Business

Urban rescuer

Can Forest City Enterprises deliver for downtown Fresno?

With billions of dollars in assets and a record of urban revitalization projects around the country, the Cleveland-based development company has earned a reputation for success.

But the company also has come under fire for using public subsidies to pay for its projects, as well as for pushing cities to force out existing property owners to make way for its mixed-use urban developments.

The Fresno City Council, which last month approved a preliminary Forest City proposal to build more than 700 homes south of Chukchansi Park, will wrestle with these challenges as it moves forward with the project.

Forest City's plans call for nearly $100 million in public funding for the first phase of its plan for six blocks of downtown Fresno. The $232 million plan also likely will require the city to use eminent domain -- its power to condemn property when owners are unwilling to sell.

In the heart of Oakland, a Forest City-led redevelopment project offers a glimpse into the challenges -- and potential rewards -- of the company's approach.

The Uptown, a $190 million apartment, retail and public park complex being built on four blocks, has taken nearly seven years, said Jens Hillmer, urban economic coordinator for Oakland's Redevelopment Authority.

The first phase of multistory apartment complexes still is being built today, but the architect's renderings inside Forest City's office show a mix of styles -- New York brick, Mesa Verde tan and Elmira white plaster facades with storefronts tucked into some first-floor spaces -- that will greet tenants when the first apartments open next year.

When it's complete, The Uptown will have 665 apartments, 9,000 square feet of retail space and a 25,000-square-foot public park, all expected to bring significant economic benefits to the city, Hillmer said.

That's important, because the city is covering about 20% of the project's total cost, either through investments in financing, environmental cleanup and infrastructure costs and by leasing city land to Forest City for free and rebating some property taxes until 2020, he said.

Oakland also has taken on the complicated task of using eminent domain to evict some former property owners, a process that slowed the project and increased its cost, he said.

Still, "I think it's key to have a sophisticated developer like Forest City behind a project" like The Uptown, Hillmer said.

In fact, he called Forest City an "absolutely essential" partner in negotiating compromises on the economic, environmental and community concerns that can keep many such projects from getting off the ground.

Hillmer is far from the first city official to heap such praise on Forest City, a company generally regarded as pre-eminent in the field of massive, mixed-use redevelopment projects.

Founded in 1920, Forest City has grown to hold roughly $9.2 billion in assets today, including 17 regional malls, 31 retail centers, 44 office buildings, 123 apartment communities and about 12,000 acres of developable land across the country.

"They're absolutely outstanding at what they do," said Richard Moore, a managing director of RBC Capital Markets. "I really don't think there's anyone better."

Moore, who monitors the company for investors and has visited many of its projects, said its specialty is mixed-use development -- projects that combine housing, retail and other developments. "There are very few [companies] that do what Forest City does," from smaller-scale projects like The Uptown to massive developments like one now under way at Denver's former Stapleton airport.

Moore said the company specializes in taking tough projects, often in urban areas such as the Westfield San Francisco Centre, and revitalizing them. Westfield features Nordstrom as an anchor tenant. "They've made a habit of doing what most [developers] can't," he said. "They deliver when they set out to do a project."

In Denver, Forest City is in the midst of turning the 4,700-acre former airport into a mixed-use community expected to house about 30,000 residents and employ about 35,000 people -- one of the largest such projects in the country.

But beyond the company's financial strength and expertise, Moore said, Forest City has a reputation for hewing closely to the redevelopment vision of the cities it works with.

"They tend to follow closely what the city would like to see happen," he said. "Ultimately, it comes down to how much the city wants it to occur."

Susan Smartt, a Forest City senior vice president involved with Oakland's The Uptown project, said, "It's not our job to tell a community what to build. What we strive for is to deliver what we promised, and be collaborative in the process."

Forest City projects do well on the urban-renewal scorecard.

Cleveland's 52-acre Terminal Tower was a "saggy old building" when Forest City bought the historic property in 1983, said Christopher Warren, chief of regional development for the city of Cleveland.

The developer renovated the building and made it the centerpiece of its Tower City Center mixed-used project that includes 6.5 million square feet of commercial space, the 208-room Ritz Carlton Hotel and a retail mall.

Warren estimated that the project has generated 8,000 to 10,000 jobs.

"It is the epicenter of the city," Warren said. "And the developers aren't done yet."

Warren said Forest City has a proposal to create an exhibition hall and a center for the city's health-care research-and-technology industry.

"There is no question that their presence here has been a success," Warren said.

On 52 acres of Pittsburgh riverfront property, Forest City took an existing revitalization project and expanded it.

Station Square originally was developed by the nonprofit Pittsburgh History & Landmarks Foundation and included a 300-room Sheraton Hotel. It was sold to Forest City in 1994.

The developer has since added 150 rooms to the hotel, two floors to the parking garage and a restaurant and entertainment hub that includes a Hard Rock Cafe. It also has added boat docks and a public plaza with an outdoor fountain.

Arthur Ziegler, president of the nonprofit foundation, said his organization was very careful choosing a buyer for the property.

"We interviewed a number of national companies and had the best feeling about Forest City," Ziegler said. "We followed their work in Cleveland and throughout New York and liked what we saw."

Ziegler said that although the foundation no longer owns Station Square, the developer keeps its officials informed of development plans.

"We have created 3,000 jobs and created a destination for people," Ziegler said. "This has been a very worthwhile project."

In Cambridge, Mass., Forest City overcame some community objections to its University Park project, which brought 10 research and office buildings, five residential buildings and a hotel, supermarket and restaurant on 27 acres near the Massachusetts Institute of Technology.

Forest City's development of a 1.5 million-square-foot, 129-acre mixed-use project in Simi Valley and its creation of the 1.2 million-square-foot, 160-acre Victoria Gardens mixed-use development in Rancho Cucamonga have drawn praise from city officials -- though neither project included the use of eminent domain, making them less complicated than Fresno's plans potentially could be.

"They integrated what we wanted to see happen in Rancho Cucamonga with whatever the business realities of the project are," said Jack Lam, Rancho Cucamonga's city manager.

Lam didn't begrudge the costs his city incurred on Forest City's behalf, which included providing the company about $13.5 million in land on favorable terms and arranging financing through tax-exempt bonds.

Oakland took a similar step with The Uptown for a $160 million tax-exempt bond, which Forest City called one of the largest of its kind in the state.

But not everyone has been pleased with Forest City's use of eminent domain and public subsidies to pull off its ambitious projects.

Case in point: the Atlantic Yards project in Brooklyn, N.Y., where community activists have rallied against what they call the company's overuse of the threat of eminent domain to secure land for the $3.5 billion project.

Lumi Rolley, a community activist, said neighborhood residents also oppose the project's high density and lack of affordable housing.

While Forest City has pledged to make half of the project's 4,500 rental units available for low- to middle-income families, Rolley said the standards being used to determine what is affordable will shut out many Brooklyn residents.

She also questioned whether the jobs promised by the Atlantic Yards project will be filled by Brooklyn residents or by outsiders.

In Oakland, Forest City has made concessions to the city's job-development goals for the project, including a promise to make sure half of the project's construction workers and 20% of its contractors are Oakland based, Hillmer said.

But just as important, he said, was the catalyzing effect The Uptown could have on filling vacant commercial space in the surrounding neighborhood.

Already several businesses have expressed interest in moving in next to the development, which is close to several other redevelopment projects the city is working on nearby, including renovation of the city's historic Fox Theater, he said.

While it wasn't yet clear how much the project will lift the surrounding area's property values, Hillmer did have one rueful standard by which to estimate the project's effect.

That proof came when the city found that several property owners on the project site weren't willing to sell, he said. The city then used its eminent domain power, but ended up settling and buying their property for about 50% to 75% more than the initially assessed fair market value.

The reason, he said, was that "when you do these redevelopment projects, you have a lot of people buying up properties near the site," and that pushed up overall market values.

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