The Real Deal New York

Re-penning the nation’s busiest transportation hub

Long-overdue infrastructure upgrades at Penn Station and nearby developments will be a boon to property values in the area
By Dennis Lynch | July 01, 2017 01:00PM

When Vornado Realty Trust, Related Companies and Skanska finalized a deal with New York State for the creation of a $1.6 billion train hall at the old James A. Farley Post Office last month, it marked an important step in the modernization of Penn Station. Vornado is planning the transformation of One and Two Penn Plaza into a 4.2 million-square-foot tech-focused megacomplex directly above the station, and just west, 18 million square feet of commercial and residential space are being built at Related’s Hudson Yards. Amid all of that development, the neglected infrastructure at Penn Station has left commuters frustrated with Amtrak and New Jersey Transit derailments, as well as Long Island Rail Road and subway delays. Meanwhile, former Delta CEO Richard Anderson will replace Amtrak’s current CEO Wick Moorman in January, according to reports last month. The recent chaos has reminded New York City and neighboring areas just how crucial infrastructure investments — particularly Gateway, the $20 billion expansion of the rail line that connects NYC and Newark — are for the area’s continued economic development. Last month, Gov. Andrew Cuomo tapped developers Steven Roth and Richard LeFrak (who later declined the invitation) for a task force dedicated to addressing the myriad problems at Penn Station. Not only is the real estate industry playing a big role in how the major commuter hub is changing, it has a lot at stake. “The attraction of transit-oriented development is simply based on the fact that people want to get from one place to another as easily as possible, and the extent that they can do that enhances the value of real estate,” Anthony Coscia, the chairman of Amtrak, told The Real Deal. With so much happening in and around Penn Station, we looked to developers and local officials to shine some light on how infrastructure upgrades and new office and residential projects will change the face of the neighborhood.

Dan Biederman
Co-founder, 34th Street Partnership

What activities are you watching the most in the Penn Station area? I’m watching the fear about the health of the Northeast Corridor tunnels. Also, [I’m watching] the street conditions, with panhandlers and homeless, that prevail all over Midtown. That affects the areas near transportation terminals more than elsewhere, especially Penn Station.

On the positive, we have owners like Vornado, who are investing in their buildings [One and Two Penn Plaza] and coming up with innovative plans for their relationship to Penn Station.

Dan Biederman

What initiatives is the Business Improvement District working on right now? With great help from Vornado, we created a new public space called Plaza 33 at 33rd Street between Seventh and Eighth avenues. It’s given people that far west a place to go before work or during lunchtime, with entertainment and very attractive plantings.

Would it be more beneficial to bring in a private operator to handle maintenance, repairs and operations at Penn Station over Amtrak, as Gov. Christie and Gov. Cuomo have suggested? The idea of privatization is good. One of the governors’ alternatives was having the Port Authority of New York and New Jersey take it over, which is not a good idea. I never found the Port Authority to be expediters. We tried to do a tiny project with them near the Lincoln Tunnel entrance, to beautify the neighborhood, and they were not very helpful. [A private company has] a different set of rules and can be quicker on their feet. For the last 80 years, government has been restricting itself from moving quickly.

Since there are currently no plans to fund Gateway, Penn Station won’t be able to handle more commuters than it does now. Can the neighborhood thrive if Penn Station doesn’t get those upgrades? It may not progress as quickly as it could, but there’s a reason for the Penn Station neighborhood to thrive. There are so many people in Long Island and New Jersey who want a quick commute to their offices. Once the repairs are made, and someday the tunnel will be expanded, there will still be a very good reason for people to locate there. I don’t think Hudson Yards would be where it is but for being two blocks away from Penn Station.

How will the redevelopment of the Farley Post Office impact the day-to-day of commuters and office workers in the area? It would be great because some number of people, with Vornado and Related Companies’ plan, would be commuting to [the post office] by the subway or long distance. It’s kind of dead now since the [United States Postal Service] moved out. Right now, you have some very good businesses — B&H Photo and small retailers — but this would create more activity.

What else would you like to see Gov. Cuomo do for transportation in the area? The governor and president, although an odd couple, would have the ability to build [Gateway] under sensible terms. One of the reasons Hudson Yards is happening is that the developers came out with a clever way to build it affordably. This is similar, but for transportation. The governor should work with the federal administration, who has a builder [Trump], who knows New York, and say, “Let’s make this affordable. Let’s do what Texas would have done, which is build it rationally and quickly. “

Anthony Coscia
Chairman, Amtrak

Following the two train derailments earlier this year and other problems at Penn Station, Amtrak announced that service would be disrupted for repair work this summer. Do you have any updates about the upcoming “summer of hell?” The only update is that the preparatory work is going well, and there’s a lot of interaction and communication with the operating railroads on the subject. People are clearly aware of the fact that we have got to get this right.

Anthony Coscia

Will Gov. Cuomo’s redevelopment of Penn Station, which includes new concourses, subway stations and the Moynihan Train Hall, spur development elsewhere in the neighborhood? It will have a direct impact on the value of the property around Penn Station [and an] economic impact on the city and region as a whole. And these improvements will create a better experience for customers. Even the renewal program that we’re doing this summer begins the process of creating greater reliability for customers. But more importantly, it lays the foundation for the larger Gateway program. By increasing capacity at Penn Station, we can change it from a liability into an asset.

How crucial is the Gateway project for commuters, Penn Station and the surrounding area?  Mobility is important for economic development and quality of life. The attraction of transit-oriented development is simply based on the fact that people want to get from one place to another as easily as possible, and the extent that they can do that enhances the value of real estate. Gateway brings us to a whole new dimension of that. Being near Penn Station will equate to being near an attractive facility that can get you to a whole host of locations very easily, reliably and comfortably. We think that will drive real estate values pretty well.

What are your thoughts on Gov. Cuomo and Gov. Christie’s criticisms of Amtrak? They’re expressing frustration on behalf of people whose commutes are disrupted because the infrastructure we rely on doesn’t serve us well. Regardless of what decisions were and were not made at Amtrak in the past, our current position is that we will aggressively renew the railroad with all the resources we can bring together, and we will do that as efficiently as possible with the least amount of disruption. We will not kick the can down the road.

What can they do for Amtrak, Penn Station and the surrounding area? I don’t think it’s a question of New York, New York City or New Jersey doing anything for Amtrak. It’s a question of New York, New Jersey and Amtrak working collaboratively to deal with a situation that, frankly, none of us were part of making. The more we work together, the better off we are.

Tom Durels
Director of leasing and operations, Empire State Realty Trust

There’s a lot happening in and around Penn Station. What in particular are you watching? I keep an eye on new development in Hudson Yards, and certainly we have an eye on the redevelopment of the Farley Post Office to house the new Amtrak [hall] and put some new office space there. Ultimately, I think the redevelopment of Farley will be at least a good first step toward the redevelopment of Penn Station. It will alleviate what I think is a bit of a confusing commuter experience for those that take Amtrak. It will be an opportunity, if done right, that shows a big contrast between what a good commuter experience can be versus what you have there now at Penn Station. That will then continue to spur pressure and demand for the redevelopment of Penn Station.

Tom Durels

Do you think the redevelopment of Penn Station and the Farley Post Office will spur sales in the area? I think it will certainly spur investment into real estate, and that can come in the form of landlords doing what we’ve done, which is investing heavily into the properties they own and redeveloping them to attract corporate office users. We’ve brought in LinkedIn, Shutterstock and the Gap, so we’ve attracted great office users. Penn Station will be redeveloped and it will be made a more enjoyable commuter experience, which employees want. It’s going to allow companies to choose to be in a location where their employees want to be.

How are you planning to maximize the investments that you have in the area? We’ve invested over $700 million in capital improvements in our Manhattan office portfolio, and we continue to invest in our properties. We’re also changing the streetscape experience on 34th Street corridor and the Broadway corridor in Times Square South by bringing in great retailers to the neighborhood that provide an interesting shopping experience or food accessible to the growing office population.

Delores Rubin
Chair, Community Board 4

There’s a lot going on in the area around Penn Station. What in particular are you watching? The community board always has its eye on residential having the maximum amount of affordable housing units possible — that’s the only way to preserve the diversity of the neighborhood. Even with Mandatory Inclusionary Housing passed by the city, we need to make sure that we are not only voicing that need but also advocating for broader income bands.

Delores Rubin

How do you see the redevelopment of Penn Station and the Farley Post Office affecting the area? It remains to be seen whether or not it will have a direct impact, because the destination for many of these commuters is not this area. If there is a bottleneck to or from Penn Station to the East Side, then they end up having to take to the streets or get on a bus; that’s when they will directly interact with our neighborhood. What we see in Penn Station now is frightening. No one wants to visit any of the retail there, and you never see people from the neighborhood going to Penn Station just [to shop]. What if we had something like Grand Central Station? It’s a place where local folks will come to the market, where people who don’t even commute go to the Apple Store. It’s become a destination for the broader community and not just a commuter pass-through.

What other infrastructure challenges are concerning you? It’s not just getting commuters in and out; it’s the design of our streets and moving people from A to B. We’re so congested right now, and we don’t see a lot of solutions. You would hope that when the construction is done it would be eased, but the density creates additional problems.

How is more development changing the face of the neighborhood? Even before the completion of Hudson Yards, we’ve seen extremely high-end market-rate apartments and condos along the High Line corridor. We’re looking at a changing skyline, an incredible amount of density, and potentially an incredible amount of wealth coming in. That could really change the flavor of the neighborhood, and that’s why we try to counterbalance it with affordable housing. But without affordable retail businesses such as affordable grocers, there is a vacuum for those that have either been longtime residents or those that want to come to the neighborhood but can’t afford a top floor in one of these new buildings.

How is Community Board 4 getting into that conversation about affordable commercial spaces? We’ve had a “balanced business” task force taking a look at the concentration of different businesses in our district. They come up with recommendations for maintaining the district’s mix of businesses, such as government-mediated rent negotiations, tax abatements for commercial landlords and incentives for landlords to rent to local small businesses. One of the major hurdles is that there is no legislation in place. We do have our local elected officials who at various levels are supportive of certain measures, but there’s not a lot of political will, we’ll call it, from the state to get that passed.

James Caseley
Director of office leasing, ABS Partners

There’s a lot happening around Penn Station. What in particular are you watching? The things we’ve been [seeing in other Manhattan markets] over the last few years are just coming to fruition over there: the continued prevalence of the TAMI (technology, advertising, media and information) tenants and tech startups. There’s also a little bit of a drive to value. Flatiron is getting expensive, and the Meatpacking District is way out of range for some of these clients. We’re seeing some of those guys come towards us. Some legacy tenants — architects, small publishers — don’t want to compete pricewise.

James Caseley

Do you see a Penn Station revamp spurring development elsewhere in the neighborhood? I’m old enough to remember the original Penn Station, and I think the Farley Post Office has the opportunity to be that station again, but with a greater proximity to Hudson Yards and those A-quality buildings. That’s a draw to the whole neighborhood.

Will landlords in the area have to upgrade their properties because of the huge influx of Class A office space coming online? Yes. The majority of landlords are anxious to upgrade their properties and increase their values. This is going to stretch on both sides of Penn Station. I am [working on property below 30th Street], and I’m going to end up competing with those guys in the Garment District, because they’re doing the same thing.

What else would you like to see the city or state do for the area? If there were design requirements or something along the lines of a landmark designation for certain areas, it would preserve the low-rise sections of the city. I would also like something to ensure that things keep up to date and keep clean, such as a Business Improvement District for the area south of Penn Station. I’m not crazy about BIDs, because the city should be doing that work, but we unfortunately can’t rely on the city, so the neighborhood may have to be its own advocate.

How do you think the area will change over the next few years? I think ultimately it will follow the same path as when Flatiron and Soho came up, and then to Noho. When Flatiron was crossing $60 per square foot, people [went to NoMad] and made rents $50 [per foot] to justify the investment. Now, those rents are at $60 to $70 [per foot] and people say, “Let’s move west. It’s not so bad, I can walk out of Penn Station to my office, pay $50 [per foot] and be happy.” Making parts of Broadway more pedestrian-friendly really helped NoMad and Flatiron. There needs to be something [around Penn Station] along those lines to attract retailers and to attract people.

Steven Kaufman
President, Kaufman Organization

There’s a lot happening around Penn Station. What in particular are you watching? I’m watching Gateway — the new tunnels under the Hudson River are critical. It would be a real disaster for the region if one of [the existing tunnels] went out of service. What’s going on now [the summer slowdown] is small compared to what would happen if one of the tunnels failed. You need the expansion of Penn Station. It’s essential for the growth of the region and the continuation of what we have now.

Steven Kaufman

What else would you like to see the city or the state do for transportation in the area? There has been a lot of negative publicity about the state of the subway system, particularly the signals. [The Metropolitan Transportation Authority] should be able to upgrade the signals and make it more reliable than it is now.

Do you have any advice for investors looking to get in before the market gets too hot? It’s a great area to invest in if you can find anything to buy. There are not that many sellers in the market now.

How do office landlords like yourself keep up with the influx of modern, Class A offices being developed in the neighborhood? We’re currently undergoing an $18 million capital improvement project at 450 Seventh Avenue — we’re modernizing the building and putting in new public corridors, bathrooms, [elevator upgrades] and a new lobby. We’ll be competing with whatever comes in.

Is there anything else in the area we should keep an eye on? There’s a lot of good hotel development, [such as] the Moxy NYC Times Square at West 36th Street and Seventh Avenue, and  the number of restaurants and bars in the Garment District area is growing rapidly.