Diversified commercial real estate owner and developer Forest City Enterprises, Inc. (NYSDE:FCE.A) is certainly a well-known name in the industry. Some of the company’s most-regarded and valuable projects are in places like New York City and Boston. Particularly high profile is the work of Bruce Ratner and the company’s Forest City Ratner affiliate in New York City, which has spearheaded the wildly ambitious mixed-use Brooklyn development known as Pacific Park (formerly named Atlantic Yards) and the rusty UFO of a stadium that hosts the New York Nets: the Barclay’s Center.
Well, the company and its affiliates are certainly well-diversified, with office, retail, entertainment, life science, and residential assets in its portfolios. It recently announced it is increasing its stake in a really big Cambridge, Mass. mixed-use/life-science complex called University Park, buying out its current JV partner Health Care REIT, Inc. (NYSE:HCN) to gain full control of the billion+ dollar campus in the hot Boston-metro market. Which is an interesting direction for the company, and leads me to wonder if Forest City CEO David LaRue and his team envision a more specialized or asset-specific course for the large firm’s future or if the company will remain as diversified as it is today. Health Care REIT, for its part, seems to be more focused on its senior-living and skilled-nursing holdings.
I don’t know everything about Forest City’s future plans, but since the company announced its intention of converting to a REIT, its various public communiques have revealed a great deal about its strategy going forward, which includes transforming into a REIT at the beginning of 2016. Additionally, CoStar reports,
..plans include retiring its remaining convertible senior notes through exchange transactions for stock, selling non-core assets, reducing costs through improved operational efficiency, and capital market transactions…
…Forest City reduced its total debt by $2.4 billion in the last three years. And it expects to accelerate its deleveraging activities over the next three years.
According to O’Brien, the firm expects to see net proceeds from the sale of various non-core assets in the range of $600 million to $650 million over time. Some of the assets they are contemplating selling include their interests in the NBA Brooklyn Nets and the Barclays Center arena in Brooklyn, NY, as well as the Illinois Science & Technology Park near Chicago and the Skylight Office Tower in Cleveland.
Okay, so the company’s going core, upping their eds-and-meds game, deleveraging, and considering the exit of some of its more prominent holdings (the rusty UFO in Brooklyn, the Nets). All of this seems calculated to attract core-minded REIT investors; the company hopes to raises hundreds of millions of dollars by selling shares in a future stock offering.
Is it the right time? There are signs pointing to both Yes and No: on the one hand, the Fed has been threatening to raise rates for a while now, with people like Chicago Fed chair Charles Evans suggesting the rate hike should be postponed until next year–exactly when Forest City hopes to attract interest-rate-wary REIT investors. On the other hand, 2013 was a comparatively weak year for the REIT Index and REIT IPOs in general, and this was largely because of investors jittery about rate increases. Could it be investors have learned a thing or two, and are perhaps less skittish about interest rates?
Remember, the Fed wants to see tangible evidence of national economic recovery (e.g. the 15-year-low unemployment rate we’re seeing right now), and rate hikes will only accompany improvement in the fundamentals that affect CRE performance. So, this whole interest-rate argument seems overblown, in my view.