Wednesday, November 04, 2015

Forest City sells 625 Fulton site for $158 million; price suggests railyard was a bargain

Forest City Enterprises has made a deal to sell "625 Fulton Street, a development site adjacent to our DKLB BKLN apartment community," for $158 million to The Rabsky Group, according to a Nov. 3 press release reporting the firm's third quarter results.

That figures is less than the $185 million value estimated by Crain's New York Business in October 2014, but it still works out (by math) to be a hefty $263.33 per buildable square foot for more than 600,000 square feet of residential space. (Update: Forest City Enterprises CEO David LaRue identified the value at $255/sf.)

And given that the development rights for the 8.5-acre Vanderbilt Yard involve more than 3.6 million square feet, that suggests that the railyard rights--if they were sold now--were worth $948 million before subtracting additional costs. 

As I wrote last year, Forest City in 2005 promised $100 million in cash, then renegotiated an extension in 2009, at a gentle interest rate.

Even subtracting several hundred million dollars for the new railyard, deck, and new transit entrance, I'd say it still looks like a bargain. At the very least, the Metropolitan Transportation Authority should have asked for a piece of the potential upside when it had leverage in 2009.

Regarding the latest sale, Forest City told the Commercial Observer:
“We remain as bullish as ever on the Brooklyn real estate market as demonstrated by our four residential buildings under construction today at Pacific Park, Brooklyn,” a spokeswoman for Forest City said in an email to CO. “This sale is related to our stated corporate commitment to our shareholders to shore up our balance sheet by enhancing liquidity and delivering through strategic dispositions as [Forest City Enterprises] becomes a [real estate investment trust] on Jan 1, 2016.”

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