Energy & Environment

Deals and Ideals

Forest City Enterprises makes communities pay big money for many projects it builds. But it builds some good ones.
by | November 2007

In even-numbered years, New Mexico's legislature meets for a single, month-long session. As you'd expect, the final day and night generate frantic legislative jockeying, and are a time when old hands at the Roundhouse, as the state capitol is called, pay minute attention. In 2006, though, the last bill slipped through with no fanfare whatsoever. It came and went late in the evening with hardly a glance from legislators and none from the press.

There was one small coterie of people, however, who did notice, although they didn't happen to be in Santa Fe. They were on the 11th floor of Terminal Tower in Cleveland, Ohio, home to the giant developer Forest City Enterprises. To them, the passage of New Mexico's Tax Increment for Development Act and its signing a few days later by Governor Bill Richardson was welcome news indeed, although not entirely a surprise. The company had deployed what one impressed onlooker later called "a dream team" of lobbyists to make sure it sailed through without controversy.

Tax-increment financing is nothing unusual, of course: 48 of the 50 states allow communities to underwrite the costs of new development by committing a project's future tax revenues. But this law was notable for lacking one common provision. It did not restrict the financing tool to blighted neighborhoods or infill development, as TIFs were originally designed to do, but allowed them on virgin greenfields as well.

You can see the result today if you drive a few exits down I-25 from downtown Albuquerque, just past the airport. On an immense stretch of nearly empty, windblown mesa, a new Forest City mega-project is starting to take shape. Called Mesa del Sol, it currently consists of a few roads, a set of giant film studio soundstages, and the trim, rust-and-mustard-colored facility of a photovoltaic manufacturing company called Advent Solar. Starting next year, though, these will be joined by a futuristic, glass-walled "town center," office and industrial buildings, shops, restaurants, parks and houses. Lots of houses. Planned by New Urbanist luminary Peter Calthorpe, Mesa del Sol is expected to hold 100,000 residents by the time it's built out decades from now. That's one-fifth of Albuquerque's current population.

In both its ambition and its impact, Mesa del Sol bears all the hallmarks of Forest City's work. The company, which began in 1921 as a Cleveland lumber yard, has over the past quarter-century shaped a remarkable number of transformative projects that have helped to remake the face of cities around the country. These include a joint project with MIT in Cambridge, Massachusetts, that rebuilt a mostly abandoned industrial wasteland into a sleek biotech research enclave; the Mercantile Bank building on a forlorn block of downtown Dallas, which is becoming a high-end residential complex; and a trio of immense ventures--Mesa del Sol; the creation of brand-new, mixed-use neighborhoods to replace the old Stapleton Airport in Denver; and the highly controversial Atlantic Yards in Brooklyn, New York--that bring projects of a scale once reserved for the suburban fringe inside city limits.

These undertakings and others have made Forest City a national force in urban place-making, albeit a quiet one. Although it has plenty of traditional suburban retail and residential holdings, the company has ventured into downtowns that others were abandoning, forged unconventional partnerships with cities and universities to revitalize neighborhoods given up for lost, and shown that there is a market for dense, mixed-income, pedestrian-oriented urban development even in places that used to know only suburban sprawl. "Forest City is the most progressive big real-estate-development firm in the country," says Chris Leinberger, a longtime development consultant and developer--and, on one project, a partner with Forest City--who now follows urban development at the Brookings Institution. "Not that everything they do is progressive, but much of what they do is: They're doing New Urbanism, they're doing walkable urbanism, they're concerned about affordable housing, they're concerned about sustainability."

Along the way, Forest City has become an exceedingly wealthy company, with $9.5 billion in assets and holdings in 25 states and the District of Columbia. With its deep pockets, it has both benefited from and pushed along the rebirth of American urbanism, in part by making smart, leading-edge investments with an eye toward the long term, and in part--as its work in the New Mexico legislature suggests--by prying loose public money and negotiating hard with cities over what it will do in return.

In a sense, the company has developed a symbiotic relationship with the cities and states in which it works. It helps communities revitalize their built environments and profits from the growing array of resources made available to it for the purpose. It is hardly the only developer that does this. Because of its size and reach, though, Forest City serves as an outsized representative of the public-private liaisons that underlie much of the urban revival of the past decade and a half, and as a tangible reminder of the complicated twists and turns that relationship can take.

AN ECONOMIC BASE

Mesa del Sol has its origins in a plan pursued by several New Mexico land commissioners during the mid-1990s to lure development to Albuquerque's mostly empty southeast side and away from the sprawl that was devouring its western edges. The state land office, which owned the property, envisioned the project from the start as embodying "smart growth" principles. Forest City, in line with its usual practice, formed a subsidiary called Forest City Covington for Mesa del Sol and eventually won the contract to develop it based in part on its work at Stapleton.

Mesa del Sol is an ambitious effort not simply because of its size-- it will eventually comprise 9,000 acres of developed land that includes four town centers, and 3,000 acres of greenspace--but because of many of its particulars. Its houses and buildings will be energy- and water-efficient. It will be ready for a light-rail line that doesn't yet exist. The entire development will be on a fiber-optic network. It will have its own master plan for schools, developed in conjunction with its neighbor, the University of New Mexico. It will, if the negotiations work out, house a state-of-the-art sewage- treatment facility. And, of course, it will have an enormous number of recreation facilities, parks, restaurants and shops.

To make all this possible, Forest City argues, it needs help. Using the tax-increment law it helped steer to passage last year, it has won approval to float $500 million in infrastructure bonds backed by 75 percent of the future revenue from state taxes and 67 percent of the local taxes collected as a result of the development's presence. "I wouldn't need that subsidy if they were asking me to do the same-old, same-old thing," says Michael Daly, Mesa del Sol's project manager. "But they're not asking me to do that. I need fiber to the house, I need affordable/workforce housing, it's got to be green, it's got to have wide right-of-ways--if I don't build a 158-foot right-of-way today, I'm never going to have a light rail system when the population hits 10,000 or 20,000--and it's all got to be very attractive to attract an economic base."

This last point is crucial. As part of the agreement he hammered out with Albuquerque, Daly pledged that his company would deliver new jobs even before it floated its bonds. With Mesa del Sol's proximity to UNM and the neighboring Sandia National Laboratories--which, in addition to its work on nuclear weapons, is a center of research on renewable energy--the plan is to create clusters of businesses focusing on film and digital media, finance, government contracting and, especially, renewable energy and renewable building materials. The Advent Solar facility, the film studios--including one in the works now that will be run by Sony--and a university professorship in film and digital media endowed with $750,000 from Forest City, all are a down payment on this vision. "Our commercial success will drive our residential success," Daly says. "UNM and Sandia are the number one employers in the state. Mesa del Sol wants to be part of their execution. We've gotta have people who live, breathe, eat and drink solar or film, and they'll live here."

Forest City's willingness to serve, in essence, as an economic development arm of the city is one of the reasons Albuquerque officials consider the huge amount of tax money they're giving up to be a fair bargain. The other is the infrastructure that Forest City Covington will be putting in, which after 25 years will revert to city ownership. "We've had problems on the west side, where infrastructure development has had to catch up with those communities," says Bruce Perlman, chief of staff to Mayor Martin Chavez. "This allows us to have the developer assume bonds--to pay for the infrastructure we would have to put there anyway. We won't have to play catch-up later, when it's too late."

The plan has its share of its critics, including smart-growth advocates such as the group 1000 Friends of New Mexico, which initially backed Mesa del Sol but now believes it may come at too high a cost to the city. "With the sheer magnitude of this development, we're talking 20 percent more police officers, 20 percent more schools," says Gabriel Nims, the organization's director. "We've already got a $1.7 billion backlog just to get our streets, parks and rec centers back in shape because the city neglected infrastructure to pay for new development on the west side. So let's prioritize development in the core community before we give the bank away to some developer on the fringe."

The city's budget office is convinced that in the end, Mesa del Sol will cause the city "no new expenses," as required by the tax- increment ordinance. Still, fear of the precedent set by Mesa del Sol- -a much larger project by another developer on the city's western edge already plans to seek tax-increment financing--has led a small group of disillusioned city council members to try closing the barn door by amending the ordinance so that it no longer applies to greenfield development. "Look," says Michael Cadigan, who is leading the group, "we're betting that Mesa del Sol is going to create so many great jobs that it's going to create a lot of tax revenue, and that that tax revenue growth will offset whatever increased operating expenses there are and the 67 percent hole in our tax base. That is for all intents and purposes a gamble." And not just for the city.

The state will be giving up 75 percent of the gross receipts taxes collected in Mesa del Sol; an analysis by the Legislative Finance Committee found that if even 7 percent of the economic activity taking place within the Mesa del Sol tax increment district comes from elsewhere in New Mexico--rather than from outside--the state treasury may start losing money on the deal.

Norton Francis, the author of that report, says that because there will be little commercial activity at Mesa del Sol when it floats its first bond, and therefore not enough of a revenue stream to attract bond buyers, Forest City will most likely buy its own bonds, as it did at Stapleton. "So not only are you giving them the tax increment, you're paying them for their own money," he says. "And then they'll be receiving interest on the bond. They still face huge risks as a developer, but we've taken a lot of risk out of the equation for Forest City."

FAMILY BUSINESS

Forest City got where it is today in no small part by making just those sorts of deals. Though it spent its first decade or so in lumber and building supplies, by the 1930s, it had expanded into real estate and during World War II began constructing pre-fabricated housing for the federal government. After the war, it moved into suburban strip centers, apartments and, eventually, malls around Cleveland. Although suburbia remained its prime focus, in the early 1970s, it won a HUD contract to build subsidized housing around the country. That, in turn, put the company in close touch with state housing agencies and city governments. "By virtue of that business, we learned how to deal with government," says Jim Ratner, who runs Forest City's commercial group. "We understood better than we ever had before how a partnership is created with government that gives them what they want, and gives the company what it wants."

Forest City went public in the 1960s but is still closely controlled by the extended Ratner clan, most of them the children or grandchildren of three brothers and a sister from Poland who settled in Cleveland and became the company's founding generation. It is chaired by Albert Ratner and his former brother-in-law, Samuel Miller, who has tended to be the public face of the generally low-profile company and a power broker in Cleveland political circles. Albert's cousins, Chuck, Jim and Ron, help run the firm in Cleveland; their cousin Bruce runs Forest City Ratner, the New York-based developer of Brooklyn's Atlantic Yards and a mega-developer in its own right in the New York region; Albert's daughter, Deborah, runs Forest City Washington, which has embarked on an extensive redevelopment project in the long-neglected southwest quadrant of Washington, D.C.

This close identity with the family is a corporate calling card. When Forest City negotiates with local governments, it can point out, as Jim Ratner puts it, that "you're not going to be dealing with some fiduciary who you don't even know at all. We're going to be around." Family values also show up when a cluster of Ratners appears on campaign finance reports, as it did to the tune of $17,000 for Albuquerque Mayor Martin Chavez's 2005 reelection campaign, and many times that for Bill Richardson's gubernatorial and presidential campaigns. In all, the Associated Press has found, Forest City Covington and its principals last year gave $220,000 in money and in- kind contributions--including rides on the corporate jet for Richardson--to state-level candidates in New Mexico.

The family has been equally generous in other places where it does business: a long history of funding its favored candidates in the Cleveland area; a large donation to a nonprofit with close ties to New York Mayor Michael Bloomberg to renovate a Coney Island carousel; $150,000 to Pennsylvania Governor Ed Rendell as the company was pursuing a casino project in Pittsburgh.

Forest City's attitude toward urban development is generally simple: It wants to be in places where job growth is either already occurring or, as in Albuquerque, poised to occur in the right venue; and in many--although not all--cases, it wants subsidies. "These urban developments do not work in the absence of subvention from a city, because the income is not high enough to overcome the costs," says Jim Ratner. "You have to determine in advance and up front, what can the city reasonably do? If the city's incapable of helping, there's no point in wasting your time and theirs."

For a local government, sorting through whether the public benefits outweigh the cost to the purse can put it on tricky political terrain. The deal to rehabilitate the Mercantile block in Dallas, for instance, essentially tied up the city's bonding capacity for 30 years. It drew withering criticism of the city council, which backed it, from Dallasites who contended that using the city's funds on one big developer precluded help for smaller developers and retailers who could inject diversity and life back into a moribund stretch of downtown. But for Laura Miller, the mayor at the time and the project's most ardent backer, the subsidy to Forest City was a necessary catalyst. "It's a very rich deal," she commented last year, after hammering out the agreement. "But it's a whole block of buildings next to our downtown flagship, Neiman's. It's the elephant in the room. If we don't fix it, what's the point of doing half the other stuff?"

BROOKLYN BREACH

That debate, and the one in Albuquerque, are polite exchanges over tea compared to the war currently taking place in New York over Atlantic Yards. The $4 billion project itself is controversial enough, with its 16 towers of housing and commercial space and a Frank Gehry- designed arena for the National Basketball Association Nets, all in a borough that has long valued its low- and mid-rise, un-Manhattan-like scale. But what has really set off the project's critics is the hundreds of millions in subsidies and tax breaks that state and local officials have at various times arranged for Forest City Ratner.

"It absolutely makes no sense," says Julia Vitullo-Martin, a senior fellow at the Manhattan Institute who specializes in urban development issues. "The original justification for the project was the same thing it always is for outsized, aggressive, overly dense projects in so- called 'declining' neighborhoods, which is that downtown Brooklyn needed an impetus to develop. But downtown Brooklyn is doing fabulously well on its own, with very good, incremental, attractive, privately financed development. It doesn't need this old-fashioned, massively subsidized urban-renewal project."

Yet because Forest City has built a reputation for doing high- quality, transformational work in cities that are not awash in development proposals, or in the neglected quadrants of cities that are, controversies like the one in New York are the exception, not the rule. Even in Fresno, California, where the company is seeking $100 million in public funding for the first phase of a residential project on six blocks of downtown, the city council unanimously endorsed the plan over the vocal skepticism of Mayor Alan Autry.

The company's portfolio is filled with projects around the country that carry with them the unabashed hopes of city officials looking to refurbish their communities--The Uptown, a four-block apartment, retail and greenspace complex being built in Oakland, California, 20 percent of which is being underwritten by the city; Charleston Town Center in Charleston, West Virginia, the company's first foray into urban retailing, which was built two decades ago using federal UDAG grants and is still holding its own against a large regional mall outside the city; University Park, the mixed-use biotech development in Cambridge that demonstrated the potential for weaving research "parks" into an urban setting; and Victoria Gardens, the sprawling mall in Rancho Cucamonga, California, that has created a template for outdoor "lifestyle centers."

"It definitely was place-making," says Linda Daniels, Rancho's development director. "They sat down and asked what we were looking for, in terms of community identity and community need, and we said, 'We don't have a downtown.' And it has really met our need in terms of identifying a place where people can congregate, shop and be entertained."

URBAN PATTERNS

Forest City's most dramatic project, though, is probably Stapleton, which sits where Denver's old airport used to be. In addition to the project's immense size--when it is finished over the next 15 to 20 years, it will hold some 30,000 residents and 10 million square feet of office space and will increase Denver's park system by a quarter-- it has taken the unique route of layering urban complexity over what was once a set of runways. Following guidelines for sustainability and mixed-use development first laid down by the city and then by Calthorpe, Forest City produced a 140-page guidebook for builders dictating a range of styles and dwelling sizes, so that it would not be marked by the sameness that afflicts so many new developments. Stapleton extended the basic pattern of narrow, walkable streets, boulevards and parkways that older Denver neighborhoods display. Its residents, who began arriving in 2002, live in everything from modest apartments and rowhouses to large single-family homes--often in close proximity to each other.

As an alternative to more traditional, sprawling patterns of development, says Peter Park, Denver's manager of community planning and development, Stapleton has already been immensely influential. "It is proving that urban patterns--formatting new houses and attracting new families in walkable urban patterns--that this sells," he says. "It's not just a New Urbanist theory. It's a clear indication that Americans are attracted to such places, will live in higher densities, and will live next door to people who are living in a different residential situation than they are."

In the end, Forest City will probably accomplish something equally mold-breaking at Mesa del Sol, which is even larger than Stapleton. Even critics of the project's financing admit they like the plan itself, for its sustainability, walkability and focus on job creation, and for redirecting development to the city's long-ignored southeast. What worries them, they say, is the precedent Forest City created with its tax-subsidy deal. "After this, we won't be able to say no to other developments," says Ken Balazar, a former Albuquerque planning director who chairs 1000 Friends of New Mexico. "It's like launching the atom bomb: Once the genie's out of the bottle, you can't put it back in."

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Rob Gurwitt  |  Former Correspondent
robg@valley.net  | 

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