West Side redevelopment gets $2.8b boost - Hudson Yards

Real Estate Weekly, Feb 18, 2004 by Barbara Nelson

The City is moving along with the development of the West Side announcing its plan to finance the first phase of the $5 billion project by selling $2.8 billion in municipal bonds.

Goldman, Sachs & Go.; JP Morgan; and Bear and Stearns & Co. Inc. will be the senior managing underwriters to oversee the financing of the Hudson Yards Development Area, said, Deputy Mayor Daniel L. Doctoroff and Office of Management and Budget Director Mark Page at a press conference last week.

"We expect from the City and State in total a net increase of $67 billion over the 30-year period of time from 2005 to 2035," said Doctoroff. "Revenues that we would argue would not exist if we did not make the investments in the Hudson Yards area that we are proposing."

Phase I includes the construction of No. 7 subway line and terminal station at 34th Street and 11th Avenue; the creation of a platform over the Eastern Rail Yards, from 30th & 33rd Streets between 10th & 11th avenues, the creation of a six-acre park and to allow for development by private developers and cultural institutions; and infrastructure improvements including a new street system and parks.

"We have to find ways to plan for our future," Doctoroff said. "We have to provide areas where our customers, the taxpaying, job-creating entities that occupy office space, can find places they want to go."

The area to be developed is bounded by the south side of West 43rd Street on the north, the east side of 11th Avenue on the west, the north side of West 27th Street and West 30th Street on the south, and the west side of 7th and 8th avenues on the east.

Based on a study conducted by Cushman & Wakefield the Hudson Yards Redevelopment Area will include 28 million s/f of commercial office space, 12.6 million s/f of residential space, 960,000 s/f of hotel space and 680,000 s/f of retail space, for a total 42,240,000 s/f of mixed-use space.

"Even assuming a slower growth rate in the market for office space over the next 20 to 25 years," Doctoroff said. "In the region as a whole, there will be a need for roughly 110 million s/f of office space between 2005 and 2025."

"For New York City to capture its fair share and its market share, New York City will need roughly 68 million s/f new space," said Doctoroff. "The Hudson Yards, particularly for those customers who want a midtown location, is the only place we can fulfill that long term demand."

In 2003, the City created the Hudson Yards Infrastructure Corporation, which will play a central role in financing phase I of the project.

"The City will be working with rating agencies and our investment banks to develop a flexible financing structure," Doctoroff said.

With the creation of the nonprofit corporation, the City will not be tied to the bond debt.

The project hinges on the rezoning approval from the City Council, which is expected in November.

"No bond buyer is going to buy a bond in this unless the rezoning action has been completed," Doctoroff said. "It's the up-zoning and change in the nature of the kinds of activities that can take place in this area that produces all the revenue that will enable us to pay for bonds."

The bonds will be repaid by $16.7 billion in expected revenues from six revenue streams over a 30-year period: payments from developers in lieu of taxes; property taxes on new residential development; development of the Eastern Rail Yard; sale of publicly owned property and ground leases; developers payments for exceeding base FAR; payments in lieu of taxes on construction materials.

The first few years of bond interest will be paid by $900,000 million loan from JP Morgan Chase. The loan is an unsecured short-term promise to repay and uses only credit ratings to back the security. The City would be tied to this debt.

The air rights to build over the Eastern Rail Yards still has to be worked out with MTA, Doctoroff said.

Phase II includes the construction of No. 7 subway line at 41st Street and 8th Avenue and the construction of northern blocks of mid-block boulevard and open space between 36th and 42nd streets.