Skip to main content

In Forest City conference call, minimal discussion of Atlantic Yards; Nets losses, as projected in June, continue to grow; arena expected to boost income

There wasn't that much new about Atlantic Yards in Forest City Enterprises' second-quarter conference call (transcript) yesterday with investment analysts that wasn't in the press release two days earlier.

Yes, work continues on the arena, and a permit has been applied for the first residential tower.

FCE President and CEO David LaRue made a comment that echoed the "We control the pace" comment from 2008:
In our core markets and key mixed use projects such as Denver and Stapleton, Atlantic Yards in Brooklyn and The Yards in DC, we have existing entitlements that we are able to activate judiciously.
In other words, they build when they get financing.

More on that first tower: subsidies?

One analyst asked about that first tower.

Paul Adornato - BMO Capital Markets:
First on the multifamily side. I was wondering if you could talk a little bit about the apartment that you're contemplating at Atlantic Yards. What's the concept, what's the price point, and will there be an affordable component to this project?
Matthew L. Messinger, Forest City Ratner:
Yes, the first tower at Atlantic Yards that we're playing with is anticipated to be a 50-30-20, which is a 50% affordable, a combination of middle-income and low-income. So the same 20%, you would find in an 80-20 building, but a targeted middle-income component in bands as well. In general, Atlantic Yards and the market components of Atlantic Yards, as well as the low income for that matter, T2 is just a few blocks from our [80] DeKalb building which we are very pleased with the result, has just stabilized in the last year or so. A few blocks away that building performs very well in what ended up being a fairly competitive time in terms of new openings at the same time and we have a great data point there and great success to sort of draft behind.
Paul Adornato:
Okay. I guess as a follow-up, what specific incentives are related to this project? I mean to this building as opposed to the rest of the project?
Matthew Messinger:
I don't know that there is specific incentives for the Tower per se. There is a 50-30-20 program encouraged by the city which with any 80-20 type program there is obviously the federal law income tax housing tax credits that come along with it. There is certain taxes against financings that bonds that are made available subject to layering in a third-party credit enhancer and depending on where markets are, and there is a city provided small second mortgage which could act as an additional inventive to encourage that middle income component.
He didn't say whether Forest City was seeking, or would get, the additional subsidies it had sought earlier this year. The land for 80 DeKalb was, as far as I could tell, pretty cheap.

Nets losses

Chief Financial Officer Bob O'Brien said:
The Nets had a pre-tax EBDT [earnings before depreciation and taxes] increase to $7.6 million compared to the first half of 2010 due to the decrease in Forest City's share of allocated losses. This was offset by the 2010 gain of $31.4 million related to the sale of a majority Forest City's interest in the team with no comparable transaction in 2011.

Before I leave the Nets, in our first quarter filings we disclosed that we expected to reach the $60 million cap for commitment by the Prokhorov entities to fund team losses in the second quarter. As our second quarter filings indicate, we have funded roughly $20 million of losses year-to-date. For 2011 and 2012, we anticipate that losses impacting EBDT will be in line with pre-sale loss ranges.
In June, LaRue had said, "We previously thought we were done with these levels of losses but it now it appears that the cap will be reached sooner than originally anticipated."

Figuring out what the number will be isn't easy. Take, for example, a 10-Q document filed with the SEC in September 2009:
Our equity investment in The Nets incurred a pre-tax loss of $8,307,000 and $18,988,000 for the three and six months ended July 31, 2009, respectively, representing a decrease in allocated losses of $241,000 and $3,033,000 compared to the same periods in the prior year. Generally accepted accounting principles require us to report losses, including significant non-cash losses resulting from amortization, in excess of our legal ownership of approximately 23%. For the six months ended July 31, 2009 and 2008, we recognized approximately 51% and 57% of the net loss, respectively, because profits and losses are allocated to each member based on an analysis of the respective member’s claim on the net book equity assuming a liquidation at book value at the end of the accounting period without regard to unrealized appreciation (if any) in the fair value of The Nets. For the six months ended July 31, 2009, we recognized a lower share of the net loss than in the prior year because of the distribution priority among members.

Included in the losses for the six months ended July 31, 2009 and 2008 are approximately $10,238,000 and $13,544,000, respectively, of amortization, at our share, of certain assets related to the purchase of the team.
Income increasing

O'Brien said the arena would help their bottom line:
That's part of our – deleveraging is part of our plan, but it's a combination of reducing debt at the property level, reducing the debt corporately, but also growing NOI and I think you've seen demonstrated by our portfolio over the last few quarters good and significant growth and continued growth and that is going to be supplemented as we add the arena, as we add Beekman [Tower in Lower Manhattan], as we add Ridge Hill [in Yonkers], as we add (inaudible) to the NOI [net operating income] side of the equation.
O'Brien, arguing that Forest City's assets are undervalued compared to the stock price, pointed to the arena's potential:
So we have probably, certainly over the last three years probably the highest level of cash and liquidity that we've had in some time. The risk in our development pipeline has certainly come down, from a cost exposure standpoint it clearly has. I think the evidence of the lease-up at 8 Spruce is just indicative of the embedded value in the development pipeline, which for quite some time people have discounted and I think not given us much credit in terms of value opportunity there. Clearly, it's being proven at Beekman. The progress while steady at Ridge Hill is not on a pace that we would prefer, but I think it's reflective of the economic conditions, but again continuing to make progress there. I'm anxious to get that arena open. I think it's going to be a great asset for us. All three of those transactions I just talked about are very large obviously and not producing any NOI to help evidence the fact that the leverage levels are at least reasonable and then again as we referenced earlier, the fact that we have an opportunity in today's environment to drive down the cost of our debt portfolio.

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…