Skip to main content

Evercore (not without conflicts) touts Forest City joint venture with Greenland as "certainly a positive" (but murkiness remains)

From Barrons: Research Reports: How analysts size up JD.com, Moody's, Forest City and a half-dozen other companies., 7/4/14:
by Evercore
The commercial and residential real-estate development company announced the closing of the much-anticipated deal with Shanghai-based Greenland, forming a Joint Venture for further development at Atlantic Yards (AY) in Brooklyn, NY. This is certainly a positive for Forest City.
We are reiterating our Overweight rating for Forest City. Moreover, we believe that FCEA shares are still at significant discount to our net-asset-value estimate of $24, which we set as our price target.
Simplification of its financing, refinancing its Ridge Hill project in Westchester County, accelerating the AY project, and deleveraging should all contribute to a closing valuation discount for the company.
Now Evercore has some skin in the game--having been hired to advise Forest City on its sale of its 20-percent stake in the Brooklyn Nets. But I don't doubt that the joint venture is a reasonable deal, "de-risking" the project.

After all, four top Forest City executives just got $1.6 million in bonuses. And the faster the project gets built out, the faster Forest City gets its 5% development fee.

Murkiness remains

Without further information, however, several things around the deal appear murky to me.  

Greenland is paying Forest City $200 million for a 70% share of the project (without the arena and B2) going forward, after the developer and partners invested some $545 million (or $547M), which has led Forest City to announce an impairment of $242.4 million or $148.4 million net of tax.

The company once hoped to break even, so that looks like a loss, at least on paper.

But the value of land in nearby Downtown Brooklyn has simply skyrocketed in the last few years. That suggests Forest City's holdings--despite the carrying cost, and the future cost of the railyard deck--are quite valuable.

That's surely one reason why Greenland--despite Forest City's claim it was only cost-effective to build modular--is planning to build the next few towers through conventional means.

Is it that Forest City's board just ran out of patience?

If so, will the Atlantic Yards deal resemble in some ways the deal to sell 80% of the Nets at a discount to Russian oligarch Mikhail Prokhorov, who has since seen the value of the team leap? If so, that would reflect of the challenges for a publicly owned company--even one controlled by a family--in taking a longer-term view.

Another question: if Forest City's modular plan--not delaying the first tower, B2, by a year--would they have needed to seek a joint venture partner, or would they have entered a joint venture on different terms? 

Comments

  1. In the small-world and small-world-equaling-conflicts-of-interest department it is worthwhile to note that Evercore, a spin-off of Stephen Schwarzman's Blackstone Group, comes up in the context of the sell-off and shrinkage of New York City libraries where Forest City Ratner also makes some strikingly prominent appearances.

    David Offensend, one of the founders of Evercore, took the position of Chief Operating Officer at the New York Public Library, where he was in change of, and apparently helped initiate and push for, library real estate sell-offs and shrinkage deals like the Donnell Library sale and the Central Library Plan, while at the same time Stephen Schwarzman, an NYPL trustee (with Marshal Rose, another trustee in the real estate business), pushed for the same at the board level. Schwarzman transferred $100 million to the NYPL with the understanding that such plans go forward.

    Meanwhile, we see the Donnell deal being replicated with the proposed sale of the Brooklyn Heights Library, decided upon and apparently conceived of in the same time frame as the Donnell sale (2007/2008). The Brooklyn Heights Library is immediately adjacent to Forest City Ratner property just the way that the other library pushed to the fore for sale by the BPL (the Pacific Branch) also is. The Brooklyn Heights Library is part of the same zoning lot with the Ratner property in such a way as to constitute Ratner a gatekeeper for that transaction with Ratner even holding unused development rights that will certainly be used in a deal if the library is sold. See link to article below.

    Offensend has also been involved (as it happens with others who are Brooklyn Public Library trustees) with approving development deals in Brooklyn Bridge Park where questions have rightly been raised about whether the public is getting a good bargain with what is being substituted to exempt developers from regular real estate taxes.

    Obviously, as these small-world relationships multiply, so too do the opportunities for conflicts of interest and potential for their abuse.

    Friday, September 20, 2013
    Forest City Ratner As The Development Gatekeeper (And Profit taker) Getting The Benefit As Brooklyn Heights Public Library Is Sold

    http://noticingnewyork.blogspot.com/2013/09/forest-city-ratner-as-development.html

    ReplyDelete
  2. One has to wonder what specially credentials Evercore as an adviser with respect to selling an interest in a sports team?-

    There is more to think about and figure out here.

    Let me see- Blackstone has that relationship with the Chinese (though the Chinese did not do well at all in that deal at all). . . And the Chinese are Greenland and also the wealthy EB-5 green card investors - Humm.

    ReplyDelete

Post a Comment

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…

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…

Former ESDC CEO Lago returns to NYC to head City Planning Commission

Carl Weisbrod, Mayor Bill de Blasio's City Planning Commission Chairman and Director of the Department of City Planning, is resigning,

And he's being replaced by Marisa Lago, currently a federal official, but who Atlantic Yards-ologists remember as the short-term Empire State Development Corporation CEO who, in an impolitic but candid 2009 statement, acknowledged that the project would take "decades."

Still, Lago not long after that played the good soldier at a May 2009 Senate oversight hearing, justifying changes in the project but claiming the public benefits remained the same.

By returning to City Planning, Lago will join former ESDC General Counsel Anita Laremont, who after retiring from the state (and taking a pension) got the job with the city.

Back at planning

Lago, a lawyer, in 1983 began work as an aide to City Planning Chairman Herb Sturz, and later served as the General Counsel to the president of the NYC Economic Development Corporation, Weisbrod himself.