The Real Deal New York

Port Authority backs out of 40K sf Moynihan lease

The move takes $150M from its redevelopment

March 24, 2016 05:55PM
By Kathryn Brenzel

Rendering of Moynihan Station (inset: John Degnan)

Rendering of Moynihan Station (inset: John Degnan)

The Port Authority of New York and New Jersey on Thursday backed out of a lease in the James A. Farley Post Office, temporarily throwing a wrench into part of Gov. Andrew Cuomo’s plans to pay for the project.

In 2000, the agency authorized its executive director to ink a lease with the Empire State Development Corporation for 40,000 square feet in the redeveloped Moynihan Station for 35 years, at an annual rate of $10.5 million. The board on Thursday passed a resolution to “rescind” the board’s past action on the lease and to instead study the agency’s future role in the redevelopment of the station, which could include an up to $150 million contribution to the project. Pat Foye, the board’s executive director and a confidante of Cuomo, will lead the study. The board will have to authorize any participation in the redevelopment project.

Chairman John Degnan, a New Jersey appointee, said that determining the value for the Port Authority and the legality of the lease was “curing a defect.” In an internal memo obtained by the Wall Street Journal, Degnan indicated that the agency never budgeted the payments because the lease wasn’t actually executed. News of the lease back-out comes as Degnan publicly questions whether the agency should sell off real estate assets and refocus its priorities on the $20 billion Hudson River Tunnel and the $10 billion bus terminal in Midtown.

The decision on the lease is a slight setback to Cuomo’s planned funding for the proposed $3 billion redevelopment of Penn Station and Moynihan Train Hall. A majority of the project is supposed to be funded by private investment, but roughly $325 million is supposed to come from government funds — $150 million of which was to come from the the Port Authority. A representative for Cuomo declined to comment.

Though the lease at Moynihan was for 40,000 square feet, only 250 square feet would be for exclusive use by the Port Authority, which would include two kiosks and a ticket counter.

“I believe that this original lease was infected by a conflict of interest,” Degnan said.

Though he didn’t drop any names, Degnan was referring to Charles Gargano, who at the time of the lease agreement was both vice chairman of the Port Authority and headed the Empire State Development Corporation — the New York State agency that purchased the post office in 2007. Degnan pointed out that the former vice chairman didn’t recuse himself from lease talks.

When asked about the lease, Gargano told the Wall Street Journal that he didn’t recall details of the discussion but that recusing himself wouldn’t have “meant anything anyway because it’s a majority vote on the board.”

A representative for the Empire State Development Corporation didn’t immediately return a call seeking comment.

The transformation of the post office has been a tortuous and protracted battle since the 1990s. The issue of the lease resurfaced in January, after Cuomo reissued a joint request for proposals for the project and the redevelopment of Penn Station. The Real Deal offered an in-depth examination of Cuomo and his oversized ambitions to be New York’s next historic builder.