Brookfield bows out

Real Estate Weekly, March 5, 2008 by Daniel Geiger

Brookfield Properties is bowing out of the bid for the West Side rail yards in order to focus on a large development project it is planning nearby on Ninth Avenue, according to The New York Times. Brookfield's departure can't help but add fuel to the debate over how attractive the rail yards are, considering the way the debt markets continue to make large real estate projects difficult to finance and how the weak economy has created uncertainty whether there will be demand for all the office and residential space that the project would create.

But perhaps an equally compelling question is whether now Brookfield will build its Ninth Avenue project on speculation, as it would have had to do with the rail yard development if it had won the right to build that space. Obviously that question could go both ways. Perhaps Brookfield's exit from the rail yards bid was motivated because it doesn't want to be compelled to build anything without an anchor tenant in place.

Yet the firm has hinted that it thinks Manhattan is a strong market for spec development and has announced that it will begin the involved process of preparing the Ninth Avenue site, which sits between 31st and 33rd Streets and requires a platform to be built over train tracks that run beneath from Penn Station to the West Side rail yards.

Brookfield's chief executive Ric Clark said during the company's 2007 earnings conference call earlier this month that construction of that platform would begin during the summer and could accommodate up to 5.5 million square feet of development. Last week, the company released a rendering of its possible plans that was dominated by two glass office towers whose facing facades bulge towards one another.

Clark has been standoffish on stating plainly whether or not the company will build the space without tenant commitments. But its departure from the rail yards seems to be more of an affirmation of the company's intent to build on Ninth

Avenue than a sign of skepticism about the development potential of the area. As rew-online.com reported last week, Clark made an interesting comparison when assessing the risk of developing projects in the different office markers where Brookfield has a presence. Houston, which Clark described as one of the strongest office markets currently because of the concentration of energy sector tenants there, was a city where Brookfield wouldn't develop on spec because he said that other developers are planning projects that could quickly create a glut of supply.

"It makes us nervous," Clark said.

"It's more risk than Toronto or New York."

In Toronto, Brookfield is in the process of building a new office complex, the Bay Adelaide Center, whose later phases may be constructed on spec.

In the post, we asked: if Brookfield likes Manhattan as much as Toronto-as Clark seemed to suggest--could that mean the company may in fact go ahead with the Ninth Avenue project, especially if it doesn't win the right to develop the rail yards?

It just seems like now that the Ninth Avenue project isn't just a sideshow to a bigger project, Clark has dropped enough hints to show that the company is clearly eager to build.

Brookfield won't have to make a decision right away. Clark said that the platform would be completed in 2010 and that office space could be ready on the site by 2013.