Thursday, August 22, 2013

Times: Forest City's trying to sell up to 80% of Atlantic Yards (and didn't extended deadlines help Ratner gain "layup"?)

The New York Times's Charles Bagli, who has the best connections in real estate coverage but has rarely made Atlantic Yards a priority, has a sort-of scoop, To Enhance Atlantic Yards, a Plan to Sell a Big Part of It (amplifying a story in a trade paper):

Now, the developer Bruce C. Ratner, executive chairman of Forest City Ratner Companies, is looking for an investor to buy up to 80 percent of the rest of the $5 billion Atlantic Yards development in Brooklyn, which is to eventually include 14 residential buildings and 6,000 apartments near Atlantic and Flatbush Avenues.
Real estate analysts speculate that Mr. Ratner’s company could reap as much as $800 million from the sale of 50 to 80 percent of the remaining project.
Well, that's an estimate, but if Forest City has invested about $500 million in cash, as the company said in June, that looks like a rather significant profit.

So that's a pretty generous headline--"enhance Atlantic Yards"--as opposed to "cash out/make profit."

Of course the math is very crude--how much of that outlay is direct, how much is financing costs, how have they been able to get lower interest rates. And there's the lack of (large) return on their investment over ten years.

But the developer also gets a 5% development fee and would, of course, retain revenues from its share of the project.  (Note that the Observer's Stephen Jacob Smith disagrees that Ratner will necessarily do well.)

Also, while the Barclays Center may not be profitable yet, it's surely on the road to profit, and Ratner's 20% stake in the Brooklyn Nets has grown in value.

Everything ultimately for sale

The New York Post added clarity on timing:
The investment, which is being pitched by CBRE to such targets as pension funds and sovereign wealth funds, will likely be structured over five years in several phases of equity as it comes time to develop more of the buildings, according to a story in Real Estate Alert, which first reported on the matter.
The sale shouldn't be a complete surprise. As CFO Bob O'Brien said in March, "I often say that everything is ultimately for sale, at a price, and if we can get full value in some of our core markets or products, that's what we would consider."

Accelerated development?

The Times reports:
“The money will be invested in the Atlantic Yards project,” said MaryAnne Gilmartin, chief executive of Forest City Ratner. “We’ll retain our position as the managing member. It’s exciting; it raises the possibility that we’ll be able to accelerate vertical development there.”
Unmentioned in the article is the ongoing Supplemental Environmental Impact Statement (SEIS) ordered by a state judge.

In the process, project critics have argued that either Forest City Ratner be held to the original ten-year timetable--which the state agreed to extend to 25 years--or to have the various sites within the project bid out to various developers.

Forest City's planned sale may be aimed, in part, to counter that criticism and to suggest that the developer, with partners, could build faster than anyone else. The Daily News reported:
"We are building in one of the hottest markets in the world," Forest City Ratner CEO MaryAnne Gilmartin said. "Given the strength of the market and the value represented by the Atlantic Yards project, we believe this is an excellent opportunity to gauge the interest of potential financial partners."
Previous promises

Gilmartin said in September 2010, as noted in the video below,"Let me be clear. Forest City is a company with great determination and deep roots in Brooklyn. We are 100% committed to delivering the entire Atlantic Yards project and all of its benefits, to the borough of Brooklyn."



Already, they've diminished the benefits--in terms of overall construction wages--by choosing modular construction. Also, they've reneged on promises to ensure that 50% of the affordable units, in floor area, be devoted to two- and three-bedroom units.

The modular gambit

It's interesting--gutsy or risky, take your pick--for them to put Atlantic Yards on the market before they've proven, or disproven the success of modular construction. But the five-year process would give them time.

Actually, they've suggested that the cost savings would not necessarily come on the first building, but with the pipeline, so maybe the first building will not be dispositive--and they won't close the deal until that first tower proves sturdy.

Most buildings on railyard? Nope

The Times reports:
Most of the 14 remaining residential buildings would have to be built atop a concrete and steel platform over a railroad yard. The completion date for those buildings has been pushed back, angering opponents and some supporters who believed that the housing was the project’s most critical component, because more than 30 percent of the units would be set aside for poor- and moderate-income families. Under an agreement with the state, Forest City will face millions in fines if it fails to build the residential part of the project.
Actually, the fines are quite gentle once you get past the first towers, around the railyard,, though the Times get some credit for noting that some supporters are frustrated.

There would only be six of 14 residential buildings over the railyard, not "most." (And there would be 15 remaining buildings, though one or two might be offices or mixed-use.) [Update: The Times corrected the "most" error.]

Note that Forest City already announced plans to leapfrog the railyard and build four towers on terra firma--the southeast block that's the parking lot.

The key here is that "The completion date for those buildings has been pushed back," which is a euphemism for Forest City renegotiating settled deals with the Metropolitan Transportation Authority and the Empire State Development Corporation.

Didn't the Times describe Bruce Ratner just last September as having a reputation "for promising anything to get a deal, only to renegotiate relentlessly for more favorable terms"?

Forest City takes all the risk?

The Times reports:
William Shanahan and Darcy Stacom of CBRE, a real estate company, have started marketing the property. Word of the potential sale appeared in Real Estate Alert, an investment newsletter, on Tuesday. Paul Adornato, an analyst at BMO Capital Markets, said that the property should attract a lot of interest.
...Mr. Adornato said of Forest City: “This is consistent with what they do. They’ll take all the risk at the early stage of a project. Once they create value, they look to monetize that by bringing in investors. The layup will be to build the rest of the Yards as the market allows.”
Eric McClure (ex-No Land Grab) commented on the Times web site:
"They’ll take all the risk at the early stage of a project."
Correction: The taxpayers took on all the risk.
To be fair, the developer took what seemed to some as a significant risk. But they sure hedged it. And that was enough risk to become situated to bring in more conservative investors.

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