Forest City touts ability to time market (but what about affordable units?); 550 Vanderbilt condo costs twice as much as 535 Carlton rental

During a conference call with investment analysts on Wednesday, 11/4/15, Forest City Enterprises executives were asked about the risk of increasing construction costs.

"It is a real occurrence... we see it each time we go to the markets," responded CEO David LaRue. So far, he said, the strength of the market has allowed them to absorb the cost. And they have partners sharing the risk.

"If we see that cost escalating faster than market rents," he said, "we can make a choice not to proceed." 

Then again, with Atlantic Yards/Pacific Park, they're obligated to build the affordable housing, at least, by 2025 or face penalties. In that case, surely Greenland Forest City Partners would want to tweak the configuration of affordability--as they did with the two recent "100% affordable" buildings, emphasizing more expensive units--to reap the most revenue.

In response to another query, CFO Bob O'Brien acknowledged the challenge of "new supply" in various markets, including Brooklyn.

"The makeup of our portfolio is going to allow us to make that choice," added LaRue. "We will remain vigilant, and be careful about where we are allocating capital."

Condo vs. rental

Take a look at the chart below, from Forest City Enterprises' Form 8-K, filed with the Securities and Exchange Commission on 11/3/15. It's notable how the one condominium building, 550 Vanderbilt, costs so much more than the rental units.

550 Vanderbilt will cost $361.5 million for 278 units, while the 100% affordable (albeit mostly middle-income) rental building 535 Carlton will cost less than half as much: $169.6 million for 298 units. The 38 Sixth Avenue rental building will cost $202.7 million for 303 units.

Part of the difference, surely, involves much higher-end fixtures and amenities. Part must involve financing, given that the condo building, unlike the rentals, can't get tax-exempt financing. The rest? I'd be curious to learn more.

The B2 modular building, aka 461 Dean Street, will cost--after the latest cost increases--$192.1 million for 363 units, which will be 50% market, 30% middle-/moderate-income, and 20% low-income.