As the Tishman Speyer deal for the Hudson Yards collapsed completely on Tuesday, tempers have flared over the fate of development along the West Side. In one corner, we have Sen. Chuck Schumer fighting for Moynihan Station and office space in and around Penn Station. In the other corner, we have Mayor Mike Bloomberg, 18 months away from heading out of office and in search of a lasting New York City legacy.

The stakes in this political death match are high: They start with the 7 train extension and end with nothing short of a radical alteration of the Manhattan landscape west of Midtown. How it will end is anyone’s guess, but with Tishman Speyer out and the MTA back in negotiations with other potential Yards suitors, the battle has just begun.

The troubles started when talks between the MTA and Tishman Speyer collapsed late last week. While the Bloomberg administration put pressure on the two groups to keep trying this week and even promised to have the city cover the cost overruns for the 7 extension — but not necessarily that controversial station at 41st and 10th Ave. — things died for good today.

With this development, Schumer, long skeptical of the 7 line funding, took this opportunity to push for a project that he considers to be more viable than the Hudson Yards plans. Speaking on Monday at a Crain’s Business Forum, Schumer renewed his calls for Penn Station-focused development:

Mr. Schumer, in laying out his vision for the area at a Crain’s Breakfast Forum, said the mayor should stop funding a $500 million boulevard on the far West Side and instead build a second subway station on the extension of the No. 7 line. (Emphasis added.)

The Metropolitan Transportation Authority’s push for a 16-million-square-foot project at Hudson Yards, strongly encouraged by the city, suffered a setback last week when talks with its chosen developer, Tishman Speyer, broke down. Although Mr. Schumer said, “I am enthusiastic about Hudson Yards,” he said no one would build office space there until the No. 7 extension is in place.

Instead, he said, government should push for more office space by Penn Station, which has one-sixth as much as the Grand Central Terminal area despite serving more commuters.

Schumer and I are on the same page in regards to the 7 line extension, but Schumer and the Mayor disagree over the role of the Port Authority. The Senior Senator from New York would have the Port Authority assume control of this plan. Bloomberg, meanwhile, will have none of it because the Port Authority can’t even seem to get its act together in Lower Manhattan. It’s a grand ol’ political war of words.

On the MTA front, the agency will in all likelihood push hard to wrap up a deal with another suitor. They need the money for their capital budget, and Charles Bagli at City Room reported that Douglas Durst, Stephen Ross and Steven Roth, three other developers interested in the space, are now back on the table. While Durst would have once offered up just $39 million less than Tishman Speyer, that figure is sure to drop, leaving many to wonder why no one raised red flags with Tishman’s offer before it was accepted. The demands that eventually quashed the talks were not new.

Photo of Moynihan Station via Moynihan Station on flickr.

Well, this latest Hudson Yards development is not very good news for the MTA.

In a turn of events that one could call shocking or not shocking at all, the $1 billion deal between the MTA and Tishman Speyer for the rights to the Hudson Yards has fallen apart. The word first broke via a press release issued by MTA spokesman Jeremy Soffin:

Late this afternoon, negotiations between the MTA and Tishman Speyer over the development of the Rail Yards on Manhattan’s Far West Side reached an impasse. The cause of the impasse was Tishman Speyer’s attempt to change a central deal term in an effort to postpone the closing on the Eastern Yard until the Western Yard was satisfactorily re-zoned. This demand changed the economics of the proposed deals and the certainty of payments to the MTA. The MTA remains committed to developing these unique and very valuable parcels of land.

For those who have been following progress on the negotiations, this collapse came just short of a month after the two sides missed a deadline for a conditional agreement. Now, while a Tishman Speyer deal remains a faint possibility, it’s back to the drawing board for an MTA facing the prospects of a significantly lower dollar amount for the rights to the Hudson Yards space.

Charles Bagli of The Times has all the details. From the prospect of Tishman Speyer, this deal was fraught with problems from the get-go. The real estate and development company could not find any tenants for their five planned office buildings, and they were not sure of the fate of the cost overruns of the 7 line extension, a frequent topic here at Second Ave. Sagas

Meanwhile, this deal could spell more fiscal problems for the financially-troubled MTA. Bagli reports:

But if the authority reopened negotiations with another bidder, it would almost certainly mean that it would get less money for the rights to the property, real estate executives said.

Developers who a year ago would have gleefully bid any price for a building or a project are now delaying or abandoning projects in New York and elsewhere as the economy has slowed and many lenders have balked at financing real estate projects in the wake of the credit crisis.

At the same time, the sudden setback in the development of the railyards is a very public embarrassment for everyone involved, including the developer, whose reputation may be at risk; the authority, which was counting on the money for its capital budget; and the Bloomberg administration, which had made the transformation of the once-industrial West Side a centerpiece of its two-term mayoralty.

On one hand — the very obvious hand — this collapse is bad news for the MTA. They will lose out on another $10 million a year, and the fate of the Hudson Yards is once hazy. They’re in the middle of constructing a 7 line extension to, literally, nowhere without a stop in the one area that’s actually populated and needs a subway stop at 41st St. and 10th Ave. The Bloomberg Administration is bound to put pressure on both parties to work out a deal since part of Mayor Bloomberg’s legacy rests on it, but it won’t be that easy.

On the other hand, some good could emerge from this impasse. First, the MTA should be pressure on the Bloomberg Administration to guarantee all funding for the 7 line extension. That should include any cost overruns and a fully functional station at 41st St. and 10th Ave. Building a shell now will only lead to higher costs in the future.

Next — and this won’t happen — the MTA should consider whether or not the 7 line extension is worth it now if the land rights are up for grabs again. The MTA could use the money being spent on that extension on Second Ave. or even on routine maintenance. While I know the city is funding the part currently under construction, having a subway line go nowhere will help no one.