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Forest City announces results: nothing about schedule, but 461 Dean 39% leased, 535 Carlton 21% leased

There wasn't a lot of news related to Atlantic Yards/Pacific Park in yesterday's release of 2017 first-quarter results by Forest City Realty Trust--notably, no update on the project timetable or the impact of 421-a on the condo buildout--but a few nuggets emerged.

First, they're still predicting that 38 Sixth Avenue, the 303-unit, 100% affordable tower built in partnership with Greenland USA, "is expected to begin phased opening in the second quarter of 2017."

By contrast, at a community meeting earlier this week, a Forest City New York executive said they were "opening in late summer." Given the history of project delays, I think the latter is better guidance.

In a statement, FCRT CEO David LaRue said the company aimed to "continue to exercise prudent capital allocation and selectively activate new opportunities from our pipeline." That means they build when they think they can make money, which is in tension with the 2025 deadline for Atlantic Yards/Pacific Park affordable housing. Perhaps we'll learn more after a conference call with investment analysts today.

How fast are buildings getting leased?

As the below graphic shows, from the 8-K document submitted to the Securities and Exchange Commission, as of 4/27/17--a week ago yesterday--461 Dean, the first building to open, was 39% leased, and 535 Carlton was 21% leased.

Given that 461 Dean leasing officially started at the end of October and then was announced in mid-November, and that half that modular building consists of below-market affordable units, that percentage seems a bit low. Presumably it should be relatively easy to lease the 109 low- and moderate-income apartments, which represent 30% of the units.

Then, to get past 39%, all they need is a decent chunk of the middle-income affordable units and some of the market-rate units. In 2009, in a different climate for leasing and with different assumptions about the building, the consultant KPMG predicted that the building would be fully leased in seven months.

Leasing for the 100% affordable 535 Carlton started in January. Note that a lease commitment does not necessarily mean a move-in.


Options for the buildout: fewer market-rate units

I took another look at the boilerplate description of the project:

Pacific Park Brooklyn, a 22-acre mixed-use project, is located adjacent to the state-of-the-art arena, Barclays Center. At full build-out, Pacific Park Brooklyn is expected to feature more than 6,400 units of housing, including 2,250 affordable units and more than 8 acres of landscaped open space. Included in the square feet of residential entitlements is 250,000 square feet of amenity retail that will reside in the base of the various buildings. The project is also currently entitled for approximately 1 million square feet of office space. 38 Sixth Ave, a 303-unit, 100% affordable rental building, is currently under construction. Current partially opened projects include 535 Carlton, a 100% affordable rental building with 298 apartment units, 550 Vanderbilt, a 278-unit condominium building and parking garages which are expected to include 370 parking spaces. 461 Dean Street, a 50% market-rate and 50% affordable rental building with 363 apartment units, is complete.
(Emphases added)

Note that the project is not entitled to contain both 6,430 units of housing and approximately 1 million square feet of office space. From the 2009 Modified General Project Plan:
At full build-out, scheduled for the year 2019, the Project would include the Arena and at least 336,000 gsf of commercial office space, 165,000 gsf of hotel use (approximately 180 rooms), 247,000 gsf of retail space, up to 6.4 million gsf of residential use (approximately 6,430 residential units) and community facility uses, which would occupy portions of the residential and retail space, approximately 3,670 below-grade parking spaces and eight acres of publicly accessible open space, a portion of which may comprise the School Open Space. While the Phase II building programs are fixed, with the exception of the location of the School, as noted in the Phase I summary, there is flexibility in the programs of Buildings 1 and 2 and the building on Site 5 to convert the hotel use and 1.1 million gsf of residential use, or some portion thereof, to additional commercial office space. If the maximum amount of allowed commercial office space were provided, the Project would include approximately 1,606,000 gsf of commercial office space and 5,272,000 gsf of residential use (approximately 5,325 residential units) and the same amount of retail and community facility space, parking and publicly accessible open space.
So by including 1.6 million square feet of office space, they'd have only 5,325 residential units, not 6,430 units. And if there were 1 million square feet of office space, there might be more apartments, but not 6,430 ones.

Either way, given the commitment to 2,250 affordable units, there likely would be fewer market-rate units, with cuts either to the planned 1,930 condos or (less likely, I'd bet) 2,250 rentals.

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