Resolving "land litigation disputes" (re Site 5?), Forest City gave Greenland its shares in B4 tower & future Site 5 (jointly valued at $40.1M) & paid Greenland $18.2M.

This is the third of three articles on Greenland USA finances related to Atlantic Yards/Pacific Park. The first concerned Greenland's impairment, or loss in value. The second concerned what Greenland paid Forest City in the 2018 ownership reshuffle, and what happened to Site 5.

Remember the April 23, 2019 press release, headlined "Greenland Forest City Partners and The Brodsky Organization Announce Partnership to Develop 18 Sixth Avenue at Pacific Park," which said the "joint venture" would immediately commence construction.

At that point, they were using the term Greenland Forest City Partners, reflecting a joint venture in which Greenland had gained a 95% share.

A March 22, 2019 document from the city's online ACRIS database, cited a transaction valued at $194,745,462. As far as I can tell, that was the full value of the parcel, not the payment by Brodsky. 

After all, TF Cornerstone and Brodsky paid $199 million, in total, for leases of three other project sites (B12/B13 and B15), with about 20% more total square footage.

Whatever was paid by Brodsky for its share of the total, "Greenland's the majority partner," said Greenland USA Executive VP Scott Solish May 5, 2019.

It wasn't clear at the time whether he meant "Greenland" as shorthand for Greenland Forest City Partners or Greenland USA. Still, as I wrote the next month, a development lease indicated a shift to a Brodsky-housed, if not fully-owned, entity. 

That continues, and it's confounding that Brodsky would be operating, and refinancing, a building it does not effectively control.

Forest City exits

Evidence suggests that, for three years, the counterparty has been Greenland, not Greenland Forest City Partners.

Evidence circulated in 2022 shows that Forest City, as part of a settlement the previous year, exited the 18 Sixth Ave. deal, while also giving up its share in Site 5, valued together at more than $40 million, and paying Greenland $18.2 million.

That more than offsets the $9.2625 million Greenland had apparently agreed to pay for Site 5, in the 2016 deal with Forest City to give up all but 5% of its share.

The settlement, in a 2022 Greenland document, was referred to, thanks to machine translation, as compensation for "historical land litigation disputes." I could not get a comment from Greenland.

My best guess is it references the fact that, when Greenland invested into the project in 2014, it had not been told that Forest City had--according to a lawsuit filed by P.C. Richard--promised the retailer a replacement space in the successor building. 

Forest City's lack of candor meant litigation and delays, hampering the joint venture's ability to monetize Site 5, which, as of 2015-16, had been proposed for a giant two-tower project, if the developer got permission to move the bulk of the unbuilt flagship tower (B1, aka "Miss Brooklyn") across Flatbush Avenue.

In January 2019, a state Supreme Court Justice ruled in favor of P.C. Richard’s challenge, saying Forest City—by then part of Brookfield—had to either provide replacement space in a future building or reach a settlement. 

That, Forest City contended, was now Greenland’s call. That lawsuit would be settled in October 2021, due to a push from Empire State Development, the state authority that oversees/shepherds the project. Forest City had to put up $15 million toward a settlement, as I reported yesterday.

2021 financial audit

A 2021 audit of Greenland Holding Group, the Shanghai-based parent of Greenland USA, published April 29, 2022, is the source. Go to page 155, or page 156 of the PDF. 

I've posted a screenshot of the text, then a machine translation.

That translates to:

In September 2021, the subsidiary Greenland USA Commercial Holdings Co., Ltd. reached a settlement agreement with Forest City Group, a joint venture partner of the New York Pacific Park project, due to historical land litigation disputes, stipulating that Forest City Group would pay an additional capital of US $18,232,593.62 (equivalent to RMB ¥116,245,547.15) as compensation for historical land disputes, and transfer 5% of the equity of the project Site 5 and 5% of the equity of Building B4 free of charge, totaling US $58,303,643.66 (equivalent to RMB ¥371,726,540.88). 

Therefore, the minority shareholders' equity in this period decreased by US $58,303,643.66 (equivalent to RMB ¥371,726,540.88) and the capital reserve increased by US $76,536,237.28 (equivalent to RMB ¥487,972,088.03).

(Emphasis added)

Note that exchange rates have changed, so U.S. dollars buy more Chinese renminbi. That $18 million payment is now worth more than RMB ¥132 million, as of yesterday.

Adding it up

I read that $58.3 million ($58,303,643.66) decrease in minority shareholders' equity as comprised of both the $18.2 million ($18,232,593.62) capital contribution and a $40.1 million ($40,071,050.04) valuation for 5% of the equity of Site 5 and B4.

Extrapolating from that 5% valuation, that suggests that Site 5 and B4 at the time were valued at $801.4 million ($801,421,000.80). That's a lot!

If we subtract the B4 valuation of $194.7 million ($194,745,462), that leaves a Site 5 valuation of nearly $606.7 million ($606,675,538.80).

Site 5 valuation?

Is Site 5 worth that much? That's a stretch.

Perhaps that assumes and includes the proposed bulk transfer from B1. But with 1,142,052 developable square feet, as posited in 2016, that would be worth more than $531 per buildable square foot, which is still way above typical valuations.

That said, it's possible that the valuation was goosed for the purposes of the transaction (or tax purposes) and/or to reflect the extra upside in being able to monetize the B1 parcels.