Before the Related Companies’ planned office tower at 55 Hudson Yards can rise to 1.3 million square feet, the developer will have to pay up to $180 million to purchase the building bonuses that play an integral role in the area’s development.
The development site at the corner of 34th Street and 11th Avenue allows for a building of roughly 400,000 square feet as-of-right, but through a pair of programs administered by local development corporations Related plans to build a tower nearly three times that size.
Other large players such as the Moinian Group and Tishman Speyer are also putting up office towers that are eligible to receive these special development increases, which are worth hundreds of millions of dollars. But Related is the first out of the gate, and its dealings with the development corporations responsible for dispensing the bonuses will be closely watched by the industry.
Related, which bought the site from rival developer Extell last year for $165 million, has applied to purchase a pair of building bonuses available to office towers on certain parts of the eight blocks from 33rd to 41st Streets between 10th and 11th Avenues.
The first is straightforward. Related will pay $40.1 million to buy roughly 320,000 square feet of buildable space by paying into a fund created to finance infrastructure improvements such as the 7 Train subway extension and the mid-block park that will run north to 41st Street.
The price of this additional square footage – known as a district improvement bonus – was baselined by the Department of City Planning in 2007 at $100 per foot and pegged to the consumer price index. The price rose in August to about $125 per foot.
“That’s relatively palatable,” said Moinian Group’s director of development Oskar Brecher, who is going through the same process to acquire building bonuses for his company’s 1.8-million-square-foot office tower just to the north of Related’s, dubbed 3 Hudson Boulevard.
The second kind of bonus involves a much more complicated process. It comes in the form of air rights being offered for sale by the Hudson Yards Development Corporation, which owns a 50-percent stake in the roughly 4.6 million square feet of air rights that were created above the Metropolitan Transit Authority’s eastern rail yards when the city rezoned the area in 2005.
The price of the air rights is determined by an appraisal of the receiving site. The HYDC will charge 65 percent of the appraised value per square foot. (The pricing guidelines had originally called for the lesser of either 60 percent of the appraised value of the receiving site or the cost of the district improvement bonus. But that policy was scrapped last year.) Brecher said the assessment for Moinian’s property came in a little north of $500 per foot, placing the cost of air rights at roughly $350 per foot.
Related declined to comment on its appraisal. But using Moinian’s figure as a guideline, Related would pay roughly $139 million for the 398,000 square feet of air rights it has applied to purchase. That means the developer would pay $179.4 million in total for what amounts to roughly two thirds of the bulk of the building.
There are ten other development sites in the Hudson Yards area that are eligible to receive the eastern rail yards air rights. The HYDC’s policy states it will commission a pricing study every three years – the next is scheduled for 2016 – although it can change the pricing guidelines whenever deemed necessary.
The development corporation’s president, Mark Spector, said in a statement that this initial air-rights sale “underscores the ongoing transformation of Hudson Yards and the remarkable potential this project holds for NYC.” The corporation, Spector added, looks “forward to continuing to work with interested stakeholders and the development community on advancing this project and making the Hudson Yards vision a reality.”
Brecher said there are still some questions as to how the HYDC’s assessor came at the figure of $350 per foot.
“That’s a bit difficult to swallow,” he said. “We’re now in the process of looking at the basis on which that appraisal was calculated and what factors were involved.”
“I’m sure Related’s doing the same thing,” he added.