In 2018 Pacific Park ownership "restructuring," did Greenland USA pay anything for Forest City's 25% share? The answer seems no, except for Modell's site.
This is the second of three articles on Greenland USA finances related to Atlantic Yards/Pacific Park. The first concerned Greenland's large impairment (loss in value). The third concerned Forest City's giving up its shares in the B4 tower and future Site 5 project.
No price was announced.
While some, including me, unwisely used the term "buy," the press release didn't specify a sale, or a price. As I describe below, evidence--neither confirmed nor denied--suggests that Forest City simply gave it away, to avoid further losses.
That press release carefully cited a "restructuring" that took "Greenland USA's ownership interest in the venture from 70 percent to 95 percent going forward, and Forest City's interest from 30 percent to 5 percent."
The restructuring, according to the press release, did not impact three projects previously developed and completed by the joint venture on a 70/30 basis: 38 Sixth Avenue, 535 Carlton and 550 Vanderbilt.
Greenland's press release was similarly opaque. See image at right.
However, I allowed, there must be multiple caveats and adjustments, including the motivations of the parties. Forest City was eager if not desperate to lower its risk, so Greenland had leverage, and likely would get a discount. That was an understatement.
No clarity to SEC
Would Forest City's next report to the Securities and Exchange Commission reveal more? Nope. (Greenland doesn't face such reporting requirements.)
In an Aug. 2, 2018 Form 10-K quarterly report, Forest City didn't detail the transaction but stressed that it "significantly decreases our development risk at the project by reducing our ownership interest and future obligations to fund future construction costs, excluding the permanent rail yard, from 30% to 5%."
In other words, it may have been more valuable for Forest City to avoid open-ended obligations than to get any cash.
No record surfaced in the city's ACRIS database of real-estate deals. Nor was it necessary, because it was a reshuffling of memberships in a limited liability company, or LLC.
ACRIS does point to a June 27, 2018 transaction between Atlantic Yards Venture, the previous buyer, and Greenland Atlantic Yards and FC Atlantic Yards. The value cited is $119,670,000.
Could that have represented 25% of the value of those outstanding properties? Possibly. Consider that 535 Carlton and 38 Sixth later sold for $315 million, below the construction cost.
The MOU suggests that Greenland would pay nearly $9.3 million for the Forest City-owned building rented to Modell's at Site 5.
Then Greenland was supposed to contribute 25% of the purchase price, reflecting the new arrangement, and for the joint venture to distribute that to Forest City, "so that the Members' respective ownership of the FC Pacific Property through the Company will be adjusted to a 95%/5% basis."
So that suggests the joint venture paid Forest City $9.75 million, including $2.925 million from the Forest City member and $6.825 million from the Greenland member. And that Greenland paid 25% to Forest City, meaning $2.4375 million.
In other words, Greenland paid $9.2625 million, or 95% of the total. The Modell's chain faced bankruptcy and the Site 5 location was in its final sale days in August 2020.
Empire State Development (ESD), the state authority that oversees/shepherds the project, explained: “As part of the resolution of Site 5, ESD will be issuing a development lease to the developer for a future project on the site, which triggered the assessment of transfer taxes and required a valuation for the portion of the site covered by this lease.”
That's far less than the value of the associated development rights. At the time, I didn't know how the $19.1 million was calculated.
Note that, in a 2012 appraisal assessing conditions as of 2010, the P.C. Richard property was valued at $13.7 million, which was supposed to reflect the market at the time.
Evidence suggests no cash
The best clue we have regarding the transaction is a confidential document--a Nov. 3, 2016 Memorandum of Understanding (MOU) between the parties--later revealed in court.
The document, produced before the deal closed, stated that Greenland would pay almost nothing for that 25% share, gaining a "100 discount" to Forest City's contributions.
Is that what ultimately happened?
I'd bet yes, but we can't be certain, since Greenland would not comment in response to my query.
Site 5 issues
The document, excerpted below, indicates that Forest City was unilaterally responsible for defending the lawsuit filed by P.C. Richard, which claimed that the original developer had promised replacement space in the future development at Site 5, the parcel catercorner to the arena also occupied--as of then--by a Modell's store.
For its part, Greenland acknowledged that it had not been told of the P.C. Richard promise when it invested in 2014. (That's kind of a lapse in candor between two partners, right?)
By June 30, 2017, as indicated below, Forest City was required to put up $15 million to resolve the P.C. Richard litigation. That lawsuit was later settled in October 2021, but the settlement figure was not disclosed.
Paying for Site 5: Modell's site
The MOU suggests that Greenland would pay nearly $9.3 million for the Forest City-owned building rented to Modell's at Site 5.
The transaction was a little complicated. The joint venture, on its existing 70/30 basis, was supposed to acquire the FC Pacific property for $9,750,000.
So that suggests the joint venture paid Forest City $9.75 million, including $2.925 million from the Forest City member and $6.825 million from the Greenland member. And that Greenland paid 25% to Forest City, meaning $2.4375 million.
In other words, Greenland paid $9.2625 million, or 95% of the total. The Modell's chain faced bankruptcy and the Site 5 location was in its final sale days in August 2020.
What was left?
According to the MOU, Forest City was still expected to contribute 5% for other costs related to the balance of the project, including B4, B12, B13, B15, and Site 5--at least until it wasn't, for at least two parcels, as I'll explain tomorrow.
Did Forest City retain an interest in the future development rights at the railyard sites (B5-B10)? Well, it was supposed to contribute 5% to "land costs." That would presumably include paying the MTA its share of the annual $11 million a year starting in 2016.
Remember, a spokesman for Brookfield, which in late 2018 absorbed parent Forest City Realty Trust, said last November that the company's stake was nominal.
Site 5 value
In June 2022, I reported on a transaction, filed Nov. 15, 2021, related to both the P.C. Richard and Modell's parcels, with a dollar figure attached: $19.1 million.
Empire State Development (ESD), the state authority that oversees/shepherds the project, explained: “As part of the resolution of Site 5, ESD will be issuing a development lease to the developer for a future project on the site, which triggered the assessment of transfer taxes and required a valuation for the portion of the site covered by this lease.”
That's far less than the value of the associated development rights. At the time, I didn't know how the $19.1 million was calculated.
That number is somewhat plausible, based on the previous transactions.
If the Modell's parcel was valued at $9.75 million, that leaves $9.35 million left for the P.C. Richard parcel. That's larger and presumably should be worth more, unless that Modell's figure also included buying out the retailer's lease.
Site 5 value, earlier
Note that, in a 2012 appraisal assessing conditions as of 2010, the P.C. Richard property was valued at $13.7 million, which was supposed to reflect the market at the time.
The term of the existing Modell's lease was valued at $6.7 million, plus $3.5 million to buy out the retailer. The appraisal also added $10.9 million for subway work.
Those costs, plus $10.9 million in subway costs, were subtracted from the purported $35.6 million value of the land and existing development rights: 323,598 square feet.
Those costs, plus $10.9 million in subway costs, were subtracted from the purported $35.6 million value of the land and existing development rights: 323,598 square feet.
Separately, a Forest City official explained that New York City owned the 270,000 square feet of development rights, based on the underlying zoning, above Modell's and P.C. Richard, but agreed to contribute those development rights to the project. Should not that have been counted as a subsidy, too?
The appraisal did not count the additional development rights, 115,542 square feet, unlocked by ESD's override of zoning, which allow a building of 439,050 square feet.
(Of course, since then Greenland has floated plans to move the bulk of the unbuilt flagship tower, once slated to loom over the arena, to Site 5, creating a two-tower project with 1.142 million square feet.)
Today, of course, the value of development rights is far higher.
A smaller deal?
As I wrote, ESD in February 2016 offered to pay P.C. Richard $15.1 million, which the retailer considered inadequate, especially since it also sought space to operate in the future building. I called the offer "astounding," since I was counting the vertical development rights.
The evidence, admittedly incomplete, suggests that P.C. Richard might have gotten less. Then again, it gained several more years to operate, and remains in business at Site 5.
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