Wednesday, March 30, 2011

Seeking cash, Forest City Ratner sells 49 percent of Atlantic Terminal/Center malls, other retail and entertainment properties

In an effort to "create liquidity" (aka raise cash), Forest City Ratner has sold a a 49% stake in "15 mature retail and entertainment properties" in the New York City area, including the Atlantic Terminal and Atlantic Center malls in Brooklyn.

The buyer, Madison International Realty, self-described as "The Leading Liquidity Provider to Real Estate Investors Worldwide," will invest $172.3 million in cash. The properties are valued by this transaction at $851.5 million, including $499.9 million of debt. Forest City will continue to own a majority 51% stake, and manage the properties.

Is that a good deal for Forest City? Did Madison get a bargain? The only context I see is from the Wall Street Journal, in a short article today headlined Ratner Sells Shopping-Center Stake:
The sale to Madison International Realty comes as Forest City has been hobbled by major development projects that were started at the market's peak, when prices and expectations were far higher than they are today.
Those "major" projects include Atlantic Yards, the Ridge Hill project in Yonkers, and the Beekman Tower in Lower Manhattan.

The press release
Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) and Madison International Realty, LLC today announced the creation and closing of joint ventures for ownership of a portfolio of Forest City's urban retail centers in the New York City metropolitan area.

Under the terms of the joint ventures, an affiliated entity of Madison International Realty will enter into existing partnerships in 15 mature retail and entertainment properties that are valued by this transaction at $851.5 million, including $499.9 million of debt. Madison will receive a 49 percent equity interest in the partnerships in exchange for an investment of $172.3 million in cash. Subsidiaries of Forest City will retain 51 percent equity interest, will serve as asset and property manager, and will manage leasing for the joint ventures. The transaction's implied valuation represents a 6.9 percent cap rate on 2010 net operating income for the properties.

"We're pleased to complete these joint ventures with Madison International Realty," said Charles A. Ratner, Forest City president and chief executive officer. "Today's announcement demonstrates both the significant value represented in our mature portfolio, and our continuing ability to create liquidity by monetizing select elements of that portfolio. This transaction also positions us with an experienced and well-respected real estate investor in Madison, and we look forward to exploring other mutually beneficial opportunities with them in the future. I want to congratulate our entire transaction team, led by Bruce Ratner and Andy Silberfein in our Brooklyn office, for their creativity and hard work in making these joint ventures a reality."

"These are high-quality, productive specialty centers in good locations in one of the strongest markets in the country," said Ronald Dickerman, president and founder of Madison International Realty. "We believe these assets have the ability to generate above average NOI growth in this under-retailed market. We are also pleased to establish this relationship with Forest City, a premier developer, owner and manager of commercial and residential real estate. They are committed to New York as a core urban market and are continuing to create value with great projects here and across the country."

The properties included in the transaction are: the 42nd Street Retail and Entertainment Complex and Harlem Center (retail component) in Manhattan; Atlantic Center, Atlantic Terminal (retail component) and The Heights in Brooklyn; Queens Place, Steinway Street Theatres and Shops at Northern Boulevard in Queens; Shops at Bruckner Boulevard, Castle Center and Shops at Gun Hill Road in the Bronx; Shops at Richmond Avenue and Forest Avenue Cinemas on Staten Island; and Columbia Park in North Bergen, New Jersey.

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