Thursday, March 08, 2007

A Cleveland Ratner offers timeline candor: Arena by 2010; project would take 15 years

Forest City Ratner (FCR) executives have claimed that the planned Brooklyn arena (aka Barclays Center) would open in 2009 and the Atlantic Yards project would take ten years. However, executives from the parent company were far more candid while speaking on Tuesday to investment analysts.

The arena would open by 2010, at best.

The project would take at least 15 years--and that's from a CEO who acknowledges that the company is "terrible" at predicting when a project will go from idea to reality.

Skepticism surfaces

Since December, even project supporters have expressed skepticism about the proposed ten-year time frame. Kathryn Wylde, CEO of the Partnership for New York City, predicted that the project would require a 15- to 20-year buildout.

Two weeks ago, in the New York Observer, Forest City Ratner executive Jim Stuckey contradicted project landscape architect Laurie Olin, who had claimed the project would take 20 years. “We don’t believe it is going to take 20 years. We expect that it will take 10,” Stuckey said.

A 20-year buildout, of course, would deliver the promised affordable housing at half the speed.

Earlier this week, an unindentified "insider"--perhaps from the developer--suggested to Crain's NY Insider that the Nets should occupy "the new Prudential Center in Newark before relocating to Brooklyn in 2009 or 2010," thus floating the possibility of a move later than promised.

(FCR CEO Bruce Ratner last week, in the New York Times, called the 2009 target "aggressive, but I think we can do it.")

Webcast candor

Stuckey and Ratner were speaking to the press. Investment analysts get a different story--though it still requires some footnotes.

In a webcast of a Forest City Enterprises (FCE) presentation at the Citigroup 2007 Global Property CEO Conference on Tuesday, CEO Chuck Ratner (right) and Executive Vice President, Finance and Investment Bob O’Brien answered a series of questions about Atlantic Yards with candor and optimism. (Cleveland-based FCE is the parent of New York-based FCR.)

(The sequence starts at 1:21:35.)

BO: We’ve been working on Atlantic Yards for a little over three years now.

CR: Everybody know the project? It’s Downtown Brooklyn, it’s the current Illinois--the current LIRR yards, it sits right on Flatbush and Atlantic. It’s a great piece of real estate. We’re trying to develop it into a mixed-use project.

Actually, it's in Prospect Heights, and the railyards would be 8.5 acres of a 22-acre site.

More office space?

BO: It’s development of an arena to take the New Jersey Nets, which we have an ownership interest in, relocate them to Brooklyn, to bring a professional sports franchise to Brooklyn, in an arena venue, to compete in… one of the best marketplaces in the world. With that would come, in the neighborhood of 6000 housing units, up to a million and a half to 2 million square feet of office and about 300,000 square feet of retail.
(O'Brien at right)

O'Brien's numbers are curious. The project, according to the Executive Summary of the Final Environmental Impact Statement (p. 3), would include 6430 apartments and 336,000 square feet of office space. An alternative plan would include 5325 apartments and 1.6 million square feet of office space. But the market for office space is weak and the market for housing is hot, as Chuck Ratner was to observe a few minutes later.

Final approval? Not quite

BO: We reached a significant milestone in 2006. The Public Authorities Control Board, which had the right to review and approve our development plans, after we completed our full environmental impact statement, that was completed and they approved that in mid-December, that was one major milestone. Many of you who are in New York know that this is in the paper often. It’s a controversial project and there is some very vocal, articulate opposition. That’s the American way, and that’s fine.

Note that he calls it "our" environmental impact statement (EIS) rather than the state's. It reflects, inadvertently or not, that the developers foot the bill for the environmental review.

BO: We are making our way through that process. We control about 90 percent of the land--own or control 90 percent of that land for the full development of that project. While we have a number of hurdles to get through yet and we’re not home free, we’ve begun to move some dirt on the site to relocate the Long Island Rail Road tracks so we can begin to build some of the infrastructure.

The term "own or control" is flawed, as I've written, since Forest City Ratner owns some buildings whose tenants won't leave without eminent domain, and it "controls" some leases in buildings it doesn't own. Indeed, that percentage just went down to about 85 percent, if State Supreme Court Justice Ira Harkavy's decision regarding a lease of Henry Weinstein's property stands.

Timeline questions

O'Brien was asked about the hurdles and the timeline.

BO: The timeline is as soon as possible. We’re actually 18-24 months behind what our original estimates were. Those hurdles are getting through the final approvals, not the least of which is full control of 100 percent of the land, which may involve eminent domain, that’s obviously something that will likely take lawsuits to ultimately get through. We would expect and our goal is to have vertical construction up and operating within 30 to 36 months, and hopefully, the current timeline is to have the ball team open in 10-11?

CR: 10-11.

From March 2007, 30 months would be September 2009; 36 months would be March 2010. It seems that a September 2009 opening would be unlikely.

Delay=returns

A questioner asked if the delay in the project affects anticipated returns. Ratner acknowledged a 15-year buildout.

CR: Return expectations have not changed since we started. That is--this is going to be a 15-year buildout, so obviously, we believe over time that we’ll be able to make up for this, as we have. MetroTech was a perfect example. We had the same kind of issue.

Indeed, MetroTech was supposed to take five years. It took 14, as the New York Observer's Matthew Schuerman reported last September.

CR: And we believe that over time—what’s happened in Brooklyn, all that’s happened during the delay is the market’s gotten much stronger. Nobody knows that better than you and the rest of you in the room from New York. There’s just been an article recently in the Times about what’s happened to housing in Brooklyn, and it’s largely housing. I have a daughter who lives in Park Slope. She’s just had a second baby, she’s looking for a place to move--it’s unbelievable to me what she has to pay. So I don’t expect our returns to moderate.

Subsidies still murky

CR: What we are still doing…it’s not just getting through the issue with the opposition and the lawsuits. We also have a public entitlement in this process. There’s a public subsidy, it’s been announced, $200 million. There’s an affordable housing requirement in this, a moderate housing requirement in this, and we’re still negotiating with the public authorities as to how that will come out.

Actually, the direct subsidy would now be $305 million, given the apparent doubling of the city's contribution. No public entity has acknowledge the amount of housing subsidies, though a Forest CIty Ratner document released by the ESDC last week cited $1.15 billion in tax-exempt bonds.

More than 15 years?

Ratner then went off on a peroration on how even his 15-year estimate could be wrong: I’m confident that Bob is right, we will start within that time frame. I’m not at all confident of how long it will take us to finish. Y’know, it’s an amazing thing, this San Francisco thing. If you’d have told me… in 1994 that we’d open this [San Franciso] project in 2006, I’d have said “You’re insane, it couldn’t possibly take that long.”

We’re very good at estimating markets, we’re very good at estimating rents, at estimating lease-ups, and estimating costs. We are terrible, and we’ve been a developer for 50 years, on these big multi-use, public private urban developments, to be able to predict when it will go from idea to reality. All we know is that if we pick the right place and we’re in with the right people, that over time we’re going to create tremendous value.

Track record

Ratner pointed to the developer's track record and public support:
And we’ve done this before, and that’s a track record that adds to credibility. We did it in MetroTech, we did it in Cambridge, we’re doing it in Stapleton, we did it in Central Station. And I’m convinced that this is a great market, and it’s a unique piece of real estate. We’ll get it done. We have very strong political support. The mayor, the borough president, the governor, have all been steadfast in supporting what we’re doing and in supporting Bruce.

Well, new Governor Eliot Spitzer has been historically supportive of the project, but, then again, he didn't know much about it, last October calling a promised 8% reduction in the project a "reasonable compromise," betraying no knowledge that the cutback would bring the project back to the square footage originally proposed.

Now, apparently, his downstate economic development chief, Patrick Foye, is getting up to speed on Atlantic Yards.

One of the first things he should get straight, apparently, is the timeline.

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