Skip to main content

Analyst lowers rating on Forest City, cites "difficult financing market"

Let's put that Wall Street Journal interview yesterday with Joanne Minieri, new president of Forest City Ratner, the New York division of Forest City Enterprises (FCE), in a little more context--one in which an investment analyst, long bullish on the company, has put up a yellow "caution" sign. That also hints at potential delays in the Atlantic Yards project.

Minieri told the Journal: The availability of capital to do these terrific developments and stimulate the economy concerns me... Liquidity and the availability of funds is always something I try not to lose too much sleep over, but it can keep me up at night. Value creation is impacted tremendously when you have to pay more for financing proceeds.

(Two-year stock chart from Yahoo Finance.)

Ratings revision

On 9/14/07, RBC Capital Markets analyst Rich Moore, who follows Forest City Enterprises, issued a ratings revision, nudging FCE down from "outperform"--meaning better than its peers in the real estate sector--to the middle ranking of "sector perform." In doing so, RBC rather dramatically cut its Forest City price estimate fom $80 to $54. (The current price is about $56.)

The reasons include a tougher market for homebuilding and office space, but also, more crucially, "an overstretched balance sheet in a difficult financing market" and a requirement to sell assets "to fund the big development pipeline."

The ratings revision was the subject of an AP story last month; the nine-page document was provided to me by a reader who got it from his broker. Moore is the top-rated analyst of FCE.

Optimism remains

However, the forecast remains optimistic, as Moore called FCE "one of the top, if not the top, mixed-use developers in the country," which "is poised to produce significant value from a development pipeline" that likely exceeds the $10 million current book value. However, for the next year, don't expect anything special.

Beyond general economic trends like demand for commercial space and access to capital, the report also cites "higher raw material and labor costs" as well as "additional risks, including the threat of terrorism, weather and key personnel changes," which FCE has outlined in documents (as I've noted) filed with the Securities and Exchange Commission.

AY delay?

Does that pipeline include Atlantic Yards? Probably not. Moore's report also refers to the "shadow pipeline," projects in development. Remember, FCE categorizes Atlantic Yards in the "initial development stage," one step behind the "shadow pipeline."

But the report also states that FCE "will likely face some near term difficulty funding its development pipeline," which suggests potential delays in moving ahead projects like Atlantic Yards. (Another potential delay: the "crisis" in availability of finance for affordable housing.)

Minieri, to the Journal, was philosophical: We will probably encounter a couple of different market cycles as we move through that development.

Moore hinted at potential delays to the New York Observer in September 2006:
“The quality that Forest City has is that they are very disciplined about moving forward in stages,” said Rich Moore, an analyst at RBC Capital Markets who covers Forest City Enterprises. “They build one office tower and see if they are doing well, and if they are not, there is always the option of waiting until the market catches up to them or of altering their plans.”

In other words, Forest City will build as it sees fit, not necessarily to produce the project's stated public purposes, among them affordable housing and open space, within the stated project timeline.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

Revising official figures, new report reveals Nets averaged just 11,622 home fans last season, Islanders drew 11,200 (and have option to leave in 2018)

The Brooklyn Nets drew an average of only 11,622 fans per home game in their most recent (and lousy) season, more than 23% below the announced official attendance figure, and little more than 65% of the Barclays Center's capacity.

The New York Islanders also drew some 19.4% below announced attendance, or 11,200 fans per home game.

The surprising numbers were disclosed in a consultant's report attached to the Preliminary Official Statement for the refinancing of some $462 million in tax-exempt bonds for the Barclays Center (plus another $20 million in taxable bonds). The refinancing should lower costs to Mikhail Prokhorov, owner of the arena operating company, by and average of $3.4 million a year through 2044 in paying off arena construction.

According to official figures, the Brooklyn Nets attendance averaged 17,187 in the debut season, 2012-13, 17,251 in 2013-14, 17,037 in 2014-15, and 15,125 in the most recent season, 2015-16. For hoops, the arena holds 17,732.

But official…

So, Forest City has some property subject to the future Gowanus rezoning

Writing yesterday, MAP: Who Owns All the Property Along the Gowanus Canal, DNAinfo's Leslie Albrecht lays out the positioning of various real estate players along the Gowanus Canal, a Superfund site:
As the city considers whether to rezone Gowanus and, perhaps, morph the gritty low-rise industrial area into a hot new neighborhood of residential towers (albeit at a fraction of the height of Manhattan's supertall buildings), DNAinfo reviewed property records along the canal to find out who stands to benefit most from the changes.
Investors have poured at least $440 million into buying land on the polluted waterway and more than a third of the properties have changed hands in the past decade, according to an examination of records for the nearly 130 properties along the 1.8-mile canal. While the single largest landowner is developer Property Markets Group, other landowners include Kushner Companies, Alloy Development, Two Trees, and Forest City New York.

Forest City's plans unc…

At 550 Vanderbilt, big chunk of apartments pitched to Chinese buyers as "international units"

One key to sales at the 550 Vanderbilt condo is the connection to China, thanks to Shanghai-based developer Greenland Holdings.

It's the parent of Greenland USA, which as part of Greenland Forest City Partners owns 70% of Pacific Park (except 461 Dean and the arena).

And sales in China may help explain how the developer was able to claim early momentum.
"Since 550 Vanderbilt launched pre-sales in June [2015], more than 80 residences have gone into contract, representing over 30% of the building’s 278 total residences," the developer said in a 9/25/15 press release announcing the opening of a sales gallery in Brooklyn. "The strong response from the marketplace indicates the high level of demand for well-designed new luxury homes in Brooklyn..."

Maybe. Or maybe it just meant a decent initial pipeline to Chinese buyers.

As lawyer Jay Neveloff, who represents Forest City, told the Real Deal in 2015, a project involving a Chinese firm "creates a huge market for…