Monday, May 11, 2015

Inside Forest City/Greenland agreement: credit line for railyard (diminished by EB-5 funds); loan to buy land; development fee

We now know some more details about the deal between Forest City Ratner and the Greenland Group, which bought 70% of the Atlantic Yards/Pacific Park project going forward, not including the arena and the B2 modular tower. They include:
  • a credit line from Greenland (offset by EB-5 funds) to build the railyard
  • a 6% loan from Greenland for Forest City to buy land
  • an unspecified development fee
  • a process governing each partner's effort to sell its shares
That's according to the Greenland Forest City LLC Agreement, dated 6/30/14, which I recently received--albeit with redactions and without several attachments--after a Freedom of Information Law request.

Greenland's $250M in credit

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As noted in the excerpt at right, on or after the Effective Date (the signing of the agreement), Greenland agreed to provide up to $250 million in credit to "the Company"--a Forest City affiliate that has since admitted Greenland as a co-member--to construct 70% of the permanent railyard.

The two members in the joint venture--Greenland and Forest City--together would pay the remaining 30%.

But it's not like Greenland will be on the hook for that $250 million. The sum "shall be reduced on a dollar for dollar basis by the amount borrowed or assumed by the Company or applicable Subsidiary on account of "the New EB-5 financing."

After all, as I just reported, Forest City and Greenland raised $249 million in the second round of EB-5 financing from immigrant investors, which can be be used for the railyard, as well as to pay the Metropolitan Transportation Authority for development rights, and more.

It's unclear how the EB-5 financing would be repaid, but presumably the 70/30 split would be maintained.

A 6% loan

Forest City, according to the document, has several unilateral obligations.

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Notably, as suggested in the excerpt at left, Forest City must take care of all payments to condemnees for "Phase I land" taken by eminent domain.

In the interim, however, the Company--the joint venture--agreed to loan Forest City money at 6%--a relatively gentle interest rate--to cover such payments.

What is "Phase I land"?

Well, according to the excerpt below from the LLC agreement, it includes three towers on the arena block (excepting the B2 modular tower, which began before Greenland jointed the picture), and the four towers on the southeast block of the project, Block 1129, where two towers are already under construction.


A development fee

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Note that the new joint venture will pay Forest City a development fee (aka "Project Services Fee") and Greenland a development fee, based on all spending.

The development fee was originally supposed to be 5%. Presumably that will continue.

If so, and the split is 70/30, that would mean 1.5% to Forest City and 3.5% to Greenland.

But perhaps the split is not 70/30, if Forest City does the heavy lifting.

Either way, the development fee is surely part of of Forest City's bottom line calculations.

Transferring the project

An extensive section of the document, starting on page 60, relates to transfers from Forest City and Greenland to related entities and outside entities.

Forest City can't transfer its interests to a "Greenland Competitor," defined as a real estate construction or development firm with its principal place of business in China or Hong Kong.

Greenland, in turn, can't transfer its interests to a "Forest City Competitor," though the definition isn't clear; it means any "Entities or Related Parties" in Exhibit S, which was not included.

In case of potential transfers, each must offer the other a "ROFO Notice" and "ROFO Price," referring to a right of first offer.

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