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Forest City sells 461 Dean, troubled modular tower, for $156 million. It cost $195.6 million to build.

Forest City Realty Trust, as it indicated last year, has finally sold 461 Dean Street, the ill-fated modular tower that did not, as promised, get built faster or usher in a new business for high-rise prefab construction.

The 363-unit tower has 50% below-market apartments and as of 2/1/18 was 92% leased. That said, like other operators of market-rate units in the Downtown Brooklyn area, the developer had to offer rent concessions.

Also, the lack of takers in the housing lottery for affordable middle-income units, two-bedrooms renting for $3,012, meant they had to offer some of those 16 those units to anyone who fit the income qualifications.

Buyer and price

The press release, below, said merely that the buyer was "an international real estate manager," but The Real Deal identified the buyer as Principal Global Investors, part of a major investment company based in Des Moines, IA.

The price was $156 million, reflecting a cap rate--the ratio of income to asset value--of approximately 4.5%, which Forest City CEO David LaRue called "attractive pricing."

(Updated: Last June, Cushman & Wakefield reported that cap rates in the boroughs for Class A apartment buildings averaged 4%. Buyers want a higher cap rate, sellers want a lower one, so the 461 Dean figure is less good for Forest City.)

That said, the sale, with net proceeds of $150 million, hardly seems a great deal. The tower, which experienced significant delays and cost overruns, cost $195.6 million to build, according to Forest City's 2016 10-K annual report, excerpted below.

Also keep in mind that they've already written off some $190 million in impairments--losses in value--on 461 Dean ($151.6 million) and the modular factory ($38.7 million), and were expecting the building's sale to generate a tax loss that could be use to offset gains from selling retail properties. (They may recover some part of that from litigation with Skanska, their former partner on the factory.)

Going forward, if Forest City can sell a building, surely Greenland Forest City Partners, which has built three towers, could sell one or more of them, as well as find investors for future development sites. In other words, even if no multi-developer scenario is likely, there already is a multi-owner one.

The press release
Forest City closes sale of 461 Dean Street apartment property 
CLEVELAND, March 28, 2018 /PRNewswire/ -- Forest City Realty Trust, Inc. (NYSE: FCEA) today announced that it has completed the sale of 461 Dean Street, a 363-unit apartment community in Brooklyn, New York, to an international real estate manager. The selling price was $156 million, reflecting a cap rate of approximately 4.5 percent on estimated 2018 net operating income. The sale is expected to generate net proceeds to Forest City of approximately $150 million.
"We're pleased with this transaction, which achieved attractive pricing for this recently stabilized asset, and enables the company to generate significant liquidity to further our deleveraging efforts and other strategic uses," said David J. LaRue, Forest City president and chief executive officer. "The economics of the sale also reflect the continued health of the Brooklyn multifamily rental market, and the continued value-creation opportunity in the market." The asset was 100% owned by Forest City and was not part of the joint venture with Greenland USA that is continuing the development of the Pacific Park Brooklyn mixed-use project. 461 Dean Street, which began phased opening in the third quarter of 2016, contains 50 percent affordable units. It was constructed using modular building technology and is among the tallest modular buildings in the world.

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