Skip to main content

Forest City sells 49% stake in two New York rental buildings, Beekman and 80 DeKalb, at apparent discount to raise cash

To lower debt payments, Forest City Enterprises is selling nearly half of two New York rental properties developed by subordinate Forest City Ratner, keeping 51% ownership. Similarly, the company sold nearly half of New York area retail properties in March to raise cash.

The press release at bottom, which is distilled in The Real Deal, Forest City restructures financing at 8 Spruce, DKLB BKLN, provides the developer's preferred angle:
Forest City Enterprises and National Real Estate Advisors [NREA] announced agreements to restructure the financing at 8 Spruce Street, the Frank Gehry-designed 76-story rental tower in Lower Manhattan and at DKLB BKLN the luxury tower in Fort Greene, Brooklyn, saving the companies hundreds of millions of dollars in debt payments.
Crain's Cleveland Business also distilled the press release.

But there's a trade-off: while Forest City may save hundreds of millions in debt, it sold stakes in both buildings for what seem to be discounts. (I suspect I'm missing some elements of the financial deal, but the raw math is still worth a look.)

In the press release, Forest City CEO David LaRue hinted that times are still tough: "Finally, by extending the bank credit facilities, it allows additional time for economic conditions and rents to further improve before refinancing is necessary."

8 Spruce Street

The price tag for 8 Spruce Street, aka Beekman Tower, is $876 million. If NREA is increasing its stake in the building to 49 percent from 30 percent by "converting $110 million in mezzanine debt into equity," it's paying $110 million for 19 percent of the project.

But 19% of $876 million is $166.4 million. So it looks like NREA got a discount.

DKLB BKLN

At DKLB BKLN, also known as 80 DeKalb Avenue, "NEBF's $30 million mezzanine loan will be converted into a 49 percent equity stake."

Presumably that equity is associated with some $50 million in debt--bank financing is now $104 million, with Forest City owing $53 million--but it most likely is a discount.

After all, mezzanine debt is generally high-risk debt, so lenders must be compensated with either high interest rates or good chunks of equity.

The press release
Forest City and National Real Estate Advisors Announce Recapitalization and Modified Financing for 8 Spruce Street and DKLB BKLN Properties in New York
CLEVELAND, July 5, 2011 /PRNewswire/ -- Forest City Enterprises, Inc. (NYSE: FCEA and FCEB) and National Real Estate Advisors (NREA) today announced recapitalizations and modified credit facilities for 8 Spruce Street, a 903-unit apartment high-rise in lower Manhattan, and DKLB BKLN, a 365-unit apartment building in Brooklyn.  These transactions result in significant debt reduction for the properties and for Forest City.

For 8 Spruce Street, NREA, on behalf of the National Electrical Benefit Fund (NEBF), which was already a 30 percent equity investor in the project, will convert its $110 million of mezzanine debt to equity, increasing its equity ownership to 49 percent.  Forest City has also secured a modification of the property's existing non-recourse financing with a six-bank group led by Eurohypo. Under the modification, the bank credit facility will be reduced from $605 million to $539 million. In addition, the maturity of the credit facility has been extended through July 1, 2016.  Taken together, these changes reduce total debt on the property from $715 million to $539 million and Forest City's pro-rata share of the debt from approximately $500 million to $275 million.

For DKLB BKLN, NREA will convert NEBF'S existing $30 million mezzanine debt to a 49 percent equity stake in the property. Concurrently, the property's bank financing, through Wells Fargo and Helaba Landesbank Hessen-Thuringen, will be reduced from $117 million to $104 million with the maturity extended two years from closing.   These changes reduce total debt on the property from $147 million to $104 million and Forest City's pro-rata share of the debt from $147 million to $53 million.
Subsidiaries of Forest City retain 51 percent ownership of both properties.  NEBF is transferring its 49 percent interest in both properties to the INDURE commingled real estate investment fund managed by NREA.

"This creative and very positive series of transactions demonstrates the tremendous value created in the development of these two properties by our New York team during some of the toughest market conditions in memory," said David J. LaRue, Forest City president and chief executive officer. "In addition, it has significant benefits for Forest City.  First, it has a substantial, positive impact on our pro-rata corporate debt metrics, in keeping with our focus on strengthening our balance sheet. It also meaningfully reduces total debt on these high-quality properties. Finally, by extending the bank credit facilities, it allows additional time for economic conditions and rents to further improve before refinancing is necessary. I congratulate NREA, our lenders, and our New York office, which was led by Andy Silberfein and Matt Messinger in structuring and negotiating this series of transactions."
Jeffrey Kanne, President and CEO of NREA, said "The extremely hard work and deep experience required to complete these transactions aptly represent Forest City's outstanding abilities.  Forest City brought these extraordinary projects through some of the most challenging times our industry has ever known.  Throughout it all they demonstrated the utmost integrity.  We are very pleased to be Forest City's partner."
About the Properties
8 Spruce Street (formerly Beekman), designed by renowned architect Frank Gehry and developed by Forest City, is already a landmark in lower Manhattan and is the tallest residential building in the Western hemisphere at 76 stories and 867 feet. The base of the building includes a pre-K through 8th grade public school and an ambulatory care center for New York Downtown Hospital. The building's 903 market-rate apartment units occupy floors seven and higher. Leasing of units on the lower floors began on February 18, 2011, and as of June 27, more than 270 units had been leased.
DKLB BKLN (formerly 80 DeKalb Avenue), a 36-floor apartment building in the vibrant Fort Greene neighborhood of Brooklyn, was developed by Forest City and began leasing in November 2009. The property, which includes 73 affordable units and 292 market-rate units, is currently in excess of 99 percent occupied.
About NREA and NEBF
NREA is a third-party real estate investment management and advisory firm which is wholly-owned by NEBF, a multi-billion dollar, multi-employer, defined benefit pension plan that provides retirement and related benefits to employees in the electrical construction Industry.
About Forest City
Forest City Enterprises, Inc. is a NYSE-listed national real estate company with $11.5 billion in total assets. The Company is principally engaged in the ownership, development, management and acquisition of commercial and residential real estate and land throughout the United States. For more information, visit www.forestcity.net.

Comments

Popular posts from this blog

Barclays Center/Levy Restaurants hit with suit charging discrimination on disability, race; supervisors said to use vicious slurs, pursue retaliation

The Daily News has an article today, Barclays Center hit with $5M suit claiming discrimination against disabled, while the New York Post headlined its article Barclays Center sued over taunting disabled employees.

While that's part of the lawsuit, more prominent are claims of racial discrimination and retaliation, with black employees claiming repeated abuse by white supervisors, preferential treatment toward Hispanic colleagues, and retaliation in response to complaints.

Two individual supervisors, for example, are charged with  referring to black employees as “black motherfucker,” “dumb black bitch,” “black monkey,” “piece of shit” and “nigger.”

Two have referred to an employee blind in one eye as “cyclops,” and “the one-eyed guy,” and an employee with a nose disorder as “the nose guy.”

There's been no official response yet though arena spokesman Barry Baum told the Daily News they, but take “allegations of this kind very seriously” and have "a zero tolerance policy for…

Behind the "empty railyards": 40 years of ATURA, Baruch's plan, and the city's diffidence

To supporters of Forest City Ratner's Atlantic Yards project, it's a long-awaited plan for long-overlooked land. "The Atlantic Yards area has been available for any developer in America for over 100 years,” declared Borough President Marty Markowitz at a 5/26/05 City Council hearing.

Charles Gargano, chairman of the Empire State Development Corporation, mused on 11/15/05 to WNYC's Brian Lehrer, “Isn’t it interesting that these railyards have sat for decades and decades and decades, and no one has done a thing about them.” Forest City Ratner spokesman Joe DePlasco, in a 12/19/04 New York Times article ("In a War of Words, One Has the Power to Wound") described the railyards as "an empty scar dividing the community."

But why exactly has the Metropolitan Transportation Authority’s Vanderbilt Yard never been developed? Do public officials have some responsibility?

At a hearing yesterday of the Brooklyn Borough Board Atlantic Yards Committee, Kate Suisma…

No, security guards can't ban photos. Questions remain about visibility of ID/sticker system.

The bi-monthly Atlantic Yards/Pacific Park Community Update meeting June 14, held at 55 Hanson Place, addressed multiple issues, including delays in the project, a new detente with project neighbors,concerns about traffic congestion, upcoming sewer work and demolitions, and an explanation of how high winds caused debris to fly off the under-construction 38 Sixth Avenue building. I'll have more coverage.
Security issues came up several times at the meeting.
Wayne Bailey, a resident who regularly takes photos and videos (that I often use) of construction/operations issues that impact residents, asked representatives of Tishman Construction if the security guard at the sites they're building works for them.
After Tishman Senior VP Eric Reid said yes, Bailey asked why a guard told him not to shoot video of the site, even though he was on a public street.

"I will address it with principals for that security firm," Reid said.
Forest City Ratner executive Ashley Cotton, the …

Atlantic Yards/Pacific Park graphic: what's built/what might be coming (post-dated pinned post)

This graphic, posted in November 2017, is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. Note the unbuilt B1 and the proposed shift in bulk to the unbuilt Site 5.

The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change. The project is already well behind that tentative timetable.

The previous graphic, from August 2017 (without the ghost B1)

Barclays Center event June 11 to protest plans to expand Israeli draft; questions about logistics

At right is a photo of a poster spotted in Hasidic Williamsburg right. Clearly there's an event scheduled at the Barclays Center aimed at the Haredi Jewish community (strict Orthodox Jews who reject secular culture), but the lack of English text makes it cryptic.

The website Matzav.com explains, Protest Against Israeli Draft of Bnei Yeshiva Rescheduled for Barclays Center:
A large asifa to protest the drafting of bnei yeshiva in Eretz Yisroel into the Israeli army that had been set to take place this month will instead be held on Sunday, 17 Sivan/June 11, at the Barclays Center in Downtown Brooklyn, NY. So attendees at a big gathering will protest an apparent change of policy that will make it much more difficult for traditional Orthodox Jewish students--both Hasidic (who follow a rebbe) and non-Hasidic (who don't)--to get deferments from the draft. Comments on the Yeshiva World website explain some of the debate.

The logistical questions

What's unclear is how large the ev…

Atlanta's Atlantic Yards moves ahead

First mentioned in April, the Atlantic Yards project in Atlanta is moving ahead--and has the potential to nudge Atlantic Yards in Brooklyn further down in Google searches.

According to a 5/30/17 press release, Hines and Invesco Real Estate Announce T3 West Midtown and Atlantic Yards:
Hines, the international real estate firm, and Invesco Real Estate, a global real estate investment manager, today announced a joint venture on behalf of one of Invesco Real Estate’s institutional clients to develop two progressive office projects in Atlanta totalling 700,000 square feet. T3 West Midtown will be a 200,000-square-foot heavy timber office development and Atlantic Yards will consist of 500,000 square feet of progressive office space in two buildings. Both projects are located on sites within Atlantic Station in the flourishing Midtown submarket.
Hines will work with Hartshorne Plunkard Architecture (HPA) as the design architect for both T3 West Midtown and Atlantic Yards. DLR Group will be t…

Not quite the pattern: Greenland selling development sites, not completed condos

Real Estate Weekly, reporting on trends in Chinese investment in New York City, on 11/18/15 quoted Jim Costello, a senior vice president at research firm Real Capital Analytics:
“They’re typically building high-end condos, build it and sell it. Capital return is in a few years. That’s something that is ingrained in the companies that have been coming here because that’s how they’ve grown in the last 35 years. It’s always been a development game for them. So they’re just repeating their business model here,” he said. When I read that last November, I didn't think it necessarily applied to Atlantic Yards/Pacific Park, now 70% owned (outside of the Barclays Center and B2 modular apartment tower), by the Greenland Group, owned significantly by the Shanghai government.
A majority of the buildings will be rentals, some 100% market, some 100% affordable, and several--the last several built--are supposed to be 50% market/50% subsidized. (See tentative timetable below.)

Selling development …