Skip to main content

As vote on REIT conversion approaches next month, Forest City identifies arena/Nets as part of taxable subsidiaries

Forest City Enterprises has filed with the Securities and Exchange Commission a proxy statement sent to shareholders regarding the 10/20/15 vote to reorganize the Ohio-based corporation into a Maryland corporation that will qualify as a real estate investment trust (REIT).

By reorganizing, Forest City Realty Trust will not be subject to federal corporate income taxes on distributions. As a REIT, Forest City must distribute annually at least 90% of its REIT taxable income, which will exclude any taxable real estate investment trust subsidiary (TRS) unless that TRS pays dividends to the REIT. 

Regarding the TRS

The document states:
We plan to hold certain of our assets and operations and to receive certain items of income through one or more TRSs. These assets and operations consist principally of Forest City’s (i) military housing business, (ii) land development projects at Stapleton in Denver, Colorado, and Mesa del Sol in Albuquerque, New Mexico, (iii) condominium development projects at Pacific Park Brooklyn, a mixed-use project in Brooklyn, New York, and (iv) ownership interests in Barclays Center, the arena in Brooklyn, New York, and The Brooklyn Nets. Those TRS assets and operations would continue to be subject, as applicable, to U.S. federal and state corporate income taxes. 
Note that the 20% ownership in the Nets and 55% ownership interest in the arena are up for sale, and may well be resolved either before the vote or by the end of the year. Forest City is aiming to diminish subsidiaries that are not part of the core REIT.

Changing corporate structure, from the document

BEFORE THE MERGER



THE MERGER




AFTER THE MERGER




CREATION OF OUR OPERATING PARTNERSHIP




(1) Forest City converts to a Delaware limited partnership, with the REIT as its general partner and the REIT and FCILP as limited partners. We refer to these steps as the reorganization of Forest City into a limited partnership.

AFTER THE CREATION OF OUR OPERATING PARTNERSHIP




(1) Forest City Enterprises, L.P. (the Operating Partnership) is the result of the conversion of Forest City, as the surviving company in the Merger, from an Ohio corporation to a Delaware limited partnership; following this conversion, the REIT will be the sole general partner of the Operating Partnership and also will own, directly and through its interest in FCILP, all of the outstanding limited partnership interests in the Operating Partnership. The REIT may identify one or more persons or entities who agree to acquire (through purchase or exchange) and hold limited partnership interests in the Operating Partnership following the REIT Conversion. Nevertheless, the REIT will remain the sole general partner of the Operating Partnership and the Operating Partnership and its assets will still be assets of the REIT in the consolidated financial statements of the REIT. FCILP will be a taxable real estate investment trust subsidiary of the REIT. FCILP’s only asset will be a limited partnership interest in the Operating Partnership, which will be less than 1% of the limited partnership interests in the Operating Partnership. Forest City TRS, LLC will be a TRS of the REIT and is being formed to hold the REIT’s non-real estate investment trust assets and operations, which we expect will consist primarily of our (i) military housing business, (ii) land development projects at Stapleton in Denver, Colorado, and Mesa del Sol in Albuquerque, New Mexico, (iii) condominium development projects at Pacific Park Brooklyn, a mixed-use project in Brooklyn, New York, and (iv) ownership interests in Barclays Center, the arena in Brooklyn, New York, and The Brooklyn Nets.


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…