From Crain's Cleveland Business: "The lights go out for Forest City" (blame debt & messy family control)

A couple of interesting passages in the 12/9/18 corporate obituary for Forest City Enterprises/Forest City Realty Trust (now part of Brookfield Asset Management) in Crain's Cleveland Business, The lights go out for Forest City:

The ability to spot opportunities and spend years making them a reality distinguished the company, especially when its projects took it to new markets. For example, when Forest City began developing MetroTech in Brooklyn, the borough was not seen as a New York office market. With seven buildings there now, it helped set the stage for Brooklyn's rebirth. Over the years, it would do that again and again in new locations, such as in a venture with MIT in Boston, remaking the former Navy Yards on the Potomac in Washington, D.C., an old rail yard in Chicago and the Presidio former Army barracks in San Francisco.

I'd point out that those opportunities were usually public-private partnerships, so they had a high barrier to entry. (Also see my March 2018 retrospective on Forest City in New York, for The Bridge.)

Stan Bullard's article suggests that Forest City took new risks as it grew, and cites two key factors in the company's end:

One was its reliance on debt and leverage, although former CEO Albert Ratner always pointed out that it was non-recourse debt, so lenders could only go after properties and not the company itself. The other was the sheer weight of time and generations for an entrepreneurial enterprise. Even when the company appointed David LaRue as its first non-Ratner family member to run it, his 30-year tenure made him as much as family. However after five years of working to right the company, he cast the deciding vote that allowed the Brookfield deal to go through.

That's a bit gentle toward LaRue, who was in a position that suggested very mixed incentives: stay and try to lead an undervalued company with an uncertain future, or get shareholders a relatively small but definite premium and, for himself, a certain "golden parachute" payout.

The "sheer weight of time and generations" also connects to the company's unusual two-class share system, which left control with the founding Ratner family, until very recently, and the shift from a C corporation to a real estate investment trust (REIT), which narrowed Forest City's ambitions and exposed it to more institutional investors.

Bruce Ratner as catalyst

The article suggests that missteps by Forest City Ratner/Forest City New York, led by Bruce Ratner, were catalysts for the company's decline, given impairments (loss of value) on Atlantic Yards/Pacific Park and also the mall complex in Yonkers known as Westchester's Ridge Hill:

Paul Adornato, a longtime New York-based REIT analyst, said Forest City's impairments on Pacific Park and Westchester Ridge came at a crucial time.
"That was the last straw for many institutional investors," Adornato said. "The (Ratner) family was being resistant to change, and the news was worse than we thought." Overnight, he said, the discount between the company's stock value and its underlying real estate went from 20% to 30%.
That then brought the family back to the table, Adornato believes, because it became worried about losing its underlying investment in the company.

Now: deeper pockets

Former investment analyst Rich Moore suggested that, now as part of Brookfield Asset Management, Forest City's properties will benefit from deeper pockets and more patience:

"They've always produced majestic buildings and profitable shopping malls," Moore said. "With Brookfield there will be more financial strength to develop properties embedded in the portfolio than Forest City could bring to bear."

Correcting some numbers

From the article:

While the New York by Gehry project is now considered a winner, Forest City took big hits with more than $300 million in impairments on Pacific Park and $10 million on Westchester Ridge Hill, both since sold to Chinese investor Greenfield Group [actually Greenland] and QIC of Australia, respectively.

I don't think Forest City ever calculated the Atlantic Yards/Pacific Park impairments, but I calculated $732 million. As to Ridge Hill, the 2016 annual report points to $399 million, while the $10.6 million impairment came in 2017.