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Forest City Enterprises, Inc. (NYSE:FCE.A)

Q4 2007 Earnings Call

April 2, 2008 1:00 pm ET

Executives

Charles Ratner – President & CEO

Robert O’Brien - CFO

Jim Ratner – President & CEO, Commercial Group

David LaRue – President & COO, Commercial Group

Ronald Ratner – President & CEO, Residential Group

Joanne Minieri – President & COO, Forest City Ratner Companies New York

Thomas Smith – Executive VP & CFO - Retired

Analysts

Unspecified Analyst - Goldman, Sachs

Chris Haley - Wachovia Capital Markets

John Fox - Fenimore Asset Management

Richard Moore - RBC Capital

Sheila Mcgrath – KBW

Operator

Welcome to the Forest City Enterprises fiscal 2007 year-end earnings conference call. The company would like to remind you that today’s remarks include forward-looking comments that are covered under Federal Safe Harbor provisions. Please refer to the risk factors outlined in Forest City’s corporate filings with the SEC and its earnings releases. (Operator Instructions). I would now like to turn the call over to Forest City’s President and CEO, Charles Ratner; please go ahead Mr. Ratner.

Charles Ratner

Good afternoon to everybody and thank you for joining us on the phone and via the internet as we review our financial results for the fourth quarter and the 12-months ended January 31, 2008. By now you should have received a copy of our earnings release, our 10-K and supplemental package which all became available on Monday, March 31. If you need a copy please visit our website or contact our corporate headquarters.

We’ll be using non-GAAP terminology such as EBDT, comp NOI and pro-rata share, all of which are defined and reconciled to their corresponding GAAP numbers in the supplemental package. As you know we use EBDT as a key indicator of our performance.

Joining me on the call today are Robert O’Brien, our new Chief Financial Officer as of April 1, Tom Smith our CFO for the past 20 years. I’ll say a few words about these gentlemen in a few minutes. Also joining us for the Q&A are Ronald Ratner, President and CFO of our Residential Group; Jim Ratner, President and COO of our Commercial Group; David LaRue, President and Chief Operating Officer of our Commercial Group and Joanne Minieri, President and Chief Operating Officer of Forest City Ratner Companies in New York.

After my opening remarks Bob will provide an overview of the numbers and discuss our financial highlights, openings, acquisitions and dispositions along with our capital strategy and financing activity. I’ll then discuss the progress we’re making in our development pipeline and then after some brief closing remarks, we’ll get to what we all view as the best part of the calls, Q&A.

I encourage you as always to join in the dialogue when the time for questions and comments comes. Jim, Ron, David, Joanne, along with Bob and myself are happy to address your questions. So let me start with an overview of our results and activities during the year.

In many ways 2007 was a good year for us. But while it was successful for many reasons, it’s difficult not to be disappointed when EBDT decreased for the first time in 27 years. Looking behind the numbers, the year-to-year EBDT variance becomes more understandable when recognizing the sudden downturn in the land business. After several years of growth in land sales, we saw a major slowdown in early ’07 which continued through the year and was driven by the severe decline in single-family home sales. That being said, we feel we had a good year. Our mature real estate portfolio, new project openings and military housing generated a $46.3 million increase in EBDT. We also had record highs in year-end liquidity, revenues, total assets, project openings and most importantly of all, the creation of long-term value in our real estate portfolio.

We completed 11 project openings and acquisitions representing $1 billion of cost at our share enabling us to surpass $10 billion in total assets for the first time in our history. During 2007 we increased our corporate credit facility by $150 million to $750 million. We ended the year with more than $700 million in cash and credit available, the most in our history.

I mentioned $1 billion in openings but there’s one new project in particular that really stands out for us; the New York Times Building which represents the company’s largest single asset. This marks the second consecutive year that we’ve completed a milestone project in a core market. The San Francisco Center, one of the nation’s premier retailing centers opened late in ’06 and stabilized in ’07. It’s clear that these two assets alone represent significant value creation over their cost demonstrating the viability of our long-term value-added strategy.

Before we go on the evidence of this value creation sits in stark contrast to what happened to our stock price. Like many others in real estate our stock price is significantly lower than its high in 2007. This is a huge disconnect for us frankly, because not only do we believe our stock is tremendously under valued as I’m sure many do, but we believe we’ve continued to deliver on creating additional long-term value in our real estate portfolio, and 2007 was no exception.

We know over the long-term that real estate development is a key strategy for growing our business. We remain committed to this strategy. It’s a core competency that distinguishes Forest City. We ended 2007 with $2.2 billion of projects under construction and more than $2 billion under active development. That said because of the current economic conditions we’ve raised or hurdle rates and taken a much more critical look at projects in our pipeline. As a result we delayed several projects that in the aggregate represent a total of more than $1 billion.

Given the challenging economic environment we face we will continue to be more selective on which projects we advance, the pace at which we bring projects through our development pipeline.

Now before I turn it over to Bob for his review of the numbers and highlights of the year, I want to acknowledge Tom Smith who has been a great colleague, partner and personal friend. We appreciate Tom joining us for this call as he is actually two days into his retirement which became effective only just yesterday. Since he joined the company as CFO in 1985, Tom has been involved in virtually every major Forest City financial transaction over these 22 years. His leadership and hard work has created the infrastructure to support our growth. He’s built a remarkable and talented team in our finance and accounting areas, and he has built strong, sustainable relationships with our banks, insurers and other outside advisors. For these and for many other reasons, we are all indebted to Tom.

And now we are pleased that Bob O’Brien is bringing his unique talent and experience to the CFO position. Bob just celebrated 20 years with Forest City in February and we’re looking forward to many more great years together with Bob. Many of you know Bob and are familiar with his strong financial management skills, strategic planning, capital markets experience and extensive knowledge and leadership of our business. One of his first official duties in his new role is to provide you with today’s report on our financial highlights and the year in review. Bob, please go ahead.

Robert O’Brien

Thanks Chuck and good afternoon everybody. I’m certainly excited to be taking on an expanded role here at Forest City and I too wish to thank Tom not only for all his great work, but certainly for assembling a tremendously talented team that I’m privileged to inherit. It’s that talented team that gives me confidence we’ll be able to carry forward the legacy of success that Tom has created. Tom you’ve left big shoes to fill, but we intend to build on your achievements. So thanks.

Okay our key financial results; EBDT, net earnings and revenues, all these are disclosed in our earnings release so I’ll provide some perspective on the increases and decreases for the year as well as a discussion of our capital strategy.

Let me start with EBDT; on a per-share basis as Chuck indicated, EBDT decreased 9.5% for the year. Our investment real estate portfolio generated an increase in EBDT of $46.3 million driven by growth in the mature portfolio, new property openings and our military housing business. The mature portfolio exhibited strong fundamentals and the year just ended with certainly a very good performance. This increase in portfolio EBDT, together with $9.8 million of EBDT from the disposition of a support living development project however, was more than offset by two primary factors which negatively impacted EBDT. First, a $48 million decrease in land EBDT; $34 million decrease from the land development group and a $14 million drop in commercial outlot sales.

Secondly a $50 million decrease in EBDT from the sales of tax credits compared to 2006. We expected much of the drop in land EBDT as we were coming off two consecutive record years for land sales and even with the meltdown in the single-family home business, our land business including those outlots generated $40.5 million of EBDT; clearly a solid year.

Turning to the operating portfolio, we had a solid year with our overall comp NOI increasing 4.6%. By product segment comp property NOI increased 6.9% for retail, 2.1% for office and 4.2% for residential. We maintained strong occupancies across our portfolio. Leasing spreads for the regional model and office portfolios increased 25.4% and 13.9% respectively over expiring rents. Residential comparable net rental income increased modestly to 93.4% and our regional mall sales remained strong averaging $468 per-square-foot.

Early indications of a slowdown however are reflected in both comparable regional mall sales which decreased 1.8% and fourth quarter comp NOI growth rates across property types which were below the average for the year.

Net earnings for the full year were $52.4 million or $0.51 per share compared with $177.3 million or $1.70 per share in 2006. The decrease in net earnings was primarily attributable to larger gains on the disposition of properties in ’06 compared with ’07. Twelve month revenues were $1.3 billion, a 15.3% increase compared with last year. In addition our balance sheet continues to grow with total assets exceeding $10 billion for the first time.

The year 2007 was a record year of openings and acquisitions as we completed six project openings and five acquisitions, totaling $1 billion at our share and that falls on the heels of last year’s record openings of more than $800 million. As Chuck mentioned the highlight of ’07 openings was the New York Times Building where we currently have signed lease agreements for more than 94% of our building. Other openings during the year included The Promenade at Bolingbrook Retail Center in suburban Chicago and an expansion of our Victoria Gardens retail project, one of the best performing centers in our portfolio.

Military family housing has become a significant part of our core residential business and one which we believe will continue to grow. In just four years of partnering with the US Military, we have secured the opportunity to develop, manage and own an interest in military family communities consisting of about 12,000 housing units. During 2007 the program grew by more than 4,500 units and our EBDT from the military housing increased to $16.5 million.

In 2007 Forest City chose to exit the supported living business and reached an agreement with Atria Senior Living Group to sell eight and lease them four properties. Seven of the properties were sold in ’07, including one project under construction. We sold a combined 786 units valued at $310 million. These sales generated $155 million in cash proceeds in 2007. The eighth property will be sold during 2008 and the remaining four are under option to be sold over the next three or four years. Dispositions have been a source of equity capital for us and are an integral part of our capital strategy.

We provided considerable detail on our mortgage and debt portfolio in our release and in our filings so let me just touch on some key points and observations about the capital markets and our ability to access to capital in the current marketplace. I’m sure everyone on the call is well aware of the significant detrimental change that has occurred in the capital markets over the past six months. The meltdown in the sub-prime mortgage market and the downturn in the housing market have been a contagion, negatively impacting all the capital markets. Financial institutions are under stress, the CMBS market is essentially closed and it’s a difficult environment for borrowers. The reaction of the Fed’s fixed-rate cuts since September reflects the breadth of the problem.

At Forest City we do not expect to see any meaningful improvement in conditions during 2008; a wonderful welcome for a new CFO. As a result of these conditions we’ve committed to operate with a higher level of liquidity. In the fourth quarter we increased our corporate revolving line of credit to $750 million as Chuck indicated and while the lending market is clearly more difficult requiring much greater effort to close transactions, we’ve been able to demonstrate our ability to access capital even in this challenging environment.

Each year we highlight the total amount of financings at year-end and in ’07 we’re proud to report we closed on more than $2.8 billion in non-recourse mortgage financings. Importantly, in the fourth quarter of the year we closed ten transactions totaling more than $315 million, and since 1/31/08, we’ve closed on nearly $1.4 billion of non-recourse mortgage financings. This includes our most recent construction loan closing for our Beekman residential project in Lower Manhattan, a $680 million loan, our largest individual loan.

How were we able to accomplish these financings in such a challenging marketplace? I think there’s a few reasons. First the transactions we financed are all solid real estate projects and the loans are well structured with an appropriate balance of equity. Secondly, our track record of success brings creditability to our sponsorship and third, perhaps most importantly, it’s been the relationships we’ve cultivated with our lending institutions and financial partners that have helped us achieve these successes. We believe strongly in these relationships and know that by working together with these partners we can structure transactions that work for both parties.

The current challenges in the capital markets and the stresses it places on real estate borrowers and sponsors can also represent an opportunity for Forest City. We’ve begun to see some attractive transactions because of this displacement in the marketplace. You may have read we recently acquired 2,500 lots in San Antonio, Texas at what we believe is a very attractive price because of a highly motivated seller who needed liquidity. While it may still be early in the cycle we believe we will have the opportunity to selectively build our land inventory at a very profitable basis. We have also begun to see broken development transactions that are fundamentally sound but need an infusion of equity, longer staying power or a greater level of development expertise in order to realize the value creation opportunity.

We intend to pursue these. We will proceed cautiously but believe that we can lever our expertise and significant liquidity position to enhance our profitability during the current market conditions. So while the capital markets necessitate caution, we also see some potential opportunities. With that let me turn the call back to Chuck.

Charles Ratner

Thanks Bob, you did a great job. And it is all of those relationships that Bob has helped build over all these years and his team and Tom’s teams that have made all of this success, recent success, and long-term success possible. As I touched on briefly before, we’re looking at out entire development pipeline with a much more critical eye in response to realities of the current market. As a result we’re moving forward only with the strongest projects and slowing or delaying others until those opportunities mature further or economic conditions stabilize.

Having said that we continue to believe that our pipeline is one of our greatest strengths and the best opportunities to create long-term shareholder value. Also as Bob just mentioned, we have ample liquidity and continue to be able to secure financing. We ended 2007 with 22 projects totaling $2.2 billion at our share under construction. We also expect to begin work on an additional $1.5 billion in projects during the year and end 2008 with $3 billion under construction. Of the projects currently under construction, nine representing more than $770 million at our share are scheduled to open in 2008. These included a retail center in suburban Denver, the Orchard which is actually opening this week and a retail center in Tampa; residential communities in Dallas, Oakland and Richmond, Virginia; and the first building at our Science and Technology project in Baltimore.

Under construction and scheduled to open in ’09, next year, are our Ridge Hill mixed-use project in Yonkers, New York; the East River Plaza Shopping Center in Manhattan; and our Village at Gulfstream Park Retail Center in Florida.

Now let me offer some comments on projects under development, our shadows pipeline which include more than 15 projects that the end of ’07 representing approximately $2 billion at cost. There are a number of significant individual projects in the pipeline among those expected to being construction in 2008 and representing most of the $1.5 billion that were scheduled to start are the Beekman residential project, which we’ve mentioned previously in downtown Manhattan, an urban residential community designed by Frank Gehry and featuring more than 800 units and a ground floor elementary school. With last week’s announcement of the construction loan, certainly a gigantic achievement, we expect to begin construction immediately.

At 80 DeKalb, a 365-unit apartment community in Brooklyn and Brooklyn is a community that we remain fully committed to and very confident of it’s growth and ability to perform, and the Presidio, a redevelopment, one of the historic buildings in the Presidio of San Francisco to become 161-unit apartment community of the foot of the Golden Gate Bridge. The pipeline also includes ongoing development at large, multi-use urban projects. For two decades now these types of projects have become synonymous with our core development strategy and competency. The names are familiar to many of you I’m sure; MetroTech Center in Brooklyn and University Park at MIT in Boston, are now complete. The Stapleton development in Denver and Central Station in Chicago continue their long-term growth and development. And four early stage mixed-use projects each achieved significant milestones in 2007 and represent tremendous and active development opportunities; at Mesa del Sol in Albuquerque where three companies, Fidelity, Sony Imageworks and SCHOTT Solar together committed to more than 450,000 square feet of new facilities in this past year alone. In total there are more than 1 million square feet of space committed under construction or built and occupied at this very exciting active project.

At the Waterfront in Washington DC, where site work has begun for the first two government office buildings, totaling 500,000 plus square feet fully leased to the District of Columbia. The Yards also in the District of Columbia where the major entitlement process is behind us, site work is underway and we expect to begin construction of the first residential building this year. And finally the Atlantic Yards in Brooklyn where we now control more than 85% of the land needed for the project and are moving ahead with demolition, infrastructure upgrades and construction of the temporary rail yard.

This last project, Atlantic Yards in Brooklyn, has received considerable news coverage recently and I’d like to ask Joanne Minieri, President of Forest City Ratner Companies, our New York subsidiary to offer her perspectives and those of our company on this project. Joanne, please.

Joanne Minieri

Thanks Chuck. We and our partners have been receiving favorable court decisions and now have won 18 separate rulings on the Atlantic Yards project. There have been no adverse decisions. Certain of these lawsuits have been and will be appealed however we remain confident of our position. We are proceeding with the expectation that the lawsuits may be resolved during the second half of this year and the Empire State Development Corporation will move forward with the process to transfer title of the land. In addition we are currently working closely with ESDC, the Empire State Development Corporation, to complete all project documents in pursuit of this targeted time table. As Chuck indicated, we continue to proceed through the predevelopment of Atlantic Yards whereby certain site work and the construction of the temporary rail yard are underway. Design and construction documents are progressing, we are pricing and bidding certain completed design documents and efforts are underway with the public parties to complete the affordable housing program.

We at Forest City remain committed to the residential program at Atlantic Yards and we will continue to work with the governmental agencies and all of those involved. We have executed the funding agreement with the City and State for the $200 million of subsidy and received an additional $105 million allocation from the City. In February of this year we received our first funding for the project; $58 million. With respect to the arena, we are working closely with Goldman, Sachs and Barclays Bank on the available taxable and tax-exempt financing alternatives. Sponsorship interest which is an important driver for the arena financing remains strong.

Projects of this size and significance are always subject to changing market demands and economic influences. As a development company we manage our projects under guiding principals and apply disciplines that include monitoring the design and cost risks, financing levels, the equity needs and the resulting long-term value creation. Atlantic Yards is no different. And upon the achievement of key project milestones, we will proceed as planned. Today’s economic environment is challenging, however we believe Forest City and the public party’s interests continue to be aligned with respect to the successful completion of the Atlantic Yards project.

Charles Ratner

Thank you, Joanne. You know I just want to point out to everybody this great success we’ve had in the New York Times over these past several years is largely the result of this tremendously talented team we have in New York led by Bruce Ratner and Joanne Minieri and a great group of people, many of whom have been with us well in excess of a decade and they’ve produced so well for us, its now a third of our company, our New York portfolio, tremendous opportunity and we have great confidence in their ability to bring Atlantic Yards to fruition.

Let me take another moment to offer some historical perspective however based on our experience working through these kinds of cycles in large urban mixed-use projects. Almost by definition these projects have long timelines that often spin multiple economic cycles. If you look at some of our other projects of this type, think of the University Park at MIT, Central Station in Chicago, even the San Francisco Center project, you see that we’ve been here before. We’ve been able to deliver catalytic projects that achieve the goals that we and our partners both public entities and private partners, set out to achieve and have delivered great returns for our company and our shareholders. The economy sometimes alters the timeline, but we have demonstrated our ability to see these projects through to completion. The value they create is well worth the time and effort.

The point is, that while we’re not immune to cycles in the economy, we’re not immune to lawsuits from other parties, we have experience at managing through them and a track record of bringing these large, complex projects to fruition. Over time they create a great sense of place and a great opportunity to make incremental value happen for all parties concerned.

Let me finish with some outlook and then we’ll get to the Q&A. Reflecting on ’07 while our EBDT was down we created significant long-term shareholder value. Our operating portfolio performed well and our access to capital and significant increases in liquidity speak to our ability to operate under challenging economic conditions. We expect 2008 will be an even more challenging year and our outlook is cautious. We believe the overall economy and the real estate economy in particular will continue to be soft. At the same time as Bob mentioned previously, we believe that this economy presents us with opportunities, whether in the form of land, broken deals, other development deals, individual properties or entire portfolios. Our record liquidity will enable us to significantly act on strategic opportunities that match our product and market experience and that offer the potential to generate attractive returns and shareholder value in the future.

Longer term, we certainly remain confident. Just as we have said during the best of times, we believe real estate is a long-term business; it’s a marathon not a sprint. We believe in our ability to create value under a variety of economic conditions including the current and challenging times. Our long-term focus and a portfolio diversified across product type located in core markets with strong demographics will continue to serve us well. We believe good companies do some of their best work in creating value and differentiating themselves in challenging times. We look forward to these challenges.

And now let’s go to your questions and comments.

Question-and-Answer Session

Operator

Your first question comes from Unspecified Analyst - Goldman, Sachs

Unspecified Analyst - Goldman, Sachs

I just wanted to ask you first about your, if you could address your expected cash flow needs for 2008 and 2009 for development and just any of your other programs that you may have going?

Charles Ratner

Sure Mark, I think we tried to cover in the prepared remarks that we feel we have the liquidity that’s necessary to meet all of our obligations and beyond that to have liquidity available to invest in new opportunities. Much of the construction pipeline is obviously funded already. Much of the equity that is required is in and we have substantial investment in the shadow pipeline if that comes to fruition. So we feel confident in our ability to fund the development. Bob, why don’t you give a little more color on the comment.

Robert O’Brien

In our supplemental package we included this time a different—it’s on page 17 actually, a listing of the debt on our projects under construction; what’s outstanding, what the commitment is. You’ll see that there’s a little over $900 million of unused commitment that’s going to fund the construction class for that stuff under construction so as Chuck alluded to, the vast majority of the equity for our projects under construction has been already been funded. You can see that on our balance sheet as well where we break that out both in our K and our supplemental package. So together between the projects under development and the projects under construction, we have over $900 million of equity already invested so that’s going to go a long way to address the equity needs to balance the equity and the debt components as those things start. Let the record level of liquidity sitting here today, we have nothing borrowed and we’ve got a great liquidity plan going forward so, again, I’m just kind of repeating what Chuck said, but we’re in a good position to fund the development pipeline as it proceeds forward.

Unspecified Analyst - Goldman, Sachs

Okay and as part of your strategy and you look at your same-store portfolio, this last year you sold the senior housing portfolio, and I’m wondering what other property types you’re looking at in terms of monetizing value to focus—refunnel back into the development or potentially other acquisitions in markets where you see grow in your presence?

Charles Ratner

I think that we in retrospect, acted with Tom’s leadership and Bob’s leadership, we acted I think very smartly. We sold a lot of real estate over this last five or six years. We brought in well over $800 million of equity from selling 30-some properties. The last of which was this very successful transaction led by Ron Ratner and Jim Prohaska to sell our assisted living portfolio at a very, very good price. Obviously with the markets out there now our selling is going to be much more selective. We continue to look for opportunities to sell assets. We will sell off the bottom of the portfolio where we think there’s no ability to continue to add value and off the top when we think we can get a very, very good price. But we have no significant plans to sell assets, or certainly not to sell out of any business segment at this time. We think we’ve put ourselves in a position where we have the liquidity to move forward and we’ve put a lot of equity into the business together with its increase in our corporate line to be able to handle the future. So we’re not looking to recycle any major amounts of capital from selling assets into this market obviously. But we will on a selective basis where that can happen.

Unspecified Analyst - Goldman, Sachs

Would the New York Times Building be a building that you could potentially look at given that you’ve almost fully leased up that property at rents that are—if we don’t see rents going higher, that would be an area where you could monetize that value?

Charles Ratner

No I think that we are excited about owning the New York Times, we think it’s a real significant asset. We believe that it has an awful lot of growth in it. The leases are long-term with credit tenants but the leases have bumps in them as they normally do and we intend to hold onto the asset.

Unspecified Analyst - Goldman, Sachs

Okay, looking to your military housing, I was wondering what kind of visibility you have on potential projects or items that you might be able to bid on over the next year and where do you see in terms of the total number of units under management by the end of say 2008?

Charles Ratner

I’m going to let Ron Ratner answer that question. I think it goes without saying, we bid on this last portfolio, GMH portfolio was available and has often happened to us in the recent past, we kept moving up and it got to a point where we felt that the buyer paid more than it was worth. But we continue to be active in trying to source new opportunities and there’s lots of growth within the projects we have as they move into additional phases. Ron, do you want to add something?

Ronald Ratner

We do see, as Chuck said, significant growth within the projects we have particularly at Navy Northwest, which we just acquired in the last half of the year in Seattle as well as in Hawaii, we see and we’re in the process of working on additional phases. So there’ll be growth there. Primarily the military program in terms of family housing is pretty much spoken for. There are some isolated opportunities that we’re going to be looking at in terms of bidding on them. Again, I have to be sure that if we get those opportunities; we get them at economics that work for us. But we’ve done that before, I think we might reach some success in that avenue. The big segment of military housing that is out there still is the single soldier, single service person housing. What used to be call bachelor housing but now its about 30% women, so they’ve changed some terms. That’s a significant pool of housing that’s just beginning to be a program for all the military branches and we’re looking at the economics of it, making sure that we’re comfortable with them and my guess is we’ll be pursuing some of that—and then the other side of it, Chuck mentioned one deal that did happen during the year that we bid on but we weren’t successful simply because the numbers got beyond us, that was GMH. I think there’s going to be continued consolidation in the industry as now it goes into a mature period and we see some other opportunities in terms of that consolidation that we’re going to be looking at. So I don’t have significant big plans for expansion in the next 12 to 24 months, but some of that consolidation is a possibility and we’re certainly going to be looking at it.

Charles Ratner

I do want to say our EBDT for military housing is going to grow again in 2008 and the good news is, is that we’re still looked upon, particularly by the Navy, as a superior supplier. We get constantly reinforced in the belief that we’re managing these assets very well for the Navy and where there’s opportunities I believe we’ll get them.

Unspecified Analyst - Goldman, Sachs

Okay, thanks. And when you—going over to the distress opportunities that you’ve talked about, obviously the San Antonio one was very attractive, and I’m wondering where you’re seeing other opportunities like that. Have you seen that in Florida, Phoenix and those markets and how much do land prices have yet to fall in other markets before you’d show interest in expanding your land business?

Charles Ratner

I just want to comment as Bob I think covered thoroughly, it’s not simply land where we see these opportunities, although they are there. Frankly we think the San Antonio thing was a good thing and well timed but our general opinion is that prices do not yet reflect value and the prices are still high even in the markets you speak about. I’m actually taking this call from Florida and I really believe there’s still more for this stuff to go down before it represents a good buy. Because the only way you can buy it is by projecting what you think your sell out can be, your holding period has to be where you think the market will come back to and you’re not yet at a point where the margins would be satisfactory. So there’s been a lot bid on but most of the stuff we believe has not been appropriately priced so we’re patient here and we’re going to be very selective. There’s an awful lot of money chasing this kind of stuff, but there isn’t an awful lot of talent chasing it and I think we’ll be able to marry-up with some good sources and put some good opportunities together.

But the other places that we see this are in the broken development deals that Bob speaks about; we’re pursing one actively today. A project we looked at several years ago. We felt it was overpriced. It went to market. It never was executed because probably it was priced too high and it’s back on the marketplace. We also see some opportunities to play in the debt markets. Bob you may want to comment.

Robert O’Brien

Well not surprising the yields on debt are—particularly on the mezzanine pieces are very high. We’re only just beginning to explore that. I think we’ll just dip our toe in if we do anything at all. But we clearly see some opportunity there and we’ll only do that on assets where we think we would openly be willing to own at a basis where we think we could make money and an ownership position and if we can get there by earning a double-digit return if it does work out for the existing owner, then that’s fine too. So again I think we’re going to be, as Chuck said, very selective. And the comment about San Antonio, Bob Monchein runs our land business there, he’ll tell you. He looked at probably a dozen deals before he found one like that so its still prices have a way to go.

Unspecified Analyst - Goldman, Sachs

So on the distressed debt opportunities, what property types are you seeing where the most opportunity is right now?

Robert O’Brien

Well again, we’re not looking real hard but those relationships with our financial institutions that I talked about; all those folks obviously made loans and some of those are either distressed or likely to come back and we’re looking through their portfolio to see where we can be helpful and where there might be opportunity, we’re going to look at things that are obviously core to our product expertise and not outside that and as I said, thus far the pickings have been somewhat slim thus far.

Unspecified Analyst - Goldman, Sachs

Okay and I just had one last question; a couple of days ago there was article that came out that The Home Depot was thinking about backing out of its lease at the East River Plaza project and I was wondering if maybe Joanne or somebody could comment on who could potentially replace Home Depot and just the responsibility of Home Depot in that lease?

Joanne Minieri

Home Depot is subject to the lease. Within that lease it has a right to assign or sublease and none of the other tenants at that site have any—there aren’t any co-tenancy issues but we think it’s a terrific location, it’s a great center and I think Home Depot is actually currently speaking to potential other retailers to step into their lease. So they may not open but we feel pretty confident that somebody will probably step in and either be a sublease or they’ll assign the lease.

Unspecified Analyst - Goldman, Sachs

So does Forest City have say at all in who that tenant is?

Joanne Minieri

Right now, its basically Home Depot, its Home Depot’s space and obviously they’ll speak to us but it’s really—it’s subject to them and their lease.

Unspecified Analyst - Goldman, Sachs

Okay, thanks.

Operator

Your next question comes from Chris Haley - Wachovia Capital Markets

Chris Haley - Wachovia Capital Markets

Just a couple of questions; Bob, you mentioned, your quote is committed to operate with higher liquidity. In absolute terms that’s correct. On a relative basis though versus your asset base, your asset base has grown as well. Can you give us your thoughts in terms of whether you believe higher absolute liquidity is the goal or higher relative liquidity?

Robert O’Brien

The answer Chris is yes. The easiest way for us to simply run it is obviously is in the absolute dollar level and we’re certainly doing that. Its something that a number of years ago our Board had us look at and asked us to operate at a certain level and as a management truthfully we continued to raise the bar for ourselves and as we saw the changes in the marketplace come in, we began to pull back because I think we’ve mentioned to you before, and continue to build liquidity. Yes, perhaps in terms of the total balance sheet your comment may be correct but you also have to look kind of behind the balance sheet and what the components the balance sheet—where they are within it. That is operating assets versus construction assets versus development assets and we take, quite frankly, reasonable amount of comfort with the fact that we have the vast majority of the capital in that development pipeline is our equity and that’s going to give us staying power and ability to see it through the cycle.

Chris Haley - Wachovia Capital Markets

That’s helpful. When you think about maintaining excess liquidity though for investment options such as the San Antonio transaction, which initially looks quite appealing. It’s a $20-$25 million deal approximately, some of the opportunities that might arise either through direct ownership and/or leverage positions, may be more significant and when you’ve got $1.5 billion coming on after, or at least potentially coming on after the existing pipeline, how do you think about your excess capacity to be opportunistic in a larger scale?

Robert O’Brien

We looked at the land transaction as you know, we did that with a partner, somebody we’ve done business with for a number of years to partner with us in our Albuquerque project as an example, I think our sense is, is that we have a reasonable amount but there’s clearly a limit as to how much excess liquidity we would utilize for these opportunities and therefore in order to pursue those to any great extent we’re likely going to partner with and leverage it with other equity capital. Chuck and I think Ron even alluded to how much equity capital is out there. Blackstone just announced a $10.9 billion fund, estimates range in the up to a $100 billion for funds raised for distress real estate. We think we bring certainly capital but more importantly expertise to the table to pursue those opportunities. So I think the incremental investments we make and the transactions like the San Antonio or broken development deals or possibly even distressed debt, I think our inclination is that we would like to partner up with other capital to leverage our expertise.

Charles Ratner

If I may just add on to what Bob has said Chris, I think that we feel good about our liquidity even on a relative basis. You’ve known us for some time and we frankly feel good about where we are even in these times and it’s something new for us. I think it’s a result of lots of good decisions over this past eight or 10 years. Don’t forget the stuff we sold only had leverage to the value based on what we sold it for—55% so we think we’re in a very good position and as I said earlier, I think there’s a lot of money chasing opportunities, Chris, I don’t think there’s an awful lot of talent out there to look at this stuff so we’re actually being approached and have approached other capital sources to partner with them on some advantaged basis to take advantage of some of this opportunity. We don’t want to do one of these deals where you put in 5% of the money and get promoted up et cetera, we want to do a deal where we put substantial amounts in but where we bring partners along who bring substantial amounts of capital to the table and we have some advantage. At least it’s our impression of the marketplace today that those opportunities are out there.

Chris Haley - Wachovia Capital Markets

The decision to pullback on approximately $1 billion worth of development projects that may have been in process or under evaluation stage, how would you qualify that decision? Was it due to lower demand expectations and therefore longer lease up assumptions, therefore lower yield assumptions or a higher capital cost allocation?

Charles Ratner

Chris, I think it was more the former than the latter. We’ve delayed a couple of second phases on residential projects that we’re doing to see how the first phase does. We might have been more aggressive. We’re delaying starting a couple of office buildings, smaller office buildings at a Stapleton or a Fitzsimmons or even the second building at Johns Hopkins to see how the market firms up. We’re delaying a retail project that we’re doing in the northeast because we don’t think that the tenant demand will be there today. It was there a year-ago. We think it’ll be there several years from today because it’s a good site in an under served market and a growing market, but it takes time and I think it’s more the second than the first.

Chris Haley - Wachovia Capital Markets

Thanks.

Operator

Your next question comes from John Fox - Fenimore Asset Management

John Fox - Fenimore Asset Management

I have a few questions, one is I’m very happy to see you’ve done a number of financings in the last few months, I wonder if you could just talk about the economics of those deals, do they have higher equity, what are the spreads, what are the returns on equity, maybe how they’ve changed over the last year, how ever you can talk about what the economics of getting financing are today?

Robert O’Brien

Yes, it’s not much fun John. I feel like I’ve got to be the positive coach among our finance team because the tables have changed so much. We’d have eight people bidding on things a year ago and today you struggle to get a few of the people to call you back but thankfully we’re in a position where we have those relationships where they will. Not surprisingly loan to value is down modestly, not significantly but modestly. We were borrowing in the 70% to 75% loan to value range. Certainly one of the questions every lender has today, every bank has today is what’s value and therefore if you can’t determine value how do you determine a loan to value. So they’re going to be more conservative. They would argue we’re still getting 70% to 75% but at least in the financial institutions line, somewhat lower value so we’re incrementally, have a little bit more equity in these transactions. Spreads have widened pretty dramatically. Certainly permanent financings in the peak frenzy of the capital markets are well below a 100 basis points over swaps, and today they’re probably 200 over swaps. So at least doubled. That’s the bad news. The good news is that thanks to Mr. Bernanke and others, rates have come down. But absolute rates are still very attractive. This is a long-term business, we’re locking in these financings for typically 10 years on the permanent side and still achieving decent spreads, good spreads, profitable spreads, for our equity returns.

On the construction side, I’m pleased to report that the banking group that we’re dealing with still has money to lend and quite frankly anxious to get it out to sponsors like us who have a track record of success, who like it or not, we have to pay a little bit more. Maybe 50 to 75 basis points more than we have been, again at the peak of the marketplace. That’s a good thing for banks. It builds their profitability, allows them to begin to build back our capital base. We think that’s ultimately good for the economic system and the truth is we mentioned this even when times were good. The incremental players in the marketplace were there because of the liquidity in the marketplace not because of their expertise or their particular talent in the real estate space and so if we can get rid of some of the marginal players because they don’t have access to capital, ultimately that’s a good thing for those of us who are committed long-term to this business. So, that’s my own view.

John Fox - Fenimore Asset Management

Okay great. I wonder if you could talk specifically about the retail centers that you own and just what you’re seeing, same-store sales, traffic, and sales per foot, et cetera and just what you see in this environment.

David LaRue

As we reported, last year we were down about 1.8% on a comp basis but we anticipate and look and see currently that that softness continuing. As I think everybody is aware, consumer confidence is at I think a five-year low now. Seventeen-year low. The affect on retailers, it is apparent and obvious. We see this soft, as Bob said earlier, through 2008. The good thing about our portfolio again as you saw in our numbers, is we are very well leased. We do not have a significant amount of leases coming up during 2008 and we’ve already taken care of over half of that in terms of getting renewals done and maybe 30,000 square foot of risk tenants that would not renew out of that small amount. The opportunity that we see is to again continue to market what we think are very good centers and be strong in that marketplace in California. We know we’re sought because of the housing situation but again, long-term we are very pleased with those assets in those markets.

Charles Ratner

Let me just add, the issues that David raises are the right ones. I think our portfolio is in good shape and I think most are frankly. I think the issues are—the most extreme issue is will we start to see bankruptcies the way we saw in the early 90s. There have been a few and they’ve been very marginal, right? And we don’t anticipate that that will happen, but if this gets real bad that certainly could happen. And the other one which Dave referenced is the ability, the appetite of these tenants for new space. That was the comment made about Home Depot at our East River site and Joanne’s answer. So far for every tenant that’s elected not to proceed on something, there have been others who want to proceed so even in Rancho, we’re still leasing this new phase. And when we lose a tenant, we find plenty of opportunity to release it at existing or better rents. You saw our rents are up on rollover and the demand is good in the new stuff. The Center David and Jim will open tomorrow; 70% preleased. So I think we’re optimistic but certainly there’s I think more hurt to come in retail than has happened yet.

John Fox - Fenimore Asset Management

And let me just ask you specifically on retail and then I have a question for Chuck, how about Wiregrass, how is that coming along?

David LaRue

Wiregrass we are very pleased with the progress we’re making there. We right now have 70% plus of our space committed. We are on target to open that this fall in October and anticipate that we will be over 80% leased and we have a very good lineup of tenants and again, pleased with the merchandising as well as the occupancy level.

John Fox - Fenimore Asset Management

Okay great and then…

Charles Ratner

That’s probably a good example because Florida is certainly is relatively a soft market today and yet because we’re in the right location in the Tampa market, we’re going to do fine.

John Fox - Fenimore Asset Management

Yes, I saw the list of the retailers on the website and it’s very good. Chuck I have a question for you. You mention on the call and also in the release that 2008 is going to be more challenging, probably than last year, and we could all come up with a laundry list of a lot of things that might cause it, but what in your mind are the main challenges that you see facing this year?

Charles Ratner

Well at several of the industry meetings that myself, Bob, Jimmy, Ronny, Joanne, others have been to, we find ourselves among the more cautious of the folks that are there. Maybe that’s just inbred in who we are and why we’ve been around for 80 years, but I think it’s obvious. My sense is that this whole, the crisis which certainly started in a very isolated place called sub-prime has, as Bob said, has gone well beyond that and I think when it starts to hit the more broad range credit markets, the broadly based credit markets, people have—there’s certainly this issue of both real and perceived wealth effect. And I think it’s just beginning to hit the consumer. I think what you see at the University of Michigan survey is just starting. Certainly that’s our experience in the shopping centers. We wound up down--1.9% first half of the year we were up nicely and it’s been going steadily down as has I think everybody’s numbers. So my sense is the consumer has yet to feel this with as much challenge as they’re going to feel it. A consumer is a huge part of what drives the economy and that’s why I think the softness will continue more than any other reason.

Bob, do you have a different perspective or additional perspective on that question?

Robert O’Brien

No, I agree. Dave talked about the retail; that’s obviously driven by the consumer. Consumer prices, oil, energy up significantly so and the capital markets are clearly a constraint on growth I think.

Charles Ratner

I don’t think we have any particular unique point of view, we’re just cautious that’s all.

John Fox - Fenimore Asset Management

Okay, thank you very much.

Operator

Your next question comes from Richard Moore - RBC Capital

Richard Moore - RBC Capital

How many projects, you kind of went through them a little bit, but how many projects are in that group that represents the billion plus that you’re delaying?

Charles Ratner

I think there are eight or nine projects.

Richard Moore - RBC Capital

Okay and will you have any impairment charges as a result of that?

Charles Ratner

No, not as a result of that. As you saw, we took—our project write-offs for the year were up from where they were a year ago, and we wrote-off a couple of projects that we aren’t going to proceed with at all that we have decided to abandon. We had some military housing write-offs where we had pursued some projects and didn’t get them. We obviously wrote that off. There was a city tech project in New York that we wrote off that we’re not going to proceed with but all the stuff that we talk about delaying, we don’t believe we have impairment issues at all. We think its great real estate. Much of it is second phases of real estate where we’re already invested.

Richard Moore - RBC Capital

Okay, that sounds good Chuck thank you. And then Tom normally I’d ask you about this but you’re going to be enjoying the lovely Cleveland weather instead, so I’ll ask Bob. Bob the $7.1 million of impairments, those are the ones Chuck just went through or is there other stuff in there; the $7.1 million reduction in value of rental property that was on the income statement?

Charles Ratner

Bob, what I think he is referring to is the provision for declines as distinct from project write-offs.

Richard Moore - RBC Capital

Exactly. I think Bob, it was like $8.2 or $8.3 on the…

Robert O’Brien

I think what that relates to is an issue with a partner on a land transaction down in Florida where we had to take an impairment because we’re not going to recover our investment there. Certainly the housing market doesn’t help but it’s as much bad as well as an issue with a partner there and it may also be related to the condos in LA, primarily the Mercury project and 3800 Wilshire.

Charles Ratner

Rich, you know we have two downtown condos in LA. One 1100 Wilshire is doing well and they’re going to sell, the other one is in Korea Town, 3800 Wilshire and clearly that’s been hit by the market and we took an impairment charge. But those are the only two we have so there’s not much more to take.

Richard Moore - RBC Capital

Is there anything else, any of the land development or anything else that we should think about for the next couple of quarters as far as impairment charges go?

Charles Ratner

No, we don’t think so.

Richard Moore - RBC Capital

Okay, and then in the land business, I mean your land sales this quarter were significantly higher certainly than we had anticipated, why were those so good in this housing market, in the weak housing market and what do you think about 2008?

Robert O’Brien

Number one is I think we’ve got a great productivity out of our team in Denver, in Stapleton. As we told you I think at the end of last year, builders had built up inventory, home builders had built up inventory and they’re paring that down over the course of the year so our sales in Stapleton were relatively light and then we ended the year both with the decent residential sales in Stapleton as well as some commercial sales in there that obviously added to that. I think we referenced in our press release the fact that Stapleton remains one of the hottest housing projects in Denver, actually all of Colorado, and doing well. Our home sales there continue to increase, resale prices are strong, up modestly from a year ago. So that was one of the more significant drivers. Truthfully, we asked our guys to push hard to get their stuff done.

Richard Moore - RBC Capital

So do you think Bob in this current environment that 2008 could actually have some hope I guess?

Robert O’Brien

Yes, certainly we’re not telling the guys to take the year off. And the truth is shortly after we bought the lots in San Antonio, my team is already getting calls from builders who say in that marketplace they’d like to buy. I want to make sure we’re doing it at the profit levels we anticipate. But we’ve got ultimately, Sam always tells us you make your money in the land business when you buy it. We’ve got an inventory of land at a great basis that in selected markets, not every market, but in selective markets like the Carolina’s and like in Arizona where we believe we can continue to make sales in ’08. So unless the economy tanks even more dramatically we’re going to have an okay year in land. It’s more difficult and it’s certainly more challenging because of the stresses on the home builders, but we’re going to definitely have profits in the land business in ’08.

Charles Ratner

I was recently at a conference where Milt Cooper and Peter Linneman were talking and Linneman said, “If you have a golf game, this would be a good year to work on your game.” We’re not telling our land guys that they can do that. I’ll just give you a couple of statistics that I think are fascinating to the job that Ronny and our guys have done in Denver, John Lehigh and his team.

In the months of January and February alone we sold 100 houses, plus or minus. It’s really quite remarkable to me. The resale value in Stapleton this past year is up 5%. On 3,923 lots that we’ve sold since inception, probably in the neighborhood of 3,000 or 3,100 houses, we have eight foreclosures in the Stapleton project and resale values continue to increase. I think what its evidence of and at the same time, in this morning’s USA Today, the lead article is “Bankruptcies and Foreclosures in Denver”. I think what is speaks to is that if you’re in a good location and you have good property and you’ve created a sense of place, as we have in places like Central Station and Stapleton and the stuff Bob’s done in the Carolina’s and Tucson, you can continue to sell into a tough market. You certainly—at one time we were selling 700 lots a year in Denver. Last year we sold 208 lots in Denver; 208 is a lot of lots. We can make good money doing that and I think the outlot guys, you know David continues to find opportunities as he’s doing these various retail centers. They all have outlot opportunities and we continue to have demand. We sold the major one in January in our Chicago project so we think that we can continue to do well in that business. It’s not what it was but it’ll certainly continue to do good.

Richard Moore - RBC Capital

Okay, thank you Chuck and then on the—it looks like in the shadow pipeline the projects you have coming on in the $1.5 billion or so that’s you’re going to add this year that you can start seem to be residential focused and I’m wondering is how a good time to be building residential and I guess what’s the rationale behind that?

Charles Ratner

Let me just indicate to you and then I’ll ask Ronny to answer the question specifically and Joanne you’re welcomed to make a comment. Two of the major projects are in New York City, Beekman and DeKalb. We feel very confident about that market. It’s as you know, continues to be strong. I think there will be layoffs in New York. I think there will be pressures in New York but it’s under served particularly with rental product and we think that these projects which won’t come online for several years are going to be very strong. So as you know our pipeline varies by product depending—having probably less to do with the immediate market than it does with the long-term nature of our pipeline. In other words you take a long time to get these projects ready to go and at any one time—right now under construction we have I think David its five retail properties? Now we haven’t had that for some time so those things tend to change but over time our product mix as you know is relatively balanced. It’s not changed a lot between office, retail and residential apartments. Although our market emphasis has changed a lot.

Ronny do you want to make a specific comment about the residential market as we look at it?

Ronald Ratner

Chuck, you’ve basically said it. We clearly believe in the long-term strength of these core markets that we’re in. We just are opening two major residential projects that—one in Dallas where I happen to be at the moment, and one in Oakland. Both northern California and Dallas are very strong rental markets at the moment but you can’t necessarily when you do projects that take four or five years to go through the development phase, a couple of years of construction, to be a market timer that—where you can really focus on whether the second or third quarter of ’08s going to be good when you happen to be in lease up. You have to believe deeply in the long-term strength of the market, the quality of the asset you’re building. It has been our history and certainly that’s what’s driving the two major deals that are the bulk of the residential starts next year, both of which are in New York. One of course is Beekman which is clearly of a super scale. And again, that’s what Chuck said. We believe deeply in the long-term strength of the market. We think it’s a great asset. We think it’s been very well designed and well conceived and over its initial 10-year ownership period, while there might be a couple of bad years, it’s going to be a great market. That’s really our strategy. It happens to come in, as Chuck said it, over time it’s very balanced. In any given moment, you have a start like Beekman, it’s going to work the number.

Charles Ratner

And in the Presidio in San Francisco is certainly a strong rental market. We’re starting the South East Federal Center in Washington, certainly a strong rental market and we’re starting in Manhattan in Brooklyn.

Joanne Minieri

As both you and Ronny said, they’re very strong residential markets. Obviously the activity going on in Lower Manhattan is in the billions of dollars. We’re very excited to be there. We think it’s a great location and Beekman is going to be a terrific add to Lower Manhattan’s skyline. With respect to 80 DeKalb, very excited about our initial housing project in downtown Brooklyn. Eighty DeKalb was just recently awarded some housing bonds and will be an 80-20 apartment rental unit which is quite exciting and it will begin our commitment to the affordable housing that we intend to provide the city and state of New York.

Richard Moore - RBC Capital

Thank you Joanne. While we’re on that, in New York City, any office tenants that concern you at this point specifically in your portfolio, I know that you have a lot of government type things that probably don’t concern you, but some of the financial might. Anything that troubles you there?

Joanne Minieri

At this point, Bear Stearns just renewed in 2004 for 20 years here at 1 MetroTech and JP Morgan obviously who have just purchased Bear is part of the MetroTech complex and at this point in time we don’t anticipate any problem here.

Richard Moore - RBC Capital

Good thank you and then I’m curious, you work very closely with the cities and they’ve always been a source of financing in part for some of your bigger projects, what are you hearing from them in this whole thing? Is there less desire to participate or more desire or how do they look at it?

Charles Ratner

You know Rich, I’m going to give you a perspective, that’s a very provocative question and we talked about it quite a bit at our last Board meeting. Look at what Joanne just shared with you. Just in these past six or eight months, we got the various governmental agencies, state, city, bureau in New York to increase their commitments to Atlantic Yards by $105 million on top of the $200 they had committed. We still need more. So you look at New York and you realize it’s a huge city with a huge challenges and issues, but there’s very few major things that are happening and are going to happen. We’re one of the few in these places that continue to offer opportunities for development to these major urban markets. They clearly have the resources to support them and I think they’ll put them towards these projects and we found that to be true in MetroTech over the 20 years we did it. We found it to be true in Central Station over the 15 years. We’re finding it to still be true in Denver at Stapleton. So while they’ll have revenue challenges and tax duplicate challenges, we still think they have access to the capital to support development where they think they need it. I think we represent places that they need it.

Bob, you have any point of view on that or Joanne in New York where the largest amount of that is at risk for us?

Joanne Minieri

With respect to New York, and the city and state, they’ve really put an emphasis on an affordable housing program and a project like Atlantic Yards of such significance really furthers their commitment to the city and their commitment to the housing program. So as I said in my comments earlier on, we’ve worked very closely with them because it’s a public/private partnership that will enable us to all come together and provide the affordable housing that really is a commitment between the city, the state and its citizens.

Charles Ratner

I’m not aware of a single project we have Rich, now that you’ve asked the question, where in the past six months or the past six years a public enemy has backed out of a commitment they have made to us. It’s been a good six years, but it’s not been a great six months and they continue to stay committed to what we’re working on together. So that’s why the Albuquerque’s and that’s why the Stapleton’s and that’s why the South East Federal Center, the Yards in Washington, and that’s why Atlantic Yards are still proceeding.

Richard Moore - RBC Capital

Okay, thank you Chuck, and the last thing I had is on the nets, I know that moves around, the amount that you book as expense moves relative to how much percentage ownership you have at any given time based on your contributions, how should we think about 2008? Is it going to be similar to 2007 or are there more changes that will affect what you expense for the nets?

Charles Ratner

I’m going to let Joanne answer the question but our percentage of ownership does not fluctuate at all. Our percentage of funding fluctuates. So that whatever beyond our ownership we put in as a funder we obviously have a priority return on and of.

Joanne Minieri

Rich or losses have two pieces to it. The operating losses which will pretty much remain generally within the $40 million range or they’ll obviously be worked [inaudible] losses and a piece of the losses relate to the amortization of the player contracts. The amortization will be burning off by the second quarter of ’09 and while the team losses will continue to approximate prior years, the amounts allocated to Forest City is expected to increase as additional capital is contributed to operate the team.

Richard Moore - RBC Capital

Great, thank you.

Operator

Your next question comes from Sheila Mcgrath – KBW

Sheila Mcgrath – KBW

I was wondering if you could give us more specifics on the structure of the Beekman financing which included a mezzanine component and liberty bonds.

Joanne Minieri

The Beekman financing which were a total of $680 million of which $204 million were liberty bonds that we were awarded for this transaction Lower Manhattan, $476 million were taxable bonds for a total of $680. We have a mezzanine lender, the National Electricians—NEBF who gave us a $35 million mezzanine loan.

Sheila Mcgrath – KBW

Okay and Joanne could you give us an idea in terms of construction timing. You said you’re going to start immediately but when should we expect construction on this project to be completed?

Robert O’Brien

Also Sheila you should be aware that NEBF is also an equity partner in that transaction so the mezzanine kind of dovetails with the equity component with us as a partner.

Charles Ratner

We’ve been with them before Sheila, they’re a very good funder and partner.

Sheila Mcgrath – KBW

The timing, even on the school portion and then the residential portion.

Joanne Minieri

We’ve already invested in the foundations at Beekman over the last year so we are commencing construction immediately and we expect to begin leasing in the year 2010. So the building should come onboard in the second half of 2010. The school is at the base, it will house grades K to eight in about 100,000 square feet.

Charles Ratner

Joanne, can you or Bob give Sheila a little color—I can’t remember exactly the number but I know during the closing of the financing Bob there was for the tax-exempt piece of this there was some tremendous demand on the part of the banks right? Just to give an indication of the market?

Joanne Minieri

On the liberty demand for the purchase of the bonds, yes there was like $1.2 billion demand for the 204 that we put out there.

Sheila Mcgrath – KBW

And are all the units in that building, they’re all market-rate units?

Joanne Minieri

That’s correct.

Robert O’Brien

That’s the beauty of the liberty bonds, tax-exempt rates and all market-rate units.

Sheila Mcgrath – KBW

Okay, thanks a lot.

Operator

Your next question is a follow-up from Chris Haley - Wachovia Capital Markets

Chris Haley - Wachovia Capital Markets

Could you—what is the total cost of Beekman?

Joanne Minieri

Approximately $875 million.

Chris Haley - Wachovia Capital Markets

Thank you. Two final questions, first to Bob, numerically you had mentioned that the land business was down calendar year or fiscal ’08 versus fiscal year ’07 or ’06 to ’07 calendar, and you also mentioned the tax credit business was down sizably. Was that as expected and I wanted to kind of get a sense as to what type of project activity you currently have scheduled that might contribute in calendar ’08 versus ’07, and some color and tax credit?

Robert O’Brien

Yes, we have a series of tax credits both low income housing and historic tax credits that we received. It got a little lumpy last year and a little bit—it was down a little bit this year. It should be relatively even—Mike is it going to be even with this year on a go forward basis.

Unspecified Company Representative

Yes, it should be pretty close to what we experienced this year for the next few years going forward—the ones that are known.

Charles Ratner

I think what happened Chris is we disclosed last year. I think last year was an unusually large number. That’s not, as you know, that’s not a core piece of our business. Its just we do do that and we do sell them and we make a profit but it’s a pretty….

Robert O’Brien

And certainly as we add, if we identify and add additional properties that will increase modestly but we should now be at a relatively reasonably consistent run rate I think.

Chris Haley - Wachovia Capital Markets

When you think about if tax-credits could be roughly comparable to calendar ’08 versus ’07 you had some gains that were reported in the year and you have some derivative items that are included in your results, and some additional write-offs, could you give us a sense as to how much that other stuff, excluding tax credits, just that other stuff impacted the fiscal January ’08 results? Kind of look at a run rate without those items into next year?

Robert O’Brien

All that’s in the MD&A, [inaudible] to think about them individually. Let me do it offline.

Chris Haley - Wachovia Capital Markets

Last question, can you give us an update on your international efforts and some activities that might be in Europe as well as Middle East?

Charles Ratner

Yes, in fact Jim and David together with Ronny and Bob just spent a week or so in India a few weeks ago. I think that’s the most active of our opportunities today and we’re looking forward to entering into a joint venture with a very quality Indian family to look at the possibility of doing some major development there along the lines of the Stapleton kind of a model. I think Chris of the stuff we’re looking at, that probably is the most active. We were looking at a small deal in Spain, retail deal, it doesn’t look like that’s going to proceed immediately and I think our major effort now through Brian and our office in London is to pursue this opportunity in India. We’re not looking at the Middle East and we’re not looking at the Far East. We will continue to look at southern Europe and India as our opportunities. Jim, you want to add anything to that?

Jim Ratner

No, I think you’ve covered it Chuck.

Chris Haley - Wachovia Capital Markets

Okay, thank you very much.

Operator

This includes the Q&A portion of the call, I would now like to hand the call over to Mr. Charles Ratner for closing remarks.

Charles Ratner

Well thank you all. Thank you for your questions. As always they were very provocative and profound and obviously your questions reflect exactly the issues and the concerns we have and I hope we’ve shared with you our confidence that we will be able to prosper. You know someone mentioned recently to me in an email that it’s often at times like this that the best folks, the best operations, the best companies, the best leadership is able to show itself. Clearly there’s been a lot of excess and there was a lot of inappropriate development out there. I don’t think it was nearly as bad as it was in the early 90s but some of these markets and certainly in housing it got way overdone and way overinflated.

I believe we’ve proven over a long, long time now that we have the staying power and the track record to perform and we’re very confident of our ability to continue to do that. I hope that the most important message you took away from today’s call and from our recent announcements is that we find ourselves in a very good position. We have good liquidity. We have good access to capital. We’ve done a lot of right things right over these last years to put ourselves we think in a strong position. Its not that we don’t feel stress and we don’t feel pressure because we do, but we’re very confident in what we’re doing.

Finally I just want to make this very important comment about how we’re approaching this market. I think we’re approaching it with the appropriate amount of caution and obviously the appropriate amount of concern over what’s going to work and what isn’t going to work. But these major projects that we’re a part of that we’ve been fortunate to develop over these many, many years, I think we have proven to ourselves and to the marketplace I hope, that we’re going to be able to deliver and we’re going to be able to continue to deliver. They remain active. There’s activity going on on all of them and we’re excited about the future. So we thank you for your support. I think we’re all living out that great Chinese curse, may you be born in interesting times. We are certainly in the middle of interesting, challenging and compelling times. There will be opportunity. We hope to be able to take advantage of that and we thank you for your support. Have a good day. Thank you.

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Source: Forest City Enterprises, Inc., F4Q07 (Qtr End 01/31/08) Earnings Call Transcript
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