Tishman lands $1b Hudson Yards deal

Real Estate Weekly, April 2, 2008 by Daniel Geiger

The Metropolitan Transportation Authority has selected Tishman Speyer Properties to develop the West Side rail yards in a billion dollar deal that MTA officials said will be used to provide funding for the cash-strapped agency's capital budget.

But there were hints of uncertainty among officials about whether the current downturn in the economy and tumult in the credit markets, which has made large real estate deals extremely difficult to finance, will permit development to actually begin on the site any time soon.

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Governor David Paterson, speaking at a press conference at the rail yards to announce the deal, drew a parallel to financially dire times in speaking about the role the development would play in the city's economy and the feeling of confidence it would generate.

"In the late 1930s, New York City was in the Great Depression," Paterson said. "But on November 1, 1939, John D. Rockefeller hammered the final silver rivet into 10 Rockefeller Plaza. In that difficult economy, it sent a great sign about New York's future. And yet we stand again launching a project that we hope will be an enormous sign about the city's future." But unlike Rockefeller Center, which was begun during the dark days of the depression, it doesn't appear that work on the West Side rail yards will begin in the near future given the economic tumult. Tishman Speyer's plan was the most commercially dense proposal received by the MTA for the rail yards. But the demand for office space appears to have dramatically tapered due to the current recession. Tishman Speyer's top executives, the father and son team of Jerry and Rob Speyer, wouldn't say when work would begin to construct the two platforms upon which the entire development will sit, or how the $2 billion structures would be financed. Cur rently, it appears that funding for such a large speculative construction project would be nearly impossible to secure.

Asked how Tishman Speyer would fill the eight million square feet of commercial development that it has planned mainly on the eastern side of the rail yards, Jerry Speyer would only say that there would "always be demand for contemporary office space."

He wouldn't say if the firm would begin any of the buildings without first securing commitment from an anchor tenant.

"I could be gung ho and say yeah, we're going to build without an anchor, but we don't know yet," Speyer said.

Rob Speyer said that the firm would likely build the entire platform on the eastern side of the site and pieces of it on the western half.

But the time frame for the closing of the deals and the rental abatement periods in the agreement allows Tishman Speyer what appears to be a generous window before it has to begin construction on any of the various office buildings, residential towers or sprawling parks and public spaces it has planned at the site.

The MTA, which first announced the deal at a board meeting last week, indicated that it wouldn't close on the deal at the eastern half of the rail yards until late 2009 and in 2010 for the western portion of the site because that side requires additional time to go through a rezoning process. According to the MTA, Tishman won't begin paying rent until three years from the date of closing for the eastern yards. After that, it is allowed another three years in which it can pay half the rental rate. On the western side of the site, the rental abatement period is two years from the date of closing and is halved for the three years beyond that. The MTA stressed that the agreement allowed it strong financial guarantees in the case that Tishman defaults midway and that its rental stream doesn't depend on the developer to start construction. But with the deferred rental payments the MTA can only collect $87 million until 2012, when the reduced rental payments kick in, an amount that hardly seems enough to fill its current capital needs. The sale of the rail yards was slated to fill a $1 billion gap in the MTA's 2005-2009 capital budget.