Wednesday, August 24, 2016

Forest City selling (its 51% of) Brooklyn malls, other retail properties, to focus on mixed-use projects

After selling a 49% stake in its major Brooklyn malls (and other retail properties) in 2011, and after selling 49% of other malls in 2013, Forest City Realty Trust (formerly Forest City Enterprises) aims to get out of the retail business almost completely.

That means a sale of the majority stake in the Atlantic Terminal and Atlantic Center malls opposite the Barclays Center, and a presence in retail limited to mixed-use, "placemaking" projects.

That includes retail in places like the MetroTech office park and includes Pacific Park Brooklyn, so, despite no discussion of the paused proposal to build a glitzy mall at Site 5, currently home to Modell's and P.C. Richard, I assume that's still the plan.

But Atlantic Yards/Pacific Park, it seems, remains something of an anomaly.

After all, if Forest City aims "to redeploy the value from our retail portfolio into apartment and office assets that align with our focus on core markets and urban, mixed-use placemaking projects," as CEO David LaRue said in a press release 8/22/16, this is one mixed-use project that they decided was too tricky to pursue on their own.

Instead, they found not merely a 49% investor, as in many other projects, but a new majority investor, in this case Greenland Group, which bought 70% of the project (excepting Forest City's share of the Barclays Center operating company and also the B2 modular tower) going forward.

A big sale

Overall, Forest City cited "ownership interest in 14 regional malls in markets around the country, and 19 specialty retail centers, which are located primarily in New York City.

"Over the past five years, we have made tremendous progress transforming Forest City by focusing on core urban markets and products, reducing complexity, paying down debt, driving operational excellence and converting to REIT status,"  LaRue said in the press release. "As part of this ongoing transformation, and after careful consideration, we have made the decision to explore strategic alternatives for our retail portfolio. We intend to look at a range of options and expect the review process to be concluded by the first quarter of 2017."

The stock market responded positively to the announcement, as can be seen in the screenshot below from Yahoo.


Forest City's New York-area retail properties include Westchester's Ridge Hill, among regional lifestyle centers; Atlantic Center, Atlantic Terminal Mall, Brooklyn Commons, Castle Center, East River Plaza, Harlem Center, Queens Place, Shops at Atlantic Center Site V, Shops at Bruckner Boulevard, Shops at Northern Boulevard, among urban retail; and East River Plaza and Shops at Gun Hill Road, among big box retail (which has overlap).

Drilling down

LaRue, speaking yesterday to investment analysts, said "our strength and competitive advantage in urban, mixed-use placemaking aligns better with apartments, office and amenity retail rather than standalone retail centers or regional malls."

He added that "our pipeline of entitlements concentrated in placemaking projects totals more than 20 million square feet," calling it "a significant growth opportunity."

A good chunk of entitlement is with Atlantic Yards/Pacific Park, more than 6 million square feet, but I'm not sure if they count all of it, since they're not the majority owner any more.

Brooklyn questions

Asked if this planned sale of retail replaced the company's (actually, the joint venture's) aim to sell three development sites at Pacific Park (B4, B12, B13), LaRue said no, and provided no details on progress. "We are going to proceed with that discussion and see how that plays out."

The executives were not asked if Forest City still plans residential towers above the Atlantic Center mall, a plan that surfaced in 2006.

I doubt they'd simply give up that entitlement. In fact, in what may be a hint of long-gestating plans, Atlantic Center is cross-listed in Forest City's category of residential retail, which contains this general description:
Forest City develops and manages premier residential communities in major markets across the country. Many of our properties feature convenient retail options for our residents.

Retail progress

The 49% sale of shares in the malls in 2011 to Madison International Realty was an effort to raise cash during a time when Forest City had been slowed, and to a firm whose president said they needed money for Atlantic Yards. The 2013  sale of non-New York retail properties to Australian investor QIC was also seen as raising money for Forest City to move forward.

Forest City CFO Bob O'Brien said that the sale price would be well above the company's basis in cost, so likely the proceeds would be redeployed into mixed-use projects to avoid capital gains and to be tax-efficient.

A shift for Forest City

The Plain Dealer of Cleveland reported with some context:
Shedding most of its retail properties would be a landmark shift for Forest City, which opened its first community shopping center in 1948 and its first regional mall in 1962. Today, the company's portfolio includes 14 regional malls across the country and 19 specialty retail properties, including entertainment-and-shopping complexes in New York City. 
....The company, which is in the midst of a headquarters search, doesn't have a retail footprint in Cleveland anymore. Earlier this year, Forest City sold the Avenue at Tower City, its mall in the heart of downtown, to affiliates of Bedrock, a Detroit-based real estate company that's part of the Rock Ventures family of businesses formed by billionaire and Cleveland Cavaliers majority owner Dan Gilbert.

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