New Developer Signs $1 Billion Deal to Transform West Side Railyards
By CHARLES V. BAGLI
Published: May 20, 2008
Less than two weeks after the collapse of a billion-dollar deal to develop the railyards on Manhattan’s Far West Side, a new developer has agreed to salvage the plan and help keep alive the Bloomberg administration’s campaign to transform the area into a major business district.
Stephen M. Ross, chief executive of Related Companies, signed an agreement Sunday night with the Metropolitan Transportation Authority
to develop 12 million square feet of office towers, apartment buildings and parks over the 26-acre railyards, which sit on both sides of 11th Avenue, between 30th and 33rd Streets.
It was a welcome turnabout for the authority, which is counting on the railyards deal to provide hundreds of millions of dollars for new trains, stations and rail work. The speed of the new agreement, occurring 10 days after the collapse of the authority’s earlier deal with Tishman Speyer Properties, is also a measure of how much Mr. Ross, one of the city’s most prolific developers, wants control over the railyards.
Mr. Ross, who had bid on the yards before and clearly suffered loser’s remorse, essentially agreed to the same tentative $1.054 billion deal that Tishman had signed in March. The deal requires the approval of the authority’s board, which will vote on the agreement at a special meeting on Thursday. The two sides will take the next four months to complete a contract to buy the development rights.
“We knew we had this one opportunity,” said an elated Mr. Ross, who sealed the deal with an $11 million deposit. “We weren’t going to start negotiating.”
“It’s not often that you get a second chance at a dream of a lifetime,” added Mr. Ross, who returned from China on Saturday for the last round of negotiations. “We will create New York’s next great neighborhood: the Hudson Yards
Tishman Speyer, which had won a bidding war with four other developers, abandoned the deal amid growing concerns about the softening economy, tightening credit markets and the lack of an anchor tenant.
Gary Dellaverson, the authority’s chief financial officer, vowed to strike a new deal with one of the other bidders within a week, a promise that many real estate executives scoffed at. Even Elliot G. Sander, executive director of the transportation authority, conceded on Monday that he had been unsure Mr. Dellaverson could make good on his vow.
Mr. Ross had effectively abandoned the bidding for the railyards in March when his partner and anchor tenant, News Corporation, dropped out. But even without an anchor, he said he “jumped on” a second chance to grab the largest undeveloped site left in Manhattan, one that offers unobstructed views of the Hudson River and New Jersey.
Mr. Ross’s financial partner is Goldman Sachs.
“The selection of Related demonstrates that even in an uncertain credit market, the ability to unlock the value of this area can substantiate the price the M.T.A. is seeking,” said Ross Moskowitz, a real estate partner at Stroock & Stroock & Lavan L.L.P.
Under the agreement, Related is required to pay $18.8 million at the closing on the eastern part of the railyards later this year. The company would close on the section west of 11th Avenue once it completed environmental and land use reviews — a process that could take 18 months. At that closing, Related would pay another $24.7 million.
The transportation authority’s agreement with Tishman Speyer had fallen apart because the company wanted to delay payments on both the eastern and western portions until after the land review was done. Under the new deal, Related can suspend its annual rent payment for up to two years because of a recession or a lack of tenants, a clause intended to keep it in the deal, people on both sides of the talks said. But the deal also requires the company to pay penalties if it suspends rent payments.
Though the profits from the project are potentially huge, it is not without great risk. The developer must spend about $2 billion erecting platforms, columns and foundations over a working railyard before it can build the first tower. The company will also be competing for commercial tenants against three big developers: Brookfield Properties, which plans to start construction at a site at Ninth Avenue and 33rd Street; Larry Silverstein
, who is building three towers at the World Trade Center site; and the Port Authority, which is building the Freedom Tower there.
Related Companies, like the four other teams competing for the project, spent millions of dollars hiring architects to design the towers that would sit atop the platform. Although News Corporation is no longer part of the deal, Mr. Ross and Related plan to use the same general layout and design, although few executives expect any of the 13 towers to look like the images distributed by Related Companies.
The plans call for about 5.5 million square feet of commercial space, including a hotel, and about 5,500 apartments, as well as a park and a cultural center. The architects include Kohn Pedersen Fox, Arquitectonica and Robert A. M. Stern
Much as he did on March 26, when the authority selected Tishman Speyer, Gov. David A. Paterson
said yesterday that the railyards deal represented “a renewed commitment to the future of the city and the region.”
“This agreement highlights the resilience of public-private partnerships in the face of the national economic downturn that we are experiencing,” Mr. Paterson said in a statement. “An alliance between Related Companies, one of the country’s premier real estate firms, and Goldman Sachs, a global financial leader, will lay the foundation for a reimagined Far West Side.”
Deputy Mayor Robert C. Lieber said the city had worked hard with the transportation authority to revive the agreement. “This is such a unique project with such a long-term upside,” Mr. Lieber said. “We had to strike quickly. The outcome speaks for itself.”
But critics of the project were not so quick to embrace Related.
“Until we get a handle on the level of subsidies involved, there’s no way to determine whether this is a good deal or a bad deal,” said Assemblyman Richard L. Brodsky
, a Democrat from Westchester who is holding a hearing on West Side development on Friday.
Some residents of the area derided the design as a grassy yard surrounded by tall towers.
“The giganticism of the proposed developments on the yards and the speed with which the M.T.A. and the city seem to be rushing to adopt a plan are a great concern,” said Andrew Berman, a member of the Hudson Yards Community Advisory Committee. “Development of this scale could completely transform our neighborhoods, overwhelm our infrastructure and offer very little in return in terms of affordable housing or other much-needed amenities.”
But transportation and city officials were relieved yesterday, particularly since a number of projects on the West Side have stumbled in recent months. Earlier this year, the state abandoned long-awaited plans to expand the Jacob K. Javits Convention Center. More recently, plans to demolish Madison Square Garden in order to build a monumental train station and a half-dozen skyscrapers also collapsed.
“The fact that developers are willing to put money in to this project shows that New York will certainly need more office space in the near future,” Senator Charles E. Schumer
said. “It now makes it even more important that the 7 train extension is built, and built on time.”
Copyright 2008 The New York Times Company