Skip to main content

In video interview, Gilmartin talks Chinese partnership, office tower, & "knowing your barista" (the new condo slogan?)


So again I'll interpolate comments (in italics) in the discussion between Kenneth Weissenberg, partner at EisnerAmper, and MaryAnne Gilmartin, president & CEO at Forest City Ratner.

Dealing with Greenland Group

KW: Do you find it particularly challenging dealing with foreign investors? (Not just investors but venture lead partners/overseers)

MAG: That's a very good question. (Chummy!) I like to say that, with 25 Chinese nationals that are our offices in Brooklyn, we are having, in many ways, a cultural odyssey, to connect the differences in the way that we do businesses... compared to the Chinese culture. (and if things go wrong with Greenland Forest City Partners , as some other partnerships--like Skanska--these words will be prophetic) It's not always easy, but as evidenced by all of the construction, it has been extraordinarily successful (not necessarily; three buildings--B12, B13, B15 are delayed) and in some ways, it's what makes New York great. Think about it, our partner on the arena was a Russian oligarch (she uses the term non-pejoratively), and the owner of the team and the arena today is Onexim... We have a Chinese developer, a $50 billion Chinese company partnering with us on the rest of the project and, y'know, we're Brooklyn through and through. So I think it's what makes New York a great place, that people come together from across the globe and do great things together. (Or use the local partner to wrangle subsidies and tax breaks before coming in.)

About EB-5

KW: That's terrific. (Chummy!) You haven't used EB-5 financing in any of your projects have you? (Not a good softball question, he surely knew the answer.)

MAG: We have. In fact, we put together the largest EB-5 financing ever, at its time, when we were building the project in Brooklyn, in part because we built through in the recession, a lot of the infrastructure, and as you well know, there's no longer infrastructure financing available in our business, and EB-5 became a very very smart and affordable way to continue with all of the readying of the land. (and the buying of the land) For many years, people said the project wasn't moving forward. Even in the face of all the controversy and the lawsuits, we continued to ready the land by doing all of the infrastructure work. (Actually, they stopped for a while.) So it was really like the iceberg, it wasn't the 20% you saw above the surface, it was the 80% that was going on beneath the dirt. So we have had two major EB-5 fundraises (and the third one counts as less-than-major, at $100 million?) associated with the project, and both have been successful. One has returned each of the investors with their investment and a green card. (That's news, actually. But it also reminds us they earned no interest.)

Becoming a REIT

KW: That's terrific. (Staying chummy) Recently, financing has become tougher.. you've gone REIT, the parent company has gone REIT. Is that in part to help with the financing situation?

MAG: Another great question. (Ditto) We were a public non-REIT company for many many years. For lots of reasons, it became clear that we needed to become a REIT. We needed to be judged along a REIT peer set and we needed to basically change in many ways the approach we had to development by not using as much leverage. When the last downturn occurred, we were highly levered. We had a lot of development on our books, and we didn't have enough liquidity. So as we've come out of the recession, we've changed our model, which is now a model of collaborating and partnering with other equity investors because we know how to develop, and that's a high barriers-to-entry profession. (But aren't they sacrificing some things too?) But we also think people like to invest with developers who really know how to develop in a city like New York. So we've been able to bring in partners, which has helped, because now we're getting much less financing in each of our buildings. In the old days, we would would finance up to 70, 75% of a project's total cost, today we're calibrating closer to 50% or 60%. That's just a new way of doing business as a REIT, and a smarter way to do business if your balance sheet is healthy, because you can borrow money cheaper. So, we've been all about less leverage. So was the world has changed, and leverage has become more challenging, in many ways, it lines up nicely with our strategy generally.

KW: The cost of capital becomes something that makes REITs a very attractive alternative.

MAG: Exactly. We have our eye on reducing our cost of capital, particularly our cost of equity. The lending markets are still flowing, and when you borrow $9 billion on your balance sheet a year, you have created tremendous relationships and huge confidence with lenders. We provide completion guarantees. So lenders like to do business with Forest City, because they've had a great run with us but today, we're borrowing less, we're still building and I think in that way the lenders also like it, because they have much more equity and skin in the game on the part of the developer. (So lenders like to do business the old way, until they don't, and now they like the new way?)

Building the office tower

KW: You're developing here. What's next on the horizon?
MAG: So I love our city. I like to say, follow the artist and restaurants. Brooklyn is an amazing place, and we're continuing to focus on Brooklyn, because it's the place to be. (Because they have approved development sites in the Pacific Park project.) Because of that, we're ready to put together an iconic headquarters office building, brand new, which really hasn't happened in many years in New York. There are folks like Jared Kushner that are buying existing buildings (aka "DUMBO Heights") and putting together space for technology companies.

Our vision is, right on Flatbush Ave, where today Modell's and P.C. Richard sit, which is just across the way from our beautiful arena, is to build a beautiful tower, an office tower, that can really be home to a headquarters company that wants to call Brooklyn its own headquarters. (In 2008, they were seeking an anchor tenant for "Miss Brooklyn," over the arena.)

KW: That sounds like a great concept. (uber-chummy)

MAG: That's what we're doing in Brooklyn. I'm an office developer, first and foremost... I would say we are going to keep trying to put a building online within the next few years, because the entitlements are under way (but not yet close to approved, given the need for Empire State Development approval, which will come only after the P.C. Richard eminent domain case is resolved), and you find an anchor tenant (not so easy) and you construct the project.

Condos vs. everything else

MAG: Elsewhere, we're looking at places like Queens, and South Bronx, even New Jersey. The opportunities exist there, because the land prices are still manageable enough where you don't need to build condos to come out. I call condominium development the great allocator of land costs. So my concern about rising land costs in Manhattan and Brooklyn is that, when a developer buys land for the pricing you see today, it forces the developer to look at certain product types in order to deliver the returns. And the most obvious product type is condominium. And it would be awfully sad if everything built in the next few years were condominium, both in Brooklyn and Manhattan.

The contextual 550 Vanderbilt
KW: Some of the prices they're asking for condominiums you have to be a billionaire to afford.

MAG: That's an interesting statement, (segue to sales pitch!) because what $1500 a foot gets you in Brooklyn, compared to $1500 a foot in Manhattan, is an extraordinary difference. The luxury definition in Brooklyn is not high-rise glass and steel towers, it's contextual (!?!), it's beautiful, it's more organic and it's knowing your barista down in the lobby of the building, the person that makes your coffee. ("Know your barista" was not the selling point of the Atlantic Yards Community Benefits Agreement.) We're creating a new kind of luxury in Brooklyn, with our condominium project, 550 Vanderbilt, we're about 50% sold (and were 30% sold upon official sales launch nine months ago) and the pricing is really sold, and y'know, in slow and steady fashion, we think the Brooklyn market will continue to outperform the other boroughs.

Where next?

KW: You mentioned the South Bronx or Queens... Do you see the Bronx as potentially the next Brooklyn?

MAG: I think Queens first... The competitor with Queens today is Jersey City, in my view. I think those will basically be driven forward at the same general pace... Some people will prefer the gold cost of New Jersey, others will prefer Queens. I was born in Queens, I prefer Queens... You know the advantages of Queens. The views of the midtown skyline from Queens are exceptional. (By Queens she means Long Island City, and maybe Astoria, surely not the rest of the sprawling borough.) The ferry service we're putting here in Roosevelt Island is going to make access from Roosevelt Island to Long Island City to the Navy Yard to the East Side of Manhattan extraordinarily easy. So I think Queens is going to move forward in a very, very positive way, but the land pricing will probably edge up. And that'll force developers to look in other places. I think the Bronx scores very high.... It is well served by mass transit, it's proximate to all the activity in the urban core... and it's a great place; the food and the culture is now at an inflection point (which means there are new coffee shops?), which I think is the beginning of its moment.


Popular posts from this blog

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…