Seminar Address by Forest City’s Ronald Ratner
The Cornell Program in Real Estate welcomed Ronald A. Ratner, executive vice president and director of Forest City Enterprises, Inc., and president and CEO of the Forest City Residential Group, on November 11th, 2010 for the weekly Cornell Real Estate Industry Seminar. Ratner is an accomplished real estate executive with an impressive career in real estate development, spanning over three decades at Forest City. He shared his insights on managing through economic turbulence and the future of mixed use development.
Ratner’s experience with Forest City began in 1975, and through the years, has included direct development, construction, financing and management responsibilities, beginning with individual projects and leading to executive supervision of multiple large scale developments on a national level. He received his bachelor’s degree from Brandeis University and completed a master’s degree in Architecture at UCLA. Ratner’s father was a founding member of Forest City Enterprises in 1921, and the family has been integral in the growth of the company from a local real estate company to a large publicly traded real estate company. Ratner built upon his family’s legacy in the real estate industry, as his leadership of the Residential Group at Forest City has led to stunning projects such as the Stapleton master-planned community in Denver, CO, and the Presidio Landmark adaptive re-use project in San Francisco, CA. In addition to his busy schedule developing transformational projects, Ratner provides support to the Cornell Program in Real Estate. His involvement as a member of the Advisory Board helps guide the direction of the program and continue its leadership in real estate graduate education.
Ratner began by outlining the impact the “Great Recession” had on Forest City’s stock, portfolio performance, and company dynamics. In the period following the collapse of Lehman Brothers, Forest City’s stock price dropped from highs near $70/share to below $4/share. Panic had hit the real estate sector and although Ratner admits that the company was likely overvalued at $70/share it was definitely worth more than $4/share. Over the next year the company’s assets experienced rent declines and vacancy increases, but still managed portfolio occupancy greater than 89% for all product types including office (currently the portfolio is back to occupancy ratios near 95%). Although the portfolio operating characteristics were above market, the development business, which represented roughly 30% of Forest City’s business, came to a halt and the financial markets were completely frozen which created a multitude of problems. The lack of financing put Forest City in a situation where they did not know how to refinance upcoming loan maturities. After scratching and clawing with lenders that had partnered with the Ratner family for nearly 80 years, they were finally able to re-structure the debt due in 2009 and 2010, and create the needed breathing room on the company’s balance sheet. Due to the drop-off in development and the declining margins on the portfolio’s assets, Mr. Ratner was forced to do something that he dreaded more than anything else, lay-off employees—people that he cared about and respected. The “Great Recession” had a devastating effect on many, Forest City included; however, they were able to start climbing out and now have a strong future.
Forest City was able to weather the storm for a number of reasons according to Mr. Ratner. First, Forest City never took on any recourse debt. Ratner’s father learned during the Great Depression that you cannot afford to use recourse—ever, and made sure that his sons understood that clearly. Secondly, they were able to convince investors that the company was indeed going forward after the family bought a significant number of shares in a stock issue signaling to the market that they are committed and optimistic about the company. Thirdly, their largest projects and the majority of their holdings are in gateway cities such as New York City, Washington, DC, and San Francisco, CA, which recover quickly from recessionary environments. Lastly, they scaled back their development projects. As the executive team looked at the history of their company they recognized that as soon as development represented over 20% of their portfolio the portfolio risk increased significantly, and in 2007 development represented over 30% of the portfolio. Accordingly, the company has reduced their development holdings to fit in their new guidelines of between 15-20% of the total portfolio.
Ratner concluded his remarks by showing the seminar participants the current development pipeline at Forest City. Although the company has scaled back the number of new projects considerably, the development pipeline is still very impressive. David Shlomi, PRE 2012 was particularly impressed with the magnitude of the projects Forest City is currently developing, he said, “Mr. Ratner is truly changing communities. The size and scope of projects like the Yards in Washington, DC, and University Park at MIT in Cambridge, MA, are powerful forces that create places that people want to be part of and I hope that as I start my career I can follow in Mr. Ratner’s footsteps by strengthening urban communities through mixed-use development.”
To learn more about Forest City Enterprises please visit the company website http://www.forestcity.net.