The Real Deal New York

Following Tishman bid win, developers forge ahead on far West Side

Developers continue with projects despite economic, political uncertainties

March 31, 2008
By Katherine Dykstra

Between the pending extension of the No. 7 subway line, the tabled expansion of the Jacob K. Javits Center, the fragile economy and Governor Eliot Spitzer’s shocking resignation last month, there are a lot of balls in the air for development on Manhattan’s far West Side.

But for some firms with major stakes in the area, the uncertainty has not stopped them from going ahead with construction. And last month’s selection of Tishman Speyer as the developer for the Hudson Yards site offers some new assurances that the far West Side will have an anchor development.

“It pulls the center of gravity [west] … . We’ll no longer be on the edge,” said Jon McMillan, director of planning at Rockrose Development Corp., which has 1.5 million square feet of residential rental development under construction on both sides of 10th Avenue between 37th and 38th streets.

“But doing the kinds of developments that we’re doing, we don’t feel dependent on those developments,” McMillan continued, noting that Rockrose started acquiring this property in the late 1990s. “We were ready to build this before any of this happened. It’s all just icing to us.”

Rockrose has contracted Landmarc Restaurants to open an eatery at 455 West 37th Street, an 80/20 building with 425 units, and they are close to a deal with Food Emporium.

That attitude of forging ahead seems popular among many of the big players in the area who — bullish despite the faltering economy — have begun moving forward on their investments as well.

The Georgetown Company, run by Joseph Rose, the former director of the Department of City Planning, is planning a 1 million-square-foot hotel on 12th Avenue and 29th Street, just south of the Hudson Yards site.

Meanwhile, Brookfield Properties, which dropped its bid for the Hudson Yards site a few weeks before Tishman Speyer was selected, is building two towers between 31st and 33rd streets and Ninth and 10th avenues that will house more than 5 million square feet of office space. And the Moinian Group, whose Atelier at 635 West 42nd Street, a 478-unit condo, is 85 percent sold, has just broken ground on an adjacent lot. The Atelier II, at 605 West 42nd Street, will be nearly twice the size of its sister tower, with 1,095 units including 900 rentals, 85 condos and 110 corporate units. Philippe Starck is designing.

Moinian also has a 45,000-square-foot development parcel at 43rd Street and 11th Avenue to be used for 1.65 million square feet of mixed-use space and 2 million square feet of the same kind of space at the corner of 34th Street and 11th Avenue.

Two blocks to the east, the Related Companies has begun excavation on a condo/hotel/rental project at 440 West 42nd Street.

Biding time

It’s a sizeable list of projects in development, but for every developer with the go-ahead, there is one still stuck on the sidelines.

One of Rockrose’s parcels is in limbo because of the current zoning in the Hudson Yards area, which switches to commercial west of 11th Avenue. If the area remains commercial, McMillan said, Rockrose will likely opt to develop a hotel there. But for now, the company is holding off on development to see whether the city rezones.

Others are simply biding their time.

“I think a lot of people now are waiting to see how projects are going to do coming out of the ground,” said Robert Knakal of Massey Knakal Realty Services.

Jeff Katz, owner of Sherwood Equities, has taken a wait-and-see approach in the area for more than two decades.

He bought two parcels — one of which
can house 2.5 million square feet of
commercial space at 35th Street and 10th
Avenue, and the other a residential lot at
36th Street and 10th Avenue, on which 200 units and 30 stories are planned — in 1985. But he does not have a timeline for construction yet.

“We’re watching the market,” Katz said of the residential project. “You have to be good at assessing where the market is going to be when [you] open [your] sales office.”

Sherwood Equities recently partnered with the Paramount Group to purchase an office building at 440 Ninth Avenue at 35th Street as an investment venture.

“I’m waiting for a few things. The first thing is for this economic cycle to run its course … the other thing I’m waiting for, I’m watching the 5,000 units under construction to the north of us — Rockrose, Silverstein, Moinian and Related — that will really change the character of the northern part of the Hudson Yards, adding 10,000 people and a lot of stores,” Katz said.

It’s not just property developers who are waiting out the uncertainty.

“The owners who are around [the Hudson Rail Yards] that have the older buildings are waiting and seeing,” said Jack Botero, associate director of the investment brokerage Marcus & Millichap.

Land purchases

The far West Side is largely made up of
modest low-rise commercial space and parking lots, but property is still changing hands with an eye to future development. PLC Partners just bought 325 West 33rd Street with plans to develop a hotel, and the McSam Group purchased 431 West 33rd Street with the same intentions.

“There is tremendous interest in all property types — residential, hotel, office, retail — in the area,” said Knakal. “The guys that have significant holdings, they’re interested in acquiring new property.”

The key words are, however, “significant holdings.”

“Other than the big guys, I don’t see anyone over there,” said Botero.

In part, that’s because during the current uncertain economic period, only the firms with deep pockets can afford to make purchases or get credit lines.

Richard Bassuk, chairman of the Singer & Bassuk Organization, said it’s harder for the smaller players. But he added that once the larger projects are in place, the smaller firms will build “infill projects.”

Bassuk noted, however: “If [that's] happening, it’s not happening with any sort of frequency yet.”

Some say it’s only a matter of time before that activity starts up again.

“This is the last major area in New York that is significantly underdeveloped. There are millions of developable square feet in the neighborhood,” Knakal said. “There is no doubt in anyone’s mind that it will look completely different in 20 years.”

Katz echoed that sentiment.

“I think that we’re past the point of no
return in the Hudson Yards, and it’s all
now a matter of degree: how much, how soon,” he said. “We’d like it to happen sooner than later, but if it takes longer, that’s OK.”

Meanwhile, the Metropolitan Transportation Authority selected Tishman Speyer even though its anchor tenant, Morgan Stanley, backed out of the deal.

Gary Barnett, president of Extell Development and one of the developers who
lost the bid for the site, has a 1.5 million-square-foot office tower planned for
11th Avenue between 33rd and 34th streets at the old Copacabana location, and has
an office, gallery, hotel and condos planned at 31st Street and 10th Avenue.

But even with a Hudson Yards developer selected, there are a lot of X factors, including how long it’s going to take and what kind of infrastructure is going to be built.

“We’ve had to be careful to design our buildings so they work with or without
public amenities,” said McMillan.

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