Wednesday, February 24, 2016

Forest City CEO: bulk to be moved to Site 5 office tower just 650K square feet (fallback?), "very early" in discussion (dubious)

In a discussion today, the CEO of Forest City Realty Trust (formerly Forest City Enterprises), parent of Forest City Ratner, seemed curiously underinformed about the plans floated for a massive office tower--which I've dubbed the "Brooklyn Behemoth"--for the one-acre plot, known as Site 5, currently occupied by Modell's and P.C. Richard.

But he may have made an admission about the somewhat reduced bulk that could constitute Forest City's fallback position.

Unofficial mockup of potential bulk; see explanation here
Remember, Site 5 has been approved for a 250-foot, 439,050-square foot tower, while B1 has been slated to be 511-foot (reduced from the approved 620 feet), 1,106,009-square foot tower.

Moving the bulk and preserving the plaza would not only save Greenland Forest City Partners, the joint venture developing Atlantic Yards/Pacific Park, significant construction costs, it would keep a crucial amenity needed for smooth functioning of the Barclays Center. I'd bet that Forest City's pledge not to build on the plaza was part of the company's deal to sell its majority share in the arena operating currently.

The plan would move the bulk of B1 across to Site 5
Of course, it would be a preposterous amount of square footage, given that a building with 1.5 million square feet would be nearly three times the bulk of the 1,066-foot "supertall" tower recently announced next to the Dime Savings Bank and Junior's in Downtown Brooklyn. It would expand a building that the City Planning Commission said should shrink, given its adjacency to a residential district.

The CEO speaks

During a conference call this morning with investment analysts, Forest City CEO David LaRue was asked if he could say anything "about reports you might be looking to develop" that large  office tower.

"We have entitled, currently, as part of Pacific Park, with our partner, the Greenland Group, on Site 1, which is the plaza, up to 650,000 square feet I believe that can be developed there." LaRue responded.

Actually, they have more than 1 million square feet. So either he was uninformed or casually acknowledging the fallback position--perhaps they'd be happy to move "only" 650,000 square feet in order to plan a more "buildable" 1 million square foot building. (And they'd move the rest of the bulk elsewhere?)

"We have those as of right; they're entitled right now," continued LaRue. That's not quite true. They're not "as of right" to move around as they see fit. It would require Empire State Development, the state authority overseeing/shepherding the project, to amend the General Project Plan and hold public hearings.

"And I think the discussion that occurred in the paper was whether or not those rights would be moved from that open space, that plaza, which has become very much a community asset I would say, something the community embraced, to a site right across, to what's called Site 5, where there's a Modell's, etc.," he continued. "It's really very early in the discussion about building it, but it's really an opportunity to evaluate the right placement of that office square footage, that office entitlement. That's where it stands."

Well, the "discussion that occurred in the paper" was surely goosed by subsidiary Forest City Ratner's friendly placement of the news in Crain's New York Business.

If they're talking publicly, it's not "very early in the discussion" but rather a good way through the discussion.

And his term "right placement" recalls similar euphemisms like Bruce Ratner's use of the term "very appropriate" regarding wages in the modular factory.

Other issues: sale of arena/team

LaRue was asked why Forest City wound up with partial payment in cash and partial payment in notes receivable for its shares of the Barclays Center operating company and the Brooklyn Nets to Mikhail Prokhorov's Onexim.

He agreed with his questioner that "it would've been much more preferable to have the proceeds all come in cash... but that just was not in the cards during our negotiation." That suggests that Prokhorov had a stronger hand.

Because the arena has ongoing cash flow, it was agreed that the notes would be paid off semi-annually, LaRue said, but because the team has operated at a loss, "we agreed to accrue that interest," which means it will be paid at maturity, in 5.5 years.

Other issues: the Brooklyn housing market

LaRue said the company was still bullish on the housing market in Brooklyn. "There is a huge supply, but again, based upon strength that we continue to see in leasing of our 80 DeKalb building, and in market feedback we get from sources in the marketplace, strength in demand continues to meet and absorb that new product," he said. "At some point, that supply may slow down that rent growth. The way we're structured, we will appropriately evaluate the opportunities to start an additional building based on current information and make that adjustment at that time."

That's not quite true. They still have to deliver 2,250 affordable units by 2025, though they do have some wiggle room, because there will be more market-rate-only buildings than previously planned.

Other issues: the Brooklyn office market

One questioner pointed out that, as recently as a year ago, "most folks weren't too excited" about the office market in Brooklyn.

LaRue said he saw the current demand as natural, since "people want to live in the market." He said that the company had already gotten more than 50% of its leases nationally signed for the 1 million square feet of office space that will be rolling over. "Those market dynamics," he said of Brooklyn and other markets, "currently are very strong."

1 comment:

  1. How is that a "community asset" when it's regularly clogged with metal barricades, thus forcing residents who want to cross it to literally walk around most of it?

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