By breaking off talks to develop the Metropolitan Transportation Authority’s 26-acre Hudson Yards site yesterday, Tishman Speyer may have made developing the massive far West Side site a safer bet.
Tishman was one of four bidders to propose building the 24-million-square-foot project last fall. Its withdrawal leaves the MTA with a big funding gap, little time to convert the Hudson Yards site into much-needed cash and potentially less bargaining power.
“Somebody asked me yesterday who I’d rather be, the MTA or one of the developers,” said Steven Spinola, who heads the Real Estate Board of New York. “I’d rather be a developer.”
Spinola said the city and the MTA will try to earn as close to Tishman’s $1 billion bid as possible. If multiple parties again bid soon, said Spinola, “the price would not go down.” But he warned that several weeks of stasis would weaken public confidence in the project, which could then force bidders’ prices down.
Regardless of the final bidding price, sources say the eventual developer will benefit from the eleventh-hour efforts by the city and the MTA to keep Tishman in and get the project underway.
The city, says a source close to the negotiations who wanted to remain anonymous, gave Tishman assurances in the past several days that “the money will be there before [Mayor] Bloomberg leaves office” for a crucial sticking point: the No. 7 subway line’s extension to the site’s western edge. The city has drawn criticism for not ensuring that funding for any cost overruns for the extension was firmly in place before the bidding for Hudson Yards began.
And because the MTA desperately needs a cash infusion from a Hudson Yards lease to fund an ambitious capital program, sources say it would probably accept a proposal from a developer that emphasizes residential instead of commercial space. That kind of proposal will likely be less lucrative than Tishman’s $1 billion commercial-heavy bid, because residential developments tend to command less per square foot than commercial projects. Tishman’s proposal called for 3,000 housing units and envisioned commercial use taking up 10 million of the railyards’ 13 million square feet.
A source close to two of the bidders, who asked for anonymity, told The Real Deal that residential uses could present a safer way to ensure that a deal gets done right now than a bid that relies on a commercial anchor tenant.
“There’s a lot of bad news out there” about office development in the short term, the source said.
Indeed, the whole swath of land from Penn Station to the Hudson Yards site, including the troubled Moynihan Station project, is seen by observers as a challenge for big commercial projects as long as credit remains hard to secure.
Sen. Charles Schumer spoke out about the need for commercial growth in the area on Monday, saying that developing the area around Penn Station should be a higher priority than Hudson Yards. Schumer proposed a “Penn Station subdistrict” and suggested that developers should get to build extra stories on office towers if they invest in Moynihan Station.
But a source close to the senator says that these ideas came largely from his own office and met resistance from developers who see them as too riddled with uncertainty. And Schumer’s remarks drew a stinging rebuke from Mayor Michael Bloomberg.
Residential development, on the other hand, would not only be easier to finance than commercial property but would also be more popular with far West Side residents, observers say.
“A lot of my members are buying and building primarily residential in the surrounding areas,” Spinola said. “Clearly housing is more popular and easier to build than commercial.”
But Spinola warned that adding affordable housing would require developers to lower their bids or ask for subsidies. Critics of the Tishman deal said it lacked enough affordable housing.
A joint venture of the Durst Organization and Vornado Realty Trust, which featured more housing than any other bid with nearly 7,000 units, has publicly sought to resume negotiations with the MTA.
Mark Strauss, a principal at FXFowle, said the architecture firm is “keeping its fingers crossed” that its design for a Durst-Vornado bid will move forward.
Extell Development refused to comment, although it told the New York Observer yesterday that it was interested in pursuing the project.
Brookfield Properties, which is building a three-acre site near Hudson Yards that it calls Manhattan West on a deck from Ninth to Dyer avenues and from 31st to 33rd Streets, dropped out before the second round of bidding began. Spokeswoman Melissa Coley said pre-construction work on the deck has begun, with plans to start construction next month and finish by as early as 2013. The project could contain 5.4 million square feet with a mix of uses, she said.
The Related Companies effectively withdrew in February by reworking its bid to a smaller portion of the site. Spinola, though, says he has heard chatter that Related might want to re-enter the process.