Friday, July 29, 2016

Real Deal: Forest City lost some key execs, downsizing staff; execs say all's well (but that's spin)

The Real Deal's Rich Bockmann reports Forest City Ratner: The sequel, subtitled "Key executives leave and layoffs take hold as company makes transition to REIT."

It's an interesting scoop, but I think the situation is even more unsettled than reported, given that some recently departed key executives aren't talking, and the developer's subordinate position in the Greenland Forest City Partners joint venture goes unmentioned.

The company re-sets

A key passage:
But now, in order to work as a REIT [real estate investment trust], Forest City would have to narrow its scope. As the parent company in Cleveland prepared for the transition, FCR saw significant churn: some of it planned, some that came by surprise.

FCR generated net operating income of about $227 million in 2015, investor documents show, up slightly from $218.8 million in 2014 and representing about 37 percent of Forest City’s total NOI. But over the past year, it also cut about 15 percent of its workforce. Some jobs such as accounting, human resources and information technology were consolidated in Cleveland, but other departures were less welcome. 
The main interviewees, CEO MaryAnne Gilmartin and Chairman Bruce Ratner, push back, with Gilmartin saying they still have "a secret sauce in our business... the stuff we do that represents a business that has really high barriers to entry.”

 Translation: wrangling one-off deals from governmental entities.

How much development

In the article, the executives point to all as hunky-dory:
Gilmartin and Ratner say FCR has no intention of becoming less of a developer, and is actually doing more than ever before. Its pipeline includes 1,800 units of housing at Pacific Park, formerly known as Atlantic Yards, as well as a pair of buildings at the Cornell Tech campus on Roosevelt Island and the redevelopment of the Nassau Coliseum on Long Island.

But the firm has also disposed of development sites such as 625 Fulton Street, which it sold to the Rabsky Group for $158 million, and is shopping stakes in two condo projects and an office project at Pacific Park. On the acquisition side, it has focused on cash-flow assets, such as a rental property at 500 Sterling Place.
(Emphasis added)

From January 2016 presentation by Greenland 
Forest City Partners to Department of City Planning
Hold on. The only way they can count 1,800 units in the pipeline is to count the stalled B12 (615 Dean) condo building and the delayed B15 (664 Pacific) rental+school site.  See slide at right.

More importantly, though Gilmartin in the interview uses the phrase "when we take partners," that's a very self-serving framing for Pacific Park.

The project is now 70% owned (minus the arena and B2 modular tower) by the Shanghai government-owned Greenland Group, which controls the joint venture Greenland Forest City Partners (though there must be consensus on key decisions).

So it's misleading to suggest that Forest City's own pipeline has 1,800 units or that the REIT itself is shopping stakes in three Pacific Park development sites. That's the joint venture's work.

Forest City Ratner had long taken minority partners, retaining control, but this is different.

Some big departures

Forest City has lost 23 employees compared to a year earlier, with about 110 employees, and some big salaries have been eliminated:
In January, David Berliner, who joined FCR in 1989 and rose to become COO, left with little fanfare.
His responsibilities were spread out among existing employees, both in New York and Cleveland. Sources said Berliner, who ran the company’s arts program, is transitioning out of real estate.
“David had been at the company for 25 years,” Gilmartin said. “He has a passion for other things including art and the art world and he’s made a good living and decided he wants to make a major change. It’s hard because he’s like family, and it’s exciting.”
But why can't he speak for himself? Berliner couldn’t be reached for comment, and that lack of fanfare regarding his departure contrasted with his prominent appointment as COO. Similarly, the departure of longtime director of retail Kathryn Welch came without any celebration.

(Remember how executive Jim Stuckey left suddenly for "new challenges," which actually meant "forced out after harassment allegations"?)

Neither were interviewed, and perhaps they have nondisclosure agreements. Given the lack of replacement for Berliner (at least), this sure looks like a cost-cutting and/or power-consolidating move, as with the quick 2011 departure of former executive Joanne Minieri, who was not replaced. In other words, I think Ratner and Gilmartin are (duh) putting the happiest face on it.

By contrast, Linda Chiarelli, the longtime deputy to construction head Bob Sanna, said her new job at NYU was a new opportunity. Two other construction officials left, as well, which Forest City executives called understandable, given the desire to rise.

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