Forest City CEO defends Pacific Park amid delays, impairment

Surge in Brooklyn residential supply, 421a expiration taking toll on project

Rendering of Pacific Park (inset: David LaRue)
Rendering of Pacific Park (inset: David LaRue)

UPDATED, Nov. 7, 11:10 a.m.: A day after announcing unspecified delays to the Pacific Park megadevelopment, Forest City Realty Trust’s CEO David LaRue was forced to defend the project during a tense earnings call Friday morning.

“In the longer term that asset will be dealt, it will create value. But where we sit today we can not keep that value on our books,” LaRue said. On Thursday, the real estate investment trust had announced it would delay construction of the remaining Pacific Park buildings due to a weakening residential market, high construction costs and uncertainty over the 421a tax abatement program.

Forest City announced a $307.6 million impairment — or drop in asset value — “primarily related to Pacific Park Brooklyn.” During the call, one analyst estimated that this essentially reduces the value of Forest City’s equity stake in the project to zero after accounting for debt. The impairment largely led to a net loss of $430.9 million for the Cleveland-based REIT in the third quarter.

“There is new supply coming into Brooklyn,” LaRue said. “The market will end up absorbing it but it will have the normal effect that supply has on any given market.”

LaRue reiterated that Forest City — which holds a 30 percent stake in the project after selling 70 percent to Chinese firm Greenland Group [TRDataCustom] in 2014 — is in talks to bring in further investors into the project, as The Real Deal first reported. “We have not come to conclusion on anything we’d be able to announce,” he said.

Even if Forest City delays new expenditures on ground-up construction at Pacific Park, the firm and its partners Greenland have committed spending around $120 million by 2018 to complete work on the Long Island Railroad/MTA rail yard, which includes building a platform over the tracks.

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When completed, Pacific Park is set to include 15 buildings. The partners are currently constructing two condo buildings at 615 Dean Street and 550 Vanderbilt Avenue, as well as 535 Carlton and 38 Sixth Avenue, both 100 percent affordable projects.

Forest City is separately developing a modular rental tower at 461 Dean Street. Half the tower’s units are set aside as affordable.

“While the Pacific Park Brooklyn impairment is a disappointment, revising the schedule to delay additional future vertical development reflects the tough decisions that are part of our disciplined approach to capital allocation,” the REIT said in a news release Thursday. Atlantic Yards Report first reported the announcement of delays.

Forest City for months has said it doesn’t expect to break ground on any of the rental projects without 421a. MaryAnne Gilmartin, CEO of Forest City Ratner, said the program is “essential for the further construction of the affordable components.”

Correction: This article has been changed to point out the fact that 50 percent of units at 461 Dean Street are affordable.