Forest City executives: mixed-use projects like Pacific Park still attractive; noncommittal about selling three sites
Office space positive, but...
They didn't say anything specific about planned office space at Pacific Park (including the Site 5 and B4 sites), but sounded positive about office space in general. "In New York and in Brooklyn in particular there continues to be demand and strong pricing with new leases being signed at rates above the average of our in-place rents, said CEO David LaRue, calling it a signal that they could "achieve rent growth as our leases renew."
The housing market
LaRule foresaw "moderating growth in residential as a significant amount of new product begins to come online" in markets such as Brooklyn. Even given favorable demographics and steady demand, such new units "will take time to absorb," he said.
Still, he said, mixed-used projects such as Pacific Park Brooklyn offer assets: "densification, access to mass transit, a variety of uses, and an active 18- to 24-hour ground plane that are attractive to today's urban rental demographics and help create a unique sense of place and community."
Asked more about the issue of increased supply, LaRue noted that "the basic laws of economics" mean"you are going to have less pricing capacity." Still, he said, the peak of delivery will be this year, so additional supply will be absorbed, and the balance will "return to the norm."
Asked about pushing rents and the expected returns. LaRue said that new product was all at or above "projected NOI," or net operating income. At Pacific Park, the majority of units being delivered in four buildings are affordable and the demand "is not an issue, so we see that being absorbed very quickly and our projected returns holding on those as well."
That was an interesting comment, because, first of all, a good chunk of that affordable produce is aimed at middle-income households, so the developer may have to try harder to market to them. Second, it's not at all clear that the condo building, 550 Vanderbilt, is leasing up quickly, given that the "50% sold" announcement last month seemed oversold--and even with the hype that actress Lupita Nyong'o was looking at apartments there.
What about selling Pacific Park buildings?
Asked for an update on the projected plans to sell three Pacific Park sites--majority owned by Greenland Holdings, of course, the lead partner in the joint venture Greenland Forest City Partners--LaRue was noncommittal, sounding a bit less enthused than during a similar conference call in May.
"We have been having discussions on the opportunity to recapitalize," he said, adding, "We have not come to a conclusion on any of those discussions, though they are ongoing."
He said it was "a prudent look at the market and the demand that does continue to exist in Brooklyn. So we continue to evaluate that. and if so, when we come to a conclusion, either getting a deal done, or not being able to proceed, we obviously will inform our investors."