MaryAnne Gilmartin Live from the Cornell Tech Campus Part 2

October 05, 2018

In the second part of this interview, MaryAnne Gilmartin, President & CEO of Forest City Ratner speaks with EisnerAmper Real Estate Services Group Chair Ken Weissenberg foreign investors, building financing partnerships, creating a REIT to finance new projects, and how to identify the next frontier in development.


Transcript

Ken Weissenberg: Hi. Ken Weissenberg partner at EisnerAmper Real Estate Practice group. I’m here with MaryAnne Gilmartin at the beautiful Cornell Tech Center which is under construction. Do you find a particular challenge dealing with foreign investors?

MaryAnne Gilmartin: That's a very good question. I like to say that with the 25 Chinese nationals that that are in our offices today in Brooklyn, we are having, in many ways, a cultural odyssey to connect the differences in the way that we do business, and the way that we connect with people, places, and things compared to the Chinese culture. It's not always easy, but as evidenced by all of the construction, it has been extraordinarily successful and it's what makes New York great. I mean think about it’s our partner in the arena was a Russian oligarch, and the owner today of the team, and the arena is an exome which is run by Mikhail Prokhorov. We have a Chinese developer-50 billion dollar Chinese company partnering with us on the rest of the project-and you know we're Brooklyn through, and through so I think it's in some ways what makes New York a great place which is that people come together from across the globe and do great things together.

KW: That's terrific you haven't used EB-5 financing in any of your projects have you?

MG: We have in fact. We put together the largest EB-5 financing ever at its time, and when we were building the project in Brooklyn. In part because we built it through the recession. a lot of the infrastructure, and as you well know there is no longer infrastructure financing available in our business, and EB-5 became a very smart and affordable way to continue with all of the reading of the land because for many years people said the project wasn't moving forward. Even in the face of all the controversy in the lawsuit, we continue to ready the land by doing all of the infrastructure work, so it was really like the iceberg. It wasn't the twenty percent you saw above the surface, it was the eighty percent that was going on beneath the dirt. We've had two major EB-5 fundraisers associated with the project, and both have been successful. One has returned each of the investors with their investment and a green card.

KW: That's terrific. Now, recently financing has become tougher, particularly this year 2016, and you've gone REIT as the parent company has gone REIT is that in part to help with the financing situations?

MG: Again another great question. We're part of a public company. We were a public non-REIT company for many years and for lots of reasons. It became clear that we needed to become a REIT. We need to be judged along the REIT peer set, and we needed to basically change in many ways the approach we had to development by not using as much leverage. When the last downturn occurred we were highly levered. We had a lot of development on our books and we didn't have enough liquidity. So as we've come out of the recession we've changed our model-which is now a model of collaborating with, and partnering with, other equity investors. We know how to develop, and that's a high barriers-to-entry profession. But we also think people like to invest with developers that really know how to develop in a city like New York. So we've been able to bring in partners which has helped. Now we're getting much less of financing in each of our buildings. In the old days we would finance up to seventy, seventy-five percent of a project's total cost, and today we're calibrating that number closer to fifty to sixty percent, and that's just the new way of doing business as a REIT-and a smarter way to do business if your balance sheet is healthy because you can borrow money cheaper. So we've been all about less leverage so as the world has changed and leverage has become more challenging. In many ways it lines up nicely with our strategy generally for running the business.

KW: Cost of capital becomes something that makes REIT a very attractive alternative.

MG: Exactly. So we have our eye on reducing our cost of capital particular our cost of equity and you know the lending markets are still flowing. When you borrow nine billion dollars on your balance sheet a year you have created tremendous relationships and huge confidence with lenders who provide completion guarantees. So lenders like to do business with Forest City because they've had a great run with us. But today we're borrowing less we're still building and I think in that way the lenders also like it because they have much more equity and skin in the game on the part of the developer.

KW: Now you've developed Brooklyn. You're developing here, what's next on the horizon?

MG: I love our city and I like to say that we follow the artists and the restaurants. Brooklyn is an amazing place and we're continuing to focus on Brooklyn because it's the place to be, and because of that we're ready to put together an iconic headquarters office building-brand new which really hasn't happened in many years in New York.  There are folks like Jared Kushner that are buying existing buildings and putting together space for technology companies. Our vision is right on Flatbush Avenue where today Modell's and PC Richards sit which is just across the way from our beautiful arena, is to build a beautiful tower an office tower that can really be home to a headquarters company that wants to call Brooklyn its own headquarters location.

KW: Sounds like a great concept.

MG: So that's what we're doing in Brooklyn. I'm an office developer first and foremost; that was my first love, and I would say that we are going to keep trying to put a building online within the next few years because the entitlements are under way and you find an anchor tenant and you can start the project. So that's the work we're doing in Brooklyn. Elsewhere we're looking at places like Queens, and the South Bronx, and even New Jersey because the opportunities exist there because the land prices are still manageable enough where you don't need to build condos to come out. I call condominium development “the great allocator of land costs”. My concern about rising land costs in Manhattan and in Brooklyn is that when a developer buys land for the pricing you see today it forces the developer to look at certain product types in order to deliver the returns. The most obvious product type is condominium, and it would be awfully sad of everything built in the next few years were condominium both in Brooklyn and Manhattan.

KW: And some of the prices they're asking for condominiums, you have to be a billionaire to afford.

MG: And let me tell you that's an interesting statement because what $1,500 a foot gets you in Brooklyn compared to $1,500 a foot in Manhattan is an extraordinary difference. The luxury definition in Brooklyn is not high-rise glass and steel towers, it's contextual, it's beautiful, it's more organic. It's knowing your barista down in the lobby of the building, the person that makes your coffee. So we're creating a new kind of luxury in Brooklyn with our condominium project 550 Vanderbilt. We are about fifty percent sold, and the pricing is really solid, and you know in a slow and steady fashion, we think the Brooklyn market will continue to outperform the other boroughs.

KW: You mentioned the South Bronx or Queens. There's now EisnerAmper doing an event in Queens coming up. We see a lot of clients developing in the Bronx. Do you see the Bronx as potentially the next Brooklyn for New York?

MG: So I think Queens first. I think Queens, the competitor to Queens today is Jersey City, in my view, I think those will basically be driven forward at the same general pace. I think they'll be favorites some people will prefer the gold coast of New Jersey and others will prefer Queens. I was born in Queens I prefer Queens.

KW: I'm from Queens too.

MG: Okay so we know the advantages of Queens. The views of the midtown skyline from Queens are exceptional. The ferry service that we're putting here, and Roosevelt Island, is going to make access from Long Island City to Roosevelt Island to the Navy Yard and to the east side of Manhattan extraordinarily easy. So I think that Queens is going to move forward in a very positive way. Land pricing will probably edge up, and that'll force developers to look other places. I think that the Bronx scores very high on the list of reasons why it is well served by mass transit. It's proximate to all the activity in the urban core in Queens, Manhattan, and Brooklyn, and it's a great place. The food and the culture is now at an inflection point which I think is the beginning of its moment.

About Kenneth Weissenberg

Kenneth Weissenberg CPA, Tax Partner in Real Estate Services, is experienced in tax saving strategies and negotiating sales and acquisitions. He represents owners of some of the most well-known real estate properties in New York City.

* Required


More Videos in This Series