Forest City's announcement of paper losses on Atlantic Yards positions company for China deal, government help; 2006 claims suggest company's numbers not so solid
That reflects greater than expected costs past and future, as well as expected future revenues. According to a Forest City Enterprises press release, 12/9/13, CEO David LaRue said:
"As our investors are aware, we have been actively committed to Atlantic Yards in Brooklyn for a decade, even as the project has been delayed by numerous lawsuits from opponents and the impact of the recession. To date, we and our minority partners have invested equity of approximately $545 million, with total costs of approximately $770 million, including debt."New positioning
It makes for some very interesting positioning, in which:
- the pending deal with the Chinese government-owned Greenland Group can now be cast as a savior to accelerate the project
- any request for a more certain schedule (ten vs. 25 years) or more broadly accessible subsidized housing (deeper affordability) might be cast as an impediment to the project, and
- the developer might have an argument for either more subsidies and/or more leeway in providing a configuration of subsidized apartments that veer from past promises (as with the lack of family-sized units in the first tower)
We'll have to see how that plays out.
But it's also important to get a closer look at exactly why Forest City is calculating a loss. In what way were estimates way off? And, given that the project was approved in 2009, by the state agency charged with overseeing and shepherding the project, what did Empire State Development miss?
And given that the company does stand to make profits from the arena, future buildings, and development fees, at what point does that paper loss get erased?
We should also keep in mind that Forest City Ratner has not exactly been the most reliable narrator. Consider how Jim Stuckey, then Forest City Ratner's point man for Atlantic Yards, in May 2006 told an interviewer:
In order to develop on the site, one has to spend $600 million on infrastructure before you could put a shovel in the ground for a residential building or for the arena. You have to build railyards, you have to build subway connections, the platform, retaining walls, you have to relocate sewers. It’s $50 million alone just for the cost of cleaning up the environment. The site today is not a very clean site. You put all that together, as well as you look the cost to assemble land, you get close to $900 million.(Emphases added)
Two months later, in July 2006, he upped the number:
It’s not a complicated question on density. You don’t really need to go to our profit. The one thing I think that was interestingly and suspiciously missing from the so-called alternative plans was the cost of how they did those projects and how any developer could make money. There are $650 million worth of public infrastructure that has to be built before the first shovel goes into the ground to build a single affordable housing apartment or the arena or any other part of this project. There’s another $350 million of cost, of money that we would have spent on acquiring land to avoid condemnation. A billion dollars before you start. I think that’s a very significant investment. That does deserve to make a profit. It is, after all, America.First, I've never seen proof of $600 million or $650 million of "public infrastructure." (But if I missed it, please correct me.)
Moreover, how could the number shift by $100 million in two months?