Forest City Initiates Major Retail Selloff

Once the Madison International Realty and QIC transactions are completed, Forest City will have exited from substantially all of the shopping center-based retail in its portfolio.
David LaRue, CEO, Forest City Realty Trust
David LaRue, President & CEO, Forest City Realty Trust

As the year draws to a close, Forest City Realty Trust Inc. continues making progress on its plan to sell off retail holdings and focus on urban office, residential and mixed-use assets, recently announcing closings with two of its joint venture retail partners.

The larger of the two transactions was with Madison International Realty LLC, which bought out 10 specialty retail centers in the New York City region. The REIT also said it had closed on the sale of its interest in South Bay Galleria, a 960,000-square-foot regional mall in Redondo Beach, Calif., to QIC.

In the Madison deal, Forest City said it had closed on the conversion of its common ownership interest to preferred interest in 10 of the 13 centers that are part of a joint venture – Shops at Gun Hill Road (Waring), Shops at Gun Hill Road (Ely) and Castle Center in the Bronx; Harlem Center in Manhattan; The Heights, Atlantic Terminal Mall and Atlantic Center in Brooklyn; Forest Avenue and Shops at Richmond Avenue in Staten Island; and Columbia Park Center in North Bergen, N.J. Closings on the common interest of two other centers, Shops at Northern Boulevard and Queens Plaza, are expected in the first quarter of 2018.

Final closings on each of the individual centers are expected to occur as Forest City secures replacement assets into which to redeploy its preferred interest.

The last center in the joint venture, the 42nd Street retail/entertainment complex in Manhattan, is expected to close at a later date upon resolution of a ground lease dispute with the City of New York, according to Forest City.

The $1 billion deal, originally announced in late September, valued Forest City’s 51 percent ownership share of the 12 centers (excluding the 42nd Street location) at approximately $450 million. The REIT said it reflects an approximate 5 percent cap rate on 2016 net operating income.

“We are very pleased to achieve this key milestone in executing our strategic plan and delivering on our commitment to create value. As we identify opportunities to redeploy our interest from this portfolio, we will continue to focus on high-quality urban residential, office and mixed-use assets in our major core markets,” David LaRue, Forest City president & CEO, said in a prepared statement.

When the planned transaction was announced in September, Madison’s President Ronald Dickerman told Commercial Property Executive that the company had been partners with Forest City for six years and was very familiar with the properties and their resilience in the changing retail landscape. He said the infill locations of the shopping centers were 95 percent leased with a mix of international, national and local tenants and consistent with the firm’s focus on high-density growth areas in gateway markets.

He noted the complexity of the deal and LaRue also took the opportunity to acknowledge it.

“I want to thank our partner, Madison International Realty, and our own internal team for the perseverance, creativity and flexibility required to bring this complex transaction to this important stage of completion,” LaRue stated.

QIC Mall Sales

In another complex transaction, Forest City has also begun selling its interests in 10 regional malls, including the South Bay Galleria, to QIC. That deal is valued at about $3.2 billion, or $1.55 billion for Forest City’s share. Soon after the plan was announced in early October, the two parties closed on the sale of Forest City’s share in The Shops at Northfield Stapleton, a 1.1 million-square-foot, open-air regional mall in Denver.

Four malls expected to be sold early in 2018 are: Ridge Hill, Yonkers, N.Y.; The Shops at Wiregrass, Tampa, Fla.; Mall at Robinson, Pittsburgh; and Antelope Valley Mall, Palmdale, Calif.

The final four malls—Victoria Gardens, Rancho Cucamonga, Calif.; Galleria at Sunset, Henderson, Nev.; Promenade Temecula in Temecula, Calif; and Short Pump Town Centre, Richmond, Va.—are expected to close as Forest City secures replacement assets.

As part of this transaction, Forest City is also transferring its retail operating platform, including most personnel, to QIC.

Once the Madison and QIC transactions are completed, Forest City will have exited from substantially all of the shopping center-based retail in its portfolio.

Image courtesy of Forest City