Forest City to Buy Out HCN in Cambridge Portfolio

Five years after Forest City Enterprises and Health Care REIT entered into a JV for seven life sciences buildings in Cambridge, Mass., the REIT has agreed to sell its minority stake to Forest City.
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Five years after Forest City Enterprises, Inc., and Health Care REIT, Inc., entered into a joint venture for seven life sciences buildings at Massachusetts Institute of Technology’s University Park in Cambridge, Mass., the REIT has agreed to sell its minority stake to Forest City for $573.5 million.

The deal, set to close by late September, involves $400 million in cash plus assumption of Health Care REIT’s share of the JV’s debt.

When the two firms entered into the JV in February 2010, Health Care REIT, also known as HCN, invested $327 million, including assumed debt for its 49 percent interest.

“This was a terrific investment for HCN, achieving an unlevered interest rate of return of approximately 15 percent. Forest City has been an excellent partner, and we appreciate their role in our successful partnership over the last five years,” Tom DeRosa, CEO of Toledo, Ohio-based HCN, said in a news release. “The proceeds from this sale will be reinvested accretively in our core business: owning, developing and managing the highest quality seniors housing, post-acute and outpatient medical real estate in the U.S., U.K. and Canada.”

University Park is a 27-acre, mixed-use campus developed by Cleveland-based Forest City adjacent to the Massachusetts Institute of Technology in Cambridge. The project includes 10 life-science office buildings totaling more than 1.7 million square feet, and 530 multi-family units in four apartment buildings. University Park also includes a 210-room hotel, grocery store, restaurants and retail. MIT is the ground lessor for the entire project.

The seven buildings in the HCN transaction are: 26 Landsdowne St., 64 Sidney St., 35 Landsdowne St., 40 Landsdowne St., 45/75 Sidney St., 65/80 Landsdowne St. and 88 Sidney St.

“University Park is one of our most valuable and productive, urban, mixed-use projects, and our five-year partnership with Health Care REIT has been productive and mutually beneficial,” David LaRue, Forest City president & CEO, said in a separate news release. “Acquiring full equity ownership of these assets not only gives us greater control and flexibility, but also enhances our ability to create shareholder value. The transaction aligns with our strategy of concentrating our investments in high-quality assets in key urban markets, reduces the number of operating assets we own through joint ventures, and both strengthens and simplifies our portfolio.”

The move comes as Forest City continues transforming the company from one known primarily as a developer to one that focuses on owning, operating and developing high-quality properties in urban markets. In January, Forest City announced it planned to begin operating as a REIT next year. LaRue said then that the company would continue to reshape and simplify the business, a process that started in 2012 as it began selling non-core assets and reducing development exposure. It is focusing more of its efforts on office buildings, multi-family properties, regional malls and mixed-use projects in cities like Boston, New York, Denver and Washington, D.C. The company currently has $8.8 billion in total assets.