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April 3, 2008
New Delays Hit Mixed-Use Sector as Credit Crunch Continues
RetailTraffic
By Elaine Misonzhnik
A commercial real estate trade publication explains why developers are having difficulty financing megaprojects:
As the calendar turns from March to April, mixed-use developers seem to be caught in a rainstorm. In the past 10 days, several high-profile mixed-use projects have either been delayed or altered because of the weak economic conditions and the difficulty in securing financing during the current credit crisis.
The string of bad news began on March 21 with Brooklyn-based Forest City Ratner Cos. revealing that it will delay the office and residential components of its 8-million-square-foot Atlantic Yards development in Brooklyn. The company said that lack of demand for both uses would make it difficult to reach pre-leasing levels necessary to secure financing.
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"I think that everybody has been amazed at the speed and the severity of the credit crunch, and what we see is that the banking community is definitely getting very conservative," says [director and principal with Metropolitan Capital Advisors Scott R. ] Lynn. "Any loan north of $100 million is the ground of national and international banks and the top 10 banks in the U.S. are dealing with lots of portfolio problems. We are seeing a severe pullback in the larger loan arena because the big national lenders have really put on the brakes and a lot of the international banks have just left the market completely."
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Atlantic Yards, for example, calls for 336,000 square feet of office space, 247,000 square feet of retail space and 6.4 million square feet of residential space, in addition to the 850,000-square-foot sports and entertainment arena, which will serve as the centerpiece of the project. With the Nets basketball team already lined up as the main tenant for the arena, construction on that portion of the development started moving ahead in February 2007.But Forest City Ratner has yet to secure an office tenant for its Miss Brooklyn office tower and it worries about waning demand in the residential sector. Meanwhile, lenders' requirements for office, residential and retail pre-leasing and pre-sales levels have gone up from about 50 percent at the beginning of the year to more than 70 percent currently, according to Lynn. Add to that the fact that Forest City was planning to fund the project with bonds issued by Goldman Sachs rather than a traditional line of credit, and it seems unlikely it will be able to get financing anytime soon. As a result, the firm is postponing construction on the office and residential sections for an unspecified period of time.
Forest City Ratner did not return calls for comment.
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Still, with the initial phases of CityNorth and Atlantic Yards already in construction, these projects are more likely to proceed than Moynihan Station, which has just lost its only committed tenant.
FYI: Constuction on Bruce Ratner's arena can't begin officially, or in earnest, until property owners are forced from their homes and businesses.
Posted by lumi at April 3, 2008 4:52 AM