Skip to main content

Forest City Enterprises reports losses: arena not expected to stabilize until 2016; risks disclosed regarding partial sale of Atlantic Yards

Developer Forest City Enterprises yesterday announced its second-quarter results, with increased FFO (funds from operations and Operating FFO but a $16.3 million net loss, compared with a net loss of $43.7 million in the second quarter of 2012.

The net loss for the six months ended July 31, 2013, was $35.6 million, compared with a net loss of $21.0 million for the same period in 2012.

One reason, not fully unexpected, was the cost of operating the Barclays Center, which has sold tons of tickets but still is not as profitable as expected. (Is that because they signed not-so-profitable deals to get events in the building?)

"While our mature portfolio continues to demonstrate solid fundamentals," CEO David LaRue cited several factors, including "the ongoing ramp up of two major assets, the Barclays Center arena and Westchester's Ridge Hill, which has been slower than originally anticipated. While the arena has received excellent market acceptance and performed well from a revenue standpoint, we do not expect it to achieve stabilization until 2016, as we have stated previously. We anticipate that Ridge Hill will achieve stabilization within that same timeframe, but the current pace of lease-up at the property has not met our expectations. Nonetheless, we remain confident in the outlook for both properties, and we have teams focused on driving results to achieve our targeted returns for both Barclays Center and Ridge Hill."
(Emphasis added)

Still, if they're "driving results," they are surely aiming to increase revenues and decrease costs at the arena. The arrival of the New York Islanders will help solve the first challenge. But lowering costs may involve fewer employees or other flexible spending.

Moving the goalposts

Note that, while Forest City executives stated in March 2013 that they do not expect to achieve stabilization of arena revenues until 2016, given that's when the Islanders arrive, as of March 2012 they were predicting stabilization by 2014, the second year of operation.

Two other factors

LaRue also cited "our strategic decision to reduce our development pipeline as part of building a sustainable capital structure, reducing risk and improving our development ratio," a process that ultimately should lead to improved operating margins.

Finally, LaRue cited "the impact of increased interest expense due to reduced capitalized interest," primarily due to opening "several large development projects, including 8 Spruce Street, Barclays Center and Westchester's Ridge Hill," for which, during construction, the related interest expense was capitalized to the projects. 

Going forward: marketing Pierrepont, other savings

"Even with these near-term challenges, we continue to see solid fundamentals in our operating portfolio," he said, given growth in income and occupancy "across all of our core products."

Net operating income was down in office due to vacancy at One Pierrepont Plaza in Brooklyn," he added. "Excluding that property, Comp NOI from our office portfolio was up modestly. Notably, we are in the process of finalizing new leases for approximately half of the space that was vacated over the past year at Pierrepont, and we are actively marketing the remaining space to prospects.

LaRue cited new bond issues that would saving money, as well as an expanding "our bank revolving credit facility to $500 million, adding a new line bank and receiving increased commitments from two existing line banks."

Also, they've been selling "non-core assets and assets in non-core markets," including:
  • the Sheraton Station Square, a hotel in Pittsburgh
  • the Higbee Building, an office building in Cleveland
  • the Liberty Center complex in Pittsburgh
Marketing Atlantic Yards

The Form 10-Q document Forest City Enterprises filed yesterday with the Securities and Exchange Commission cited significant milestones since the end of the second quarter, including:
• Being selected by Nassau County, New York to renovate the Nassau Coliseum. Plans call for a renovated 13,000 seat arena, a 2,000-seat indoor theater, an outdoor amphitheater, restaurants, an ice-skating rink, a movie theater and retail space;
• Engaging CBRE to market a stake of up to 80% of the remaining development opportunities at the Brooklyn Atlantic Yards project;

That sale is not without risks, according some language in the Form 10-Q:
In addition, we are pursuing joint venture partners for the future development of Brooklyn Atlantic Yards. We are very early in the discussion process and can give no assurance as to whether we can find a joint venture partner for all or any part of the development opportunity at terms acceptable to us. However, if we are successful, it could result in forming joint ventures whereby we grant joint control or lose control of the asset. If that were to occur, we may have to deconsolidate the individual asset and its allocation of the site acquisition costs. Upon deconsolidation, our investment balance in the joint venture would be compared to estimated fair value and recorded at the lesser of fair value or book value. Additionally, evaluation on a quarterly basis for other than temporary impairment of the investment would be required. This could result in future impairments, some of which would likely be significant.

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…

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…

Forest City acknowledges unspecified delays in Pacific Park, cites $300 million "impairment" in project value; what about affordable housing pledge?

Updated Monday Nov. 7 am: Note follow-up coverage of stock price drop and investor conference call and pending questions.

Pacific Park Brooklyn is seriously delayed, Forest City Realty Trust said yesterday in a news release, which further acknowledged that the project has caused a $300 million impairment, or write-down of the asset, as the expected revenues no longer exceed the carrying cost.

The Cleveland-based developer, parent of Brooklyn-based Forest City Ratner, which is a 30% investor in Pacific Park along with 70% partner/overseer Greenland USA, blamed the "significant impairment" on an oversupply of market-rate apartments, the uncertain fate of the 421-a tax break, and a continued increase in construction costs.

While the delay essentially confirms the obvious, given that two major buildings have not launched despite plans to do so, it raises significant questions about the future of the project, including:
if market-rate construction is delayed, will the affordable h…

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 …

For Atlantic Yards Quality of Life meeting Sept. 19, another bare-bones agenda (green wall?)

A message from Empire State Development (ESD) reminds us that the next Atlantic Yards/Pacific Park Quality of Life Meeting--which aims to update community members on construction and other issues--will be held:
Tuesday, September 19, 2017 @ 6 pm
Shirley Chisholm State Office Building
55 Hanson Place
1st Floor Conference Room
Brooklyn, NY 11217 The typically bare-bones, agenda, below, tells us nothing about the content of the presentation. One thing to look for is any hint of plans to start a new building on the southeast block of the project by the end of the year.

If not, ESD is supposed to re-evaluate a longstanding request from project neighbors to move back a giant wall encroaching on part of Dean Street between Carlton and Vanderbilt avenues. It's said to enclose construction activity, but, in recent months, has significantly served to protect worker parking.

Also, by the way, if you search for Atlantic Yards on Google or the ESD website, it leads to this page for the Atlantic Ya…