know me, know me.”
The "they know me" response is remarkably Markowitzian. As I've written, among other reasons for criticism, Ratner made two self-sabotaging statements that back up charges of cheating:
  • he repudiated the ten-year timeline to build the project previously endorsed by his company and the state
  • he claimed that high-rise, union-built affordable housing isn't feasible, even though that's what he long planned and the state approved twice
The Greenland deal

Ratner was asked a general question how the deal with the Greenland Group to take 70% of the Atlantic Yards project going forward evolved. His response:
The infrastructure for Atlantic Yards [now known as Pacific Park] was very, very costly. We’re a nice size company, but we had to put in $500 million to $600 million of equity. That was a big number. We made a decision to take a partner, which we really don’t do as a company, but this time we decided to.
Greenland showed interest last summer. Over two days we negotiated a term sheet with the chairman. It’s a state-owned enterprise, but it’s run like a private company. They already have six to eight people in our office and will eventually build up to substantially more.
Actually, Forest City regularly does take partners, just minority ones. What's unusual in this case is that Greenland has a majority stake, and if the parties hit a deadlock, can buy out Forest City. Also, it looks like Greenland got a bargain, since Forest City got less than book value.

And the joint venture may be precarious. As I wrote in January, according to a 12/13/13 memo to the "Atlantic Yards file" by Empire State Development VP of Planning and Environmental Review Rachel Shatz, a five-person board of directors was to be established, with Greenland appointing the Chairman, CEO, and CFO, and Forest City Enterprises appointing Vice Chairman and President.

Decisions of particular importance, including starting a new building, require a majority vote, including a vote from one appointee from both, which "in effect requires that both Greenland and FCRC agree to such decisions," according to Shatz.

Day to day operations would be the responsibility of a Management Team and a Development Team, both led by Forest City. The agreement provides for a possible buy-out in the event of a deadlock among the members of the Board of Managers and it also provides for a dilution of a member's interest if it fails to meet certain obligations.

"Accordingly, it cannot be assumed that the 30%-70% divisions of interests described above is a permanent arrangement," Shatz wrote.

So stay tuned.

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