Channel News Asia  Sep 4  Comment 
ISKANDAR PUTERI: The chief minister of the Malaysian state of Johor said on Tuesday (Sep 4) foreigners are welcome to buy property in Chinese developer Country Garden's controversial US$100 billion Forest City project on Malaysia's southern...
Channel News Asia  Aug 28  Comment 
JOHOR BAHRU: Prime Minister Mahathir Mohamad’s comments on foreign ownership in the mammoth Forest City project in Johor came as a surprise to the state government, a report said. "We are still trying to make sense of this new move as we...
Channel News Asia  Aug 27  Comment 
KUALA LUMPUR: Malaysian Prime Minister Mahathir Mohamad on Monday (Aug 27) declared that foreigners will not be granted visas to live in the giant Forest City project in Johor, a major threat to the marketing strategy for the development. It is...
Motley Fool  Aug 7  Comment 
The market likes it, and so does the Fool’s Bill Mann.
MarketWatch  Jul 31  Comment 
Shares of Forest City Realty Trust Inc. shot up 8.6% in premarket trade Tuesday, after real estate investment trust said agreed to be acquired by Brookfield Asset Management Inc. in a deal valued at $11.4 billion. Brookfield shares were still...
Motley Fool  Jun 18  Comment 
This real estate investment trust could be back on the auction block.
MarketWatch  Jun 18  Comment 
Shares of Forest City Realty Trust Inc. popped by more than 11% in Monday afternoon trade following a report that the realty company was renewing deal talks with Brookfield Asset Management. According to a Bloomberg article, real estate...


Forest City Enterprises (NYSE:FCY) acquires and operates commercial and residential real estate properties in the United States. [1] Forest City Enterprises is a limited partnership owned by 3 families who make up the members of the board of directors as well as the company's executive officers. [2] The company earns over 75% of its revenues in American commercial real estate . [3] From their peak on February 7, 2007, the largest REIT indexes plunged about 35% as real estate prices reached record lows. [4] These record low prices have propitiated prodigious setbacks in the company's project pipeline, manifested especially with its Atlantic Yards project in Brooklyn New York. This $4.0 billion mixed-use project in downtown Brooklyn expected to feature an 850,000 square foot sports and entertainment arena for the Nets basketball team, has already suffered delays with its signature office tower and three residential buildings as a result of the economic malaise.

These setbacks have driven FCY to shift its focus to development of existing properties.[5] Before the subprime lending crisis, FCY was able to buy property and hold it until maturity and sell after a significant rise in price. The company managed the property and collected rent while waiting for the value to appreciate. As a result of the substantial ebb in real estate value, this strategy is no longer conducive to improving earnings and the company has ceased work on new development projects in its pipeline. [6]

Company Overview

As a national, publicly traded real estate developer, the enterprise's growth depends on continued improvement in existing properties, portfolio additions from new development and timely acquisitions. FCY focuses on target markets with high growth potential and unique selling features. By taking advantage of these features, the company is able to continually enhance the growth of its existing portfolio, investing resources particularly in marquee opportunities.

The company supports growth with a capital structure that emphasizes mortgage debt secured by a pledge of collateral. This system enables the company to :

  • Recycle the equity growth in its portfolio through refinancing to reduce cash investments in completed projects.
  • Actively manage its portfolio of mortgage debt in a continual effort to reduce borrowing costs and extend maturities.
  • Complement the diversity of its portfolio by isolating and minimizing risk through the use of non-recourse, non-cross-collateralized mortgages.
  • Use tax-advantaged financings (syndications, subsidized funding, tax credits and tax-exempt financing) to reduce the overall cost of debt. [7]

As a result of the high cyclicality of the real estate industry, FCY is extremely susceptible to booms and recessions. The association between company's revenues with economic slowdowns manifests itself in the supression of revenue from purchases and sales of real estate, and also in the decrease of value of real estate and rent; furthermore, the condition of the capital and credit markets has tested the frim's ability to rely upon mortgage debt as a source of capital.

Business and Financial Metrics

Financial Metrics

""Forest City Enterprises 2005[8] 2006[9] 2007[10]
Net Revenue (In Millions)1,295.61,123.31,091.2
Operating Income (In Millions507.9445.9475.1
Net Income (In Millions)52.425177.2583.519
Earnings Per Share (EPS)0.51 1.73 .83
Debt (In Billions)
Cash Provided by operating activites (In Millions) 366.3356.4 309.8

In 2007, Forest city Enterprises earned revenues of $1.29 Billion USD, with operating income at $507 Million USD. Growth of net income between 2005 and 2006 can largely be attributed to the real estate boom that began in 2005. The economic climate has already had quite a drastic toll on all real estate firms in their ability to raise capital. [11] Forest City Enterprises suffered $18.5 million as its net loss for the third quarter of fiscal year 2008, from $10.8 million in the same period last year. Revenues remained almost flat at $335 million because a rise in revenues from the rental properties portfolio was offset by lower land and outlot sales. [12] The company's burgeoning debt presents challenges on the development front where the Company has a pipeline of $2.2 billion and still needs to access some $1.2 billion of debt to complete the projects.These obstacles have exhorted in-house finance origination teams to focus more on building long-term relationships with lenders and exclusively using nonrecourse debt to fund property-level needs. [13]

Business Segments

Commercial Group (73.9% revenue, 79.5% EBDT)

This is the company’s largest business unit. It owns, develops, acquires and operates regional malls, specialty/urban retail centers, office and life science buildings, hotels and mixed-use projects. [14] The Commercial Group targets densely populated markets where it uses its expertise to develop complex projects, often employing public and/or private partnerships. [15]

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Land Development Group (2.5% revenue, 16% EBDT)

This segment acquires and sells raw land and sells fully-entitled developed lots to residential, commercial and industrial customers in over 11 states. [16]

Nets (0%, 0%)

On August 16, 2004 the Company purchased a 21% ownership interest in the Nets, a franchise of the National Basketball Association (“NBA”). The purchase of the interest in the Nets was the first step in the Company’s efforts to pursue development projects, which include a new entertainment arena complex and adjacent urban developments combining housing, offices, shops and public open space.

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Residential Group (23.6% revenue, 4.5% EBDT)

The Company’s Residential Group owns, develops, acquires, leases and manages residential rental properties in 20 states and the District of Columbia.

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The Residential Group develops for-sale condominium projects and also owns, develops and manages military family housing. Additionally, the Company also owns a select number of supported-living facilities. [17]

FCY's Income from the Residential sector has decreased substantially from the previous year as a result of the financial crisis. The commercial sector managed to show mild gains despite a worsening economical shift.

Trends and Forces

Tumult in Real Estate Industry causes various delays in development of Brooklyn Atlantic Yards.

The largest project that Forest City Enterprises has undertaken is the development of the Brooklyn Atlantic Yards for the Nets basketball team. Forest City Enterprises has an ownership interest of 21% in the Nets, and this purchase served as the first step of securing the development project. [18]The company had long expected to rely on issuing tax-exempt bonds in order to raise financing for the project, and reduce borrowing costs by tens of millions of dollars the project is for the development of a city sports complex. [19] The recessionary market changed the picture drastically and caused the company to procure other means of financing . The company is essentially attempting to cobble together extra money; trying to speed up tens of millions of dollars it is owed by public entities; delay tens of millions in payments it owes to both the public and private sectors; and tack on new subsidy programs for the housing piece of the project. [20] The development project is already highly reliant upon subsidies provided by New York City and the budget-strained state of New York has few resources to spare. [21] Forest City's Atlantic Yards development plan is contending with pending litigation as well as the global fiscal crisis and credit crunch. [22] Barclays Center, which was blueprinted to be the most expensive arena in the world, faces delays because of litigation, a sluggish economy, and the lack of commercial tenants. [23]

FCY's history as a public-private partnership augments qualification to join list of companies benefiting from economic stimulus plan.

With a record amount of commercial real-estate debt coming due, Forest City Enterprises forms part of a group of real estate developers represented by the National Association of Real Estate Investment Trusts, asking to be included in a new $200 billion loan program initially created by the government to salvage the market for car loans, student loans and credit-card debt. [24] As a developer, Forest City Enterprises secures many public-private partnerships where state and local governments use tax financing to pay for real estate investments offering development in infrastructure and development of public amenities. “Over time, the public stands to net up to 30% of a project's earnings, given the expected appreciation in property value.” [25]Forest City Enterprises’ position as a developer of low cost housing has long had the attention and support of New York Mayor Michael Bloomberg. By incorporating affordable housing units into 80 DeKalb, Forest City Enterprises will contribute to New York City Mayor Michael Bloomberg's New Housing Marketplace Plan calling for the development and preservation of 165,000 affordable housing residences over a 10-year period. [26] The company’s Atlantic Yards project is among the most anticipated in New York. Even more importantly, it is a centerpiece of a development that will bring thousands of jobs and affordable housing units to Brooklyn. [27]

In a similar manner, Forest City enterprises has a presence in the assisted living sector as well as the military housing business. [28] The company has done a lot of historic rehab, buying old buildings, converting them into rental apartments, using historic tax credits, and multifamily housing for federal guidelines.Treasury and Fed officials have said they would consider including commercial real-estate in the new $200 billion loan initiative. [29] Taking into account Forest City Enterprises's history with utilizing public-private partnerships, the company is in a better position to be granted the loan and make efficient use of the capital. Inclusion of commercial real estate in the loan initiative simplifies the task of refinancing and strengthens the company’s position in the market; additionally, the inability to qualify for government funds serves as a barrier to entry for competitors.

FCY exhausts its initial protection against credit crunch.

In September 2008, a Federal Reserve survey of loan officers showed a plurality of banks tightening credit standards across the board.[30]This tightening of credit stands to cause epochal damage in the Real Estate sector as these companies depend heavily on credit in order to finance new projects and expand. Although Forest City had taken steps to cushion itself against this foreseeable lack of financing by lining up tenants before the national banking system and Wall Street started unraveling in the fall of 2008, the company began 2009 struggling to obtain debt.[31]In September 2008, despite harsh credit markets, Forest City Enterprises Inc. managed to close on a $250 million construction financing deal for Waterfront Station, a 2.5 million-square-foot mixed-use project underway in the blossoming southwest area of Washington, D.C.[32]Forest City Vice President Jeff Linton, when questioned about success in securing financing, credited relationships that loan originators have established. He also referenced the increasing role that sovereign wealth funds, foreign banks and syndication arrangements have in taking the place of local banks as providers of construction finance.[33]In early 2008, Forest City took advantage of its revolving credit agreement to enhance liquidity and financial flexibility. By exercising this feature, the company expanded its bank credit facility to $750 million and was able to continue to develop and acquire real estate assets.[34]Even though the company was able to obtain debt in early 2008, its disclosure to investors in its annual report stated, “Our high degree of debt leverage limits ability to obtain additional financing and adversely affects liquidity and the company’s financial condition.” [35]The company’s ability to obtain debt was further emasculated by a Morningstar article claiming that the company’s debt was "not worth the paper on which it was printed."[36]Forest City’s high leverage has damaged its ability to obtain additional financing for working capital, capital expenditures, acquisitions, development, and other general corporate purposes and has made the company more vulnerable to the downturn in the economy.[37]

Forest City’s Nets investment debilitated by inability to acquire sufficient capital financing

Forest City Enterprises bought a stake in the New Jersey Nets in order to secure the Brooklyn development project. [38] The Nets are a team with transition on the court; but, despite the innovative tactics of Brett Yormark, the president and chief executive of Nets Sports and Entertainment, swaths of empty seats remain at the Izod Center. [39] The company, which owns more than 20% of the Nets, pegged losses for the team at $30 million through the first nine months of 2008. The Nets have lost more than $100 million since Mr. Ratner acquired the team in 2004, forcing him to slash payroll. [40] Delay or inability to move the Nets to Brooklyn will translate into losses for Forest City Enterprises [41] These delays serve to increase costs to the project as a result of (i) increasing construction costs, (ii) scarcity of labor and supplies, (iii) inability to obtain tax-exempt financing or the availability of financing or public subsidies, (iv) increasing rates for financings, and (v) other potential litigation seeking to enjoin or prevent the project for which there may not be insurance coverage. [42]

The delay to move the team from New Jersey to Brooklyn carries large costs for the team if it impedes the attraction NBA superstar Lebron James. The Nets were once considered the odds-on favorite to get James, possibly the game’s most transcending player [43]. A study in The Economist notes that the values of the Miami Heat and Cleveland Cavalier each increased after aquiring star players (Shaquille O'Neal and LeBron James) especially from the primary source of revenue: media rights. [44] The Knicks are consistently the most valuable team in the NBA, because New York's passionate fans pay around $74 million for tickets each season--the most in the league. By acquiring James, Forest City's Nets stand to benfit from a similar increase in value; furthermore, a move to Brooklyn would offer the team admittance into the New York market place. [45]

2007 Financial Crisis emasculates equity Value in Forest City Portfolio.

Forest City has historically been an active seller of real estate as a means to 'recycle' capital. Over the past eight years, the company has sold $1.7 billion in properties from its portfolio, sulting in more than $800 million. [46] The company refinanced growth through refinancing the mortgage, taking-out the capital, recycling it, and selling the property. Between 2002 and 2005 the company sold almost $1.3 billion of real estate, took out almost a half a million dollars of equity and invested it. [47] The company's equity had a 25% compounded interest over the last ten years Market conditions during the financial crisis make it much more difficult to execute sales and serve as a large impediment to the company's ability to recycle captial and earn a reliable revenue stream. This strategy also leaves FCY with a prodigious amount of mortgage debt that damages the company's ability to refinance. As a result of these factors, the company's debt has been downgraded by Standard & Poor's rating agency. [48] This adds an additional level of complication to the company's ability to locate the capital that it desperatly needs.


All of the following companies are REITs

The companies listed below focus almost entirely on office properties. While Forest City Enterprises owns many office properties, its holdings are more eclectic and also include many commercial facilities, industrial properties, biotechnology businesses, land development, and residential communities. [49] Additionally, FCY owns real estate in coastal states and the southwest, whereas these competitors focus on a select region or group of metropolitan markets. Keep this in consideration while reviewing this chart.

  • Cousins Properties - Cousins Properties Incorporated (Cousins) is a real estate investment trust (REIT). The wholly owned subsidiary of the Company, Cousins Real Estate Corporation and its subsidiaries (CERC), owns, develops and manages its own real estate portfolio and performs certain real estate-related services for other parties. The Company conducts its business through four divisions: Office/Multi-Family, Retail, Industrial and Land.
  • Mack-Cali - Mack-Cali Realty Corporation is a fully-integrated, self-administered and self-managed real estate investment trust (REIT) that owns and operates a real estate portfolio comprised predominantly of Class A office and office/flex properties located primarily in the Northeast. The Company performs substantially all commercial real estate leasing, management, acquisition, development and construction services on an in-house basis. The Company operates in two industry segments: real estate and construction services.
  • CB Richard Ellis - CB Richard Ellis Group, Inc. is a commercial real estate services firm with full-service operations in metropolitan areas worldwide. It offers a range of services to occupiers, owners, lenders and investors in office, retail, industrial, multi-family and other types of commercial real estate assets.
  • Vornado Realty Trust- Vornado Realty Trust (Vornado) is an integrated real estate investment trust (REIT) and conducts its business through Vornado Realty L.P., a Delaware limited partnership (the Operating Partnership).

Company Operating Cash Flow Total Debt Total Cash Shares OutStanding Dividend Yield Markets
Cousins Properties (CUZ) $17.93 m $395.88 m $54.64 m 51.38 m 11.70% Largest markets: Florida, Georgia, Texas and California
Mack-Cali Realty (CLI) $188.7 m $2.23 B $7.68 m 65.87 m 11.40% New Jersey, New York City, Pennsylvania, Connecticut, Washington D.C., Maryland, Massachusetts
CB Richard Ellis Group (CBG) $231.3 m $2.7 B $400.8 m 204.92 m 0% Manhattan, Brooklyn N.Y., Westchester N.Y., Connecticut
Vornado Realty Trust (VNO) $647.6 m $12.2 B $1.53 B 154.4 m 6.50% New York City, Washington D.C., retail properties throughout United States
Forest City Enterprises (FCY) $230.4 m $7.9 B $165 m 103.46 m 0% Boston, New York City/Philadelphia, California, Washington, D.C./Balitmore, Denver, Chicago


  1. Commercial Property News "Forest City Secures $250M in Financing for 2.5M SF Mixed-Use Project in D.C." Sept 24, 2008
  2. FCY 10-k, Part 1 Item 1, pg. 2
  3. FCY 10-k, Part 1 Item 1, pg. 2
  4. Kiplinger "Are REITS Ready to Rebound?" Mar 10, 2008
  5. Crain's Cleveland Business "Forest City to focus on operational demands" Dec 15, 2008
  6. Wall Street Journal "Corrections and Amplifications?" Jan 7, 2009
  7. Forst City Website "About Strategy Capital"
  8. FCY 10-K 2005 Item 6 Pg. 28
  9. FCY 10-K 2006 Item 6 Pg. 30
  10. FCY 10-K 2007 pg.79
  11. Business Week "Why Banks Still Won't Lend" Jan 9, 2009
  12. FCY 10-K 2007 pg.79
  13. Forest City Press Release Dec. 8, 2008
  14. FCY 10-k, Part 1 Item 1, pg. 2
  15. FCY 10-k, Part 1 Item 1, pg. 2
  16. FCY 10-k, Part 1 Item 1, pg. 3
  17. FCY 10-k, Part 1 Item 1, pg. 3
  18. FCY 10-k, Part 1 Item 1, pg. 3
  19. NY Times "A Question Mark Looms Over 3 Expensive Projects" Jun 13,2008
  20. "The Cleveland Leader How Community Activists Treat Forest City Elsewhere" Dec. 16, 2008
  21. NY Times "A Strain on State Budgets" Nov. 17, 2008
  22. "The Cleveland Leader How Community Activists Treat Forest City Elsewhere" Dec. 16, 2008
  23. NY Times "A Question Mark Looms Over 3 Expensive Projects" Jun 13,2008
  24. Cleveland Real Estate News "Developers, too, ask for bailout as massive debt looms." Dec 22, 2008
  25. National Real Estate Investor "Mesa del Sol Reshapes Region" Mar 1, 2008
  26. Commercial Property News "$167M Construction Loan in Place for Brooklyn M-F Project" Aug 21, 2008
  27. Newsday.com Barclays still committed to Nets' planned new home Nov 13 2008
  28. Forest City Enterprises Press Release Mar. 6, 2007
  29. Commercial Property News "$167M Construction Loan in Place for Brooklyn M-F Project" Aug 21, 2008
  30. Time Magazine "The Credit Crunch: Where Is It Happening?" Sep 30, 2008
  31. Engineering News-record "Economic Uncertainty Is Slowing The Flow of All-But-the-Best Project" Nov 19 2008
  32. Commercial Property News "Forest City Secures $250M in Financing for 2.5M SF Mixed-Use Project in D.C." Sept 24, 2008
  33. Engineering News-record "Economic Uncertainty Is Slowing The Flow of All-But-the-Best Project" Nov 19 2008
  34. Crain's Cleveland Business " Forest City Ups bank credit" Feb 11, 2008
  35. FCY 10-k, Part 1 Item 1(A), pg. 11
  36. Washington Post "Not Worth The Paper They're Printed On" Dec 21, 2008
  37. FCY 10-k, Part 1 Item 1(A), pg. 11
  38. FCY 10-k, Part 1 Item 1, pg. 3
  39. NY Times "Teams Prepare for the Courtship of LeBron James " Nov 17, 2008
  40. Wall Street Journal "Off-the-Field Losses Crimp Team Owners" Jan 2, 2009
  41. FCY 10-k, Part 1 Item 1, pg. 9
  42. FCY 10-k, Part 1 Item 1, pg. 9
  43. NY Times "Teams Prepare for the Courtship of LeBron James " Nov 17, 2008
  44. The Economist "How Valuable are Professional Basketball players" Dec. 1, 2008
  45. Forbes "Inside The Forbes NBA Valuation List" Dec 22, 2005
  46. Forest City Enterprises Press Release Dec. 8, 2008
  47. Forest City Enterprises Press Release Mar. 6, 2007
  48. Standars & Poor's "Forest City Downgraded To BB On Expected Continued Weak Debt Coverage Outlook Negative" Oct 23, 2008
  49. Forest City Enterprises Press Release Mar. 6, 2007
  50. All data from third quarter reports of companies and yahoofinance.
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