Skip to main content

Forest City Enterprises on stalled B2 tower: $155 million project cost could increase to $215-$265 million

In a press release regarding 2014 Third-Quarter and Year-to-Date Results, Forest City Enterprises CEO David LaRue spoke generally about the stalled B2 tower:
"At B2 BKLYN at Pacific Park Brooklyn, our immediate goal is to restart that project quickly and in the most cost-effective manner possible, and we are exploring multiple options to do so. We also continue to pursue a variety of legal remedies to resolve ongoing disputes with the construction contractor."
The company's 10-Q filing with the Securities and Exchange Commission provided far more detail, including, as noted at bottom, that a building expected to cost $155 million, including construction costs and land, could cost from $215 million or even $265 million once litigation and increased costs were calculated.

The 10-Q describes Forest City buying out its partner:
During the three months ended September 30, 2014, the Company acquired the remaining noncontrolling interest of Arizona State Retirement System in the under construction B2 BKLYN, an apartment building in Brooklyn, New York. Following the transaction, the Company determined that B2 BKLYN was no longer a VIE [variable interest entity]. The impact of the removal of the entity from VIE status to the parenthetical disclosures on the December 31, 2013 Consolidated Balance Sheet were decreases of $104,408,000 to real estate, net, $1,306,000 to cash and equivalents, $46,801,000 to restricted cash, $3,110,000 to other assets, $56,605,000 to mortgage debt and notes payable, nonrecourse and $7,656,000 to accounts payable, accrued expenses and other liabilities.
The document described the detlays and the conflict:
B2 BKLYN is an apartment building under construction in Brooklyn, New York adjacent to the Brooklyn Arena at the Pacific Park Brooklyn project. In 2013, we contributed the land and development opportunity into our $400,000,000 residential development fund with Arizona State Retirement System (“ASRS”) and retained a 25% ownership. We decided to use modular construction to build this 32 story, 363 unit apartment building.
High rise modular construction has not previously been done at the heights of B2 BKLYN. The project has encountered, and may continue to encounter, delays and increased costs in the fabrication and assembly of the modular units. In April 2014, based on internal estimates and the pace of construction, the anticipated completion of this project was determined to be delayed until the fourth quarter of 2015. However, as a result of recent actions taken by Skanska USA (the” Construction Manager”), that date may not be achievable. We had a $117,000,000 fixed price contract with the Construction Manager to construct the apartment building. On August 27, 2014, the Construction Manager ceased construction and on September 23, 2014, terminated the contract. In response, on September 30, 2014, we issued a notice of default and intent to terminate the same contract due to the Construction Manager’s termination of the contract among other defaults, which notice expires on November 7, 2014. Additionally, lawsuits to enforce their respective rights under the governing documents have been filed by the construction manager and us.
On September 30, 2014, we bought out ASRS’s equity interest in B2 BKLYN for $40,500,000. Since this asset was a consolidated asset prior to acquisition, there was no adjustment to the historical asset basis, as the cash payment was recorded as a reduction of noncontrolling interest with the difference between the cash and the noncontrolling interest balance being recorded as a decrease to additional paid-in capital. This action allows the fund to pursue other development opportunities rather than utilizing the majority of the capital of the fund to pursue the completion of B2 BKLYN. In addition, since we now own 100%, we unilaterally make decisions regarding the asset, its construction and the litigation associated with it.
It describes a mortgage in default and potential difficulties, but says, as noted in bold, that they expect to recover the costs of delay:
Subsequent to the construction stoppage, we received a notice of default on the nonrecourse mortgage secured by B2 BKLYN. We have since entered into a short term forbearance agreement while a longer term agreement is negotiated. The short term agreement expires by or no later than November 5, 2014 and in the event we are unable to complete the negotiation of a longer term agreement, or cure the default, we may be required to repay the current outstanding balance of $45,000,000 currently secured by, amongst other things, $37,500,000 of restricted bond proceeds included in restricted cash and an equity letter of credit of $9,300,000. In addition, we may be required to fund the apartment building until the uncertainties regarding its construction are resolved.
Based on the recent events, including the ceasing of construction and litigation related to the construction of B2 BKLYN, we are investigating and evaluating alternatives to restart and complete the construction. We are in the very early stages of the litigation with the Construction Manager. Based on current information available, we have updated our impairment analysis using a probability weighted approach factoring in the scenarios currently being evaluated to complete B2 BKLYN. Currently, our analysis indicates the future probability weighted estimated undiscounted cash flows would be sufficient to recover the carrying value of the asset. Significant estimates were used in the determination of these estimated future undiscounted cash flows. Based on the uncertainty caused by the recent events and the significant estimates used in the calculation, we will continue to review our impairment calculations as additional information becomes available. Changes to the estimates made and future clarity to the various scenarios being evaluated are expected to cause fluctuations to our estimated probability weighted undiscounted cash flows. If we determine future estimated probability weighted undiscounted cash flows no longer exceed the carrying value of the asset, then the asset would be recorded at its estimated fair value, resulting in a future impairment, which would likely be material.
However, the cost of construction could be much higher, and cause a loss:
We have approximately $155,000,000 capitalized on the Consolidated Balance Sheet related to B2 BKLYN at September 30, 2014, consisting of land, building and capitalized interest. Based on the most current information available, total project costs could increase up to an amount ranging from $215,000,000 to $265,000,000. Significant estimates were used to develop the range of project costs and are expected to change as future clarity to the various construction scenarios used continue to develop. As litigation and negotiations continue, it is reasonably possible that construction costs will increase to a point where the capitalized cost is not recoverable from future undiscounted cash flows, resulting in an impairment of the asset.

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 …

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…

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

Click on graphic to enlarge. This is post-dated to stay at the top of the blog. It will be updated as announced configurations change and buildings launch. The August 2014 tentative configurations proposed by developer Greenland Forest City Partners will change, and the project is already well behind that tentative timetable.


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 …

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…