Owner-Developer of the Year

City Ratner Cos. Builds a Big Appetite for Development

With a portfolio of 12.5 million sq. ft. in properties valued at $3 billion completed over the last 20 years, Forest City Ratner has become a big player in New York's development market. With another 14.7 million sq. ft. planned worth more than $4 billion, it is poised to reshape a big part of the city and its own legacy.

by Tom Stabile

The most surprising aspect about East River Plaza - set to break ground this year in Manhattan - is that it wasn't a Forest City Ratner Cos. development all along.

It fits the Brooklyn developer's recipe: a large, underutilized urban site; a neighborhood attracting little development; real estate uses that support jobs; and a lineup of established consultants and contractors.

A similar formula applies to its proposed 9.1-million sq. ft. mixed-use project at Brooklyn's Atlantic Yards, which calls for 2 million sq. ft. of commercial space, 7,300 residential units, and a 20,000-seat arena. It also could apply to a dozen other projects tackled over the last 20 years by the affiliate of Cleveland-based Forest City Enterprises.

East River Plaza - which would redevelop a 6-acre East Harlem parcel housing the former Washburn Wire factory - was proposed eight years ago as an $87 million big-box retail complex by a team led by Blumenfeld Development Group of Syosset, N.Y. Despite early planning approvals, the project stalled, and Blumenfeld recruited Forest City as a 50-50 partner in 2004.

It was almost like enlisting a ringer because of Forest City's experience leading the city's recent wave of big-box retail.

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"It's a big version of our developments in Queens, Brooklyn, and New Jersey," said Matthew Messinger, senior vice president for investment management at Forest City.

East River Plaza's escalators and elevators, stacked stores, and multilevel parking are atypical for big box retail, said Richard Pesin, Forest City's executive vice president and director of retail development.

"It's not the same as taking 60 acres and building 600,000 sq. ft.," he added.

East River Plaza has other Forest City attributes, such as environmental site problems, an underdeveloped community, and the potential to create jobs, Messinger said.

"It's the best large site in Manhattan," he added. "We've just got to use all the tricks we've learned to make it work."

By itself, the 500,000-sq.-ft., $300 million project - using New York-based Tishman Construction for preconstruction - is big. But Forest City is also codeveloping an $850 million, 52-story Manhattan tower to house the New York Times Co., and aims to break ground on Atlantic Yards and two other projects in 2006: the 75-story mixed-use Beekman Tower in Lower Manhattan; and Ridge Hill Village, a 2.5-million-sq.-ft. mixed-use complex in Yonkers, N.Y.

All told, the 14.7 million sq. ft. in planning is valued at more than $4 billion. It would add to Forest City Ratner's 35 projects worth $3 billion over the past 20 years.

"They are always working on large, multifaceted projects," said Steven Spinola, president of the Real Estate Board of New York, an industry association. "It's a specialized skill that takes time and talent."

The company's appetite also kindles grassroots opposition because redeveloping hardscrabble neighborhoods often displaces people and businesses and deeply alters community character. The current slate has inflamed local groups and elected officials and spawned Web sites such as www.stopridgehill.com, nolandgrab.org, and www.developdontdestroy.org.

But Forest City also lines up supporters for its efforts, said Andrew Alper, president of the New York City Economic Development Corp., a partner on several projects.

"Because they're big projects, they tend to be controversial," Alper said. "But at the end of the day, I think the solutions they come up with work well for communities."

And critics are unlikely to deter the firm.

"In our bones, we are developers," Messinger said.

Nontraditional New York Developer

Forest City is an upstart of sorts. It sits across the East River from the region's traditional power center. It lacks the pedigree of the city's decades-old real estate families. And it has focused on inconspicuous neighborhoods, often in outer boroughs.

Much of that character traces to Bruce Ratner, Forest City Ratner's president and CEO [see Transplant sidebar], who said his real estate deals during the early 1980s led him to consider development. His interest blossomed when he learned that Polytechnic University in Brooklyn wanted to develop 16 acres in a downtrodden area.

"I saw that development was more challenging and had larger hurdles and barriers to entry than acquisitions," he said. "I knew that downtown Brooklyn was underappreciated. The good fortune is that I didn't know how difficult it would be."

While the university and city envisioned a Silicon Valley clone for high-technology firms, Ratner said he proposed 4 million sq. ft. for back-office operations at financial firms, which would help keep such middle-income jobs from leaving the city.

After securing capital from his cousin, Albert Ratner, a top officer at the parent company, and negotiating with the city on relocating low-income residents and matching others into jobs at the complex, Ratner won development rights for what would become the $1.5 billion, 7.6-million-sq.-ft. MetroTech Center, whose first building opened in 1991 and last in 2005.

"It taught me everything from construction to financing to how to lease and how to get through the urban plan and architecture process," Ratner said.

It also showed how big redevelopments can be unpopular. Letitia James, a New York City Council member who represents parts of downtown Brooklyn, called MetroTech a failure for the area's poorest.

"Metrotech is across the street from public housing that had 70 percent unemployment then and still has 70 percent unemployment," she said. "And at 6 o'clock it's a dead zone. Most of the employees get on the subway and go home."

But Ratner said more than 20,000 middle-income jobs show MetroTech's value.

"It's easy to forget what the city was like 10, 15 years ago," he added. "There were bullet holes in the windows there."

MetroTech led to other projects and general prosperity, the EDC's Alper added.

"It's amazing the difference it has made to Brooklyn Heights," he said.

Building on his days as the city's consumer affairs commissioner, Ratner soon branched out to build big-box stores, then an urban rarity. After scouting from a helicopter, he bought options on a half dozen outer-borough sites in the early 1990s.

"Nobody believed in it," he added. "We couldn't get financing for the first one."

Dozens of large retail centers were soon under construction. Forest City built several, such as Brooklyn's 400,000 sq.-ft. Atlantic Center that opened in 1996.

Broad Strategies for Development

The retail projects helped to define what Ratner called a core strategy - eschewing prime real estate, such as a Midtown Manhattan corner, in favor of less desirable sites [see Diverse Portfolio feature].

"We look for land that is a little farther out, a little more gritty, for a price that we feel is below market," he added.

Building on MetroTech, Forest City also tilts toward projects with broader impact.

"When there is the possibility of transforming an area, we're attracted to it," Ratner said. "Virtually everything we do has to have an economic development component - it has to have a social interest."

He called the Brooklyn arena, which would be home to the National Basketball Association's Nets, an example because it would bring a major entertainment venue and sports team to a borough with neither.

"If there is no public interest, it doesn't mean we won't do it, but we're not quite driven with the same passion," Ratner added. "I believe we're bringing positive economics by way of job retention and creation, or consumer savings, or affordable or middle-income housing."

Another trait is building to own.

"We're not in it for a one-year return," Pesin said. "It's a long-term investment."

But it's hard to gauge Forest City Ratner's performance. It does not break out its share of its publicly owned parent's revenue, which was $848 million in 2004.

And despite its success to date, there are no guarantees Forest City will actually break ground this year on Atlantic Yards, Beekman Tower, Ridge Hill Village, and East River Plaza. It faces strong community resistance on several of them.

Ridge Hill drew complaints over traffic and strain on local infrastructure. Pesin said the federal environmental review last year addressed many concerns. The plan won Yonkers City Council approval in December, but still needs site plan approvals.

Postings on www.east-harlem.com, a local Web forum, show criticism of East River Plaza's scale and potential harm to small business as well as support from those touting its economic opportunities.

Biggest Project and Battles Ahead

The biggest fight ahead is clearly over Atlantic Yards, where Flatbush and Atlantic avenues intersect. Council member James said opponents are gearing up to fight it.

"The opposition is growing," she said. "It's development from the top down - opposite to local community planning."

James discounted Forest City's 2005 agreement with organizations such as Acorn, a local advocacy group, promising affordable housing and encouraging hiring of area residents for construction jobs.

"The agreement has holes and escape clauses," she said. "They're selectively listening to the community. In order to be a partner, you have to support the project."

She also said Forest City Ratner projects don't add up economically for the city after factoring in incentives, such as tax-free financing or tax breaks to lure corporate tenants to developments like MetroTech.

James suggested that Ratner "scrap the whole project" and "start from scratch."

Forest City touts its community track record, reporting that it meets its own goal to hire minority-owned firms for 14 percent of its construction projects and women-owned firms for 9 percent. It also cites support for Atlantic Yards from elected officials such as Mayor Michael Bloomberg and Marty Markowitz, the Brooklyn borough president.

Ratner said criticism of Forest City's tax incentives glosses over the greater economic benefits from its projects.

"I don't have any embarrassment," he added. "There are now thousands of jobs in Brooklyn that wouldn't be here."

He also questioned how critics are defining the project's local impact.

"'Community' is a tricky word," he said. "Is it the people who live close to the project or is it all of Brooklyn?"

Ratner said he welcomes such debate.

"It keeps you on your toes," he added. "You hear legitimate, good criticism about traffic, architecture, open space, density."

In addition to Forest City's focus on Atlantic Yards, Ratner staked his own capital - leading an investor group to buy a team to play in the arena anchoring the project.

"It started because I wanted to get a professional basketball team for Brooklyn," he said. "When we had to buy the team to build the arena, we realized that what makes the risk worth it is having the real estate to build the rest of the complex."

The effort - spurred by Ratner's group buying the Nets in 2004 - is rolling toward groundbreaking. It hit several milestones, including winning rights last summer to develop an 8.3-acre site over the Metropolitan Transportation Authority's railyard.

A rival bidder, Extell Management, had proffered $150 million, topping Forest City's $50 million. But Forest City secured an exclusive negotiating window and upped its bid by $50 million. Though local groups praised Extell's smaller scope, the MTA called Forest City's plan more viable.

Forest City has deals pending to buy other parcels for the 21-acre site. Ratner said in the end, condominium sales will offset the $1 billion in land acquisitions.

Forest City also must finish its federal environmental review and gain approvals from city and state bodies that would fund $200 million in infrastructure work tied to the project - hurdles that last year foiled a bid by the New York Jets to build a 75,000-seat football stadium over similar railyards in Manhattan. But Forest City's project is an arena, not a stadium, and involves one developer rather than many, said James Stuckey, executive vice president and director of commercial and residential development for the firm.

"It's a different type of project," he said.

A Busy Year for Groundbreakings

Forest City has already cemented a place in New York's development annals with MetroTech. Breaking ground on its major projects this year would be another mark.

It won't be easy. It needs public approvals amid New York's fickle politics.

And while Forest City's only residential project is the 287-unit 111 Worth Street in Manhattan, erected in 2003, it will build thousands of units in Ridge Hill, Atlantic Yards, and Beekman Tower. That's a hurdle, said the Real Estate Board's Spinola.

"There's not much difference in managing the construction, but you need expertise to understand what kind of space is sellable for residential," he added.

If anything, Forest City might be late chasing a hot housing market. But Ratner said it is only sticking to its own pace.

"We don't get designated for 20 projects and start on two," he said. "We're not a collector of land or projects. We focus on a few large ones and get it done."

Forest City's plan is to march steady.

"I like to digest and look," Ratner said. "We're here for a long time."