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August 4, 2006

SAY GOODBYE TO FOREST CITY RATNER
Bruce's company assimilated into the mothership

FCE.gifWhile everyone was focused on last night's Community Board hearings, this innocuous press release headlined, "Forest City Announces Negotiations to Restructure Forest City Ratner Portfolio" hit BusinessWire after the closing bell.

Forest City Enterprises, Inc. (NYSE:FCEA) (NYSE:FCEB) today announced that it is negotiating with Bruce C. Ratner to restructure their combined interest in a total of 30 retail, office and residential operating properties and certain service companies that currently are owned jointly by Forest City and Ratner. All of the properties included in this portfolio except one are located in the New York City metropolitan area. Currently Forest City owns a majority interest in its New York portfolio. Upon closing of the proposed transaction, Forest City will be entitled to substantially all of the remaining economic benefits of the underlying properties. The parties also are negotiating the restructuring of certain jointly owned projects under active development which will be valued when each development is completed. Beyond these development projects, Forest City will have the right to all future development.

IN PLAIN ENGLISH
What the press release fails to state in layman's terms is that Bruce Ratner's company was just purchased and assimilated into the Cleveland mothership.

Read: Bruce leveraged himself to the hilt on Atlantic Yards and the NJ Nets, and had to sell his company in order to keep afloat a project that hasn't yet been approved.

MONEY TROUBLES
Signs that Bruce's company Forest City Ratner (FCR) was having trouble raising money started in November, 2004, when FCR was forced to take out a bridge loan from a non-traditional lender, Gramercy Capital, in order to cover the purchase of property in the Atlantic Yards footprint.

Earlier in 2004, when Ratner bought the NJ Nets, he was unable to come up with the entire $300-million purchase price, and the previous ownership group was left with a 20% stake ($60 million). The Ratner-led group just bought out the old owners several weeks ago, to little fanfare.

In March, 2006, Ratner was trying to raise $60 million to cover losses from the Nets.

$60 million is some sort of magic number because that is also the cash portion of the just-announced deal.

At this point, effectively, FCR will cease to exist and Bruce will go to work for Chuck and Albert Ratner.

The UPSIDE: Develop Don't Destroy Brooklyn (DDDB) can take some credit for bringing down Forest City Ratner.

The DOWNSIDE: DDDB now has to fight the deeper pockets of Forest City Enterprises.

UPDATE: Under the old relationship between FCE and FCR, Bruce had autonomy to do his own deals.

Last November, "Richard Moore, from KeyBanc Capital Markets, [told the Cleveland Plain Dealer], Forest City puts up all the money for Bruce Ratner's developments. When they're completed, he said, Bruce keeps a third of the profits; the rest flows back to Cleveland. Cleveland has the ultimate say on investment decisions.

Bruce Ratner had the best of both worlds, FCE's deep pockets and freedom to do his own deals.

The question of why he felt he had to sell his equity to FCE is a good one. All signs lead to FCE wanting to increase their ownership position in exchange for the increased exposure on Atlantic Yards.

Judging from the fact that the press release didn't come out and clearly state that FCR is being wholly acquired up by FCE, we may see some positive spin from the developer in the future.

UPDATE, 08/11/06: It took one week for Forest City to engineer the spin... Bruce Ratner is at the time in his life where he needs more liquidity for philanthropy.

On the spin-o-meter that doesn't register much higher than, "the Congressman will be leaving office effective immediately to spend more time with his family."

Posted by lumi at August 4, 2006 6:19 AM