Skip to main content

Forest City Enterprises: one Atlantic Yards tower "hopefully" will start by end of year; exec in Brooklyn had promoted multiple groundbreakings

Forest City Enterprises executives were cautious in speaking about Atlantic Yards plans during a conference call last Friday with investment analysts, indicating that one more building might start this year.

That contrasts with the optimism expressed by Forest City Ratner executive Melissa Burch, who in a 2/19/14 interview with BisNow, was said to be hoping to announce multiple groundbreakings later this year.

Forest City's deal with the Chinese government-owned Greenland Group is expected to close in the second quarter of this year. "We believe bringing a strong global partner to Atlantic Yards will help accelerate this important project and lead to meaningful value creation, " CEO David LaRue said during the conference call. 

Greenland will own 70% of the 15 remaining towers beyond the under-construction B2 and also invest in infrastructure. "The definitive agreement between us and Greenland, this great company, this great development group, is signed and being held in escrow, so that’s not a risk at this point," LaRue said.

One building this year?

"That will allow us, just based upon our own objectives, to get the infrastructure under way, and allow us to move forward with the planning, which we’re already doing, of additional buildings, beyond B2," LaRue continued. "We’re planning additional residential buildings, whether they’re rental or condo. We have that opportunity, as you know, because we have parcels not only on arena block but on [Block] 1129, which allow us to execute before that infrastructure goes in, for the Long Island Rail Road, for the permanent yard and the deck."

Indeed, Forest City since October 2012 has indicated plans to build on Block 1129, site of the above-ground parking lot, before building on the railyard. Overall, Forest City plans 4500 rental units, half of them subsdized, and 1930 condos, with perhaps 200 of them subsidized. 

"Again, they [Greenland] and us are anxious to get this going," LaRue said. "And that affordable housing component, which we remain focused on and committed to, is part of that acceleration. So we’re on track to get hopefully by the end of the year one of those starts that I mentioned, there’ll be another building at the project."

Analyzing the "impairment"

Forest City, which in December warned of an "impairment" to the bottom line of $250-$350 million, announced last week that the sum, at the firm's pro rata share of Atlantic Yards, is $242.4 million, or $148.4 million after taxes.

Asked why it was below the low end of previous guidance, CFO Bob O'Brien said, "We were finalizing agreements with Greenland when we made our announcement." He also said Forest City had been thinking about the entire impairment, without accounting for their partners--the identity and percentage ownership of which remains murky.

"When we net out the interest of our existing partner, it lowered it below 250 [million dollars]," he said.

The arena

On the call, Forest City executives stressed the prominent of the Barclays Center, but downplayed the cash flow, which, as I reported, meant a net operating income (NOI) of approximately $34.4 million, far below the $65 million figure expected in 2016 and not that much above the $27.8 million needed for debt service this year.

"We’re pleased with the acceptance of this fabulous facility, in the heart of Brooklyn, by the entire market," La Rue said. "So the revenue, again, as we’ve stated, is on track. We do have plans in place, I don’t want to get into the specific areas that we’re targeting, for a better investment of those dollars."

Actually, arena/team CEO Brett Yormark has already said the arena was overstaffed and they planned to cut down.

Asked for details, LaRue offered a "broad picture," suggesting that, upon opening, "we had a significant number of hosts" to help people find their way around the arena, but aren't needed now.

"We’ve targeted that $65 million as a stabilized number," he said. "That number does include the hockey operations coming in from Long Island. Right now, based on our view, we can achieve that in that time frame."

Looking at the balance sheet

One analyst referenced one SEC document and asked what would happen regarding $367 million of the "development project held for sale"and the $168 million of debt. "Should I think about that as realizing $200 million in cash?"


"Yes, replied O'Brien. Greenland is "coming to the table with approximately that amount of dollars," which will be used to help fund the permanent railyard and deck. (It's surely not enough.)

"That will go back in over time," he said. "So, we will receive gross $200 million." And while there are "some expenses related to the transaction" and some "other pullbacks," he said, "much of that cash will come to us."

Forest City also will get a 5% development fee for the entire project, so, if the rest of Atlantic Yards costs $3.8 billion--a ballpark figure that likely will rise--and Greenland puts up $2.66 billion, Forest City would earn $133 million.

That's relatively close to the impairment, though, given that the fee would be delivered over time,  a good deal less than the present value. Then again, the joint venture seems poised to save another $100 million or so from EB-5 investor funds.

Comments

Popular posts from this blog

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…

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…

Is Barclays Center dumping the Islanders, or are they renegotiating? Evidence varies (bond doc, cash receipts); NHL attendance biggest variable

The Internet has been abuzz since Bloomberg's Scott Soshnick reported 1/30/17, using an overly conclusory headline, that Brooklyn’s Barclays Center Is Dumping the Islanders.

That would end an unusual arrangement in which the arena agrees to pay the team a fixed sum (minus certain expenses), in exchange for keeping tickets, suite, and sponsorship revenue.

The arena would earn more without the hockey team, according to Bloomberg, which cited “a financial projection shared with potential investors showed the Islanders won’t contribute any revenue after the 2018-19 season--a clear signal that the team won’t play there, the people said."

That "signal," however, is hardly definitive, as are the media leaks about a prospective new arena in Queens, as shown in the screenshot below from Newsday. Both sides are surely pushing for advantage, if not bluffing.

Consider: the arena and the Islanders can't even formally begin their opt-out talks until after this season. The disc…

Skanska says it "expected to assemble a properly designed modular building, not engage in an iterative R&D experiment"

On 12/10/16, I noted that FastCo.Design's Prefab's Moment of Reckoning article dialed back the gush on the 461 Dean modular tower compared to the publication's previous coverage.

Still, I noted that the article relied on developer Forest City Ratner and architect SHoP to put the best possible spin on what was clearly a failure. From the article: At the project's outset, it took the factory (managed by Skanska at the time) two to three weeks to build a module. By the end, under FCRC's management, the builders cut that down to six days. "The project took a little longer than expected and cost a little bit more than expected because we started the project with the wrong contractor," [Forest City's Adam] Greene says.Skanska jabs back
Well, Forest City's estranged partner Skanska later weighed in--not sure whether they weren't asked or just missed a deadline--and their article was updated 12/13/16. Here's Skanska's statement, which shows th…

Not just logistics: bypassing Brooklyn for DNC 2016 also saved on optics (role of Russian oligarch, Shanghai government)

Surely the logistical challenges of holding a national presidential nominating convention in Brooklyn were the main (and stated) reasons for the Democratic National Committee's choice of Philadelphia.

And, as I wrote in NY Slant, the huge security cordon in Philadelphia would have been impossible in Brooklyn.

But consider also the optics. As I wrote in my 1/21/15 op-ed in the Times arguing that the choice of Brooklyn was a bad idea:
The arena also raises ethically sticky questions for the Democrats. While the Barclays Center is owned primarily by Forest City Ratner, 45 percent of it is owned by the Russian billionaire Mikhail D. Prokhorov (who also owns 80 percent of the Brooklyn Nets). Mr. Prokhorov has a necessarily cordial relationship with Russia’s president, Vladimir V. Putin — though he has been critical of Mr. Putin in the past, last year, at the Russian president’s request, he tried to transfer ownership of the Nets to one of his Moscow-based companies. An oligarch-owned a…