As the Tunnel Boring Machines continue their march from 34th St. and 11th Ave. to Times Square, the MTA and Related are still hashing out their $1 billion deal for the development rights to the land above the Hudson Railyards. The deal, originally set to be signed in January with its first payment this month, has been given an additional 60 days, according to a report in The Observer, and as the real estate markets continue to struggle, the future of this deal is still not set in stone.
According to Eliot Brown, the MTA and Related have agreed to extend the deadline to sign the contract from January 31 to March 31, and he says that the real estate executives “have recently been expressing confidence that they indeed expect to sign the contract once the documents are ready.” Meanwhile, Goldman Sachs, one of Related’s funding partners, has dropped out of the deal, but Related says that will not impact their ability to pay the money owed to the MTA.
Brown has more:
A bit more info about the contract with the M.T.A. is in a memo from the agency, obtained by The Observer, sent late Friday to the M.T.A.’s board. The memo says that Related has until March 31 to sign the contract, when it will have to plunk down $21.75 million and trigger another $21.75 million in payments over the following year. (The whole deal is valued at a $1 billion transaction for the MTA in today’s dollars; the entire 12 million-square-foot mega-development, if built out fully, would run an estimated $15 billion.)
Should Related, led by Stephen Ross, indeed sign the contract by March, it would then obligate itself to close on the deal once the economy improves to the point where it hits a set of quantifiable triggers that include commercial vacancy rates, according to multiple people familiar with the deal. Thus the true test of whether or not the deal for the rail yards will happen is at that point—when Related must close on the deal and commit to the full 99-year lease (and the $1 billion in payments) or back out.
THE PROCESS HAS become considerably more drawn out and far more uncertain than imagined at the economy’s peak, when the M.T.A. was first soliciting bids for the site. The M.T.A. had planned for the $1 billion to start rolling in, and budgeted accordingly in its capital plan. Now Related must find major tenants willing to leap over to the far West Side and be anchors for a new giant complex of hotels, retail and office towers. And the development must have a certain critical mass of tenants to get going: the platforms alone for the two 13-acre rail yards are estimated to cost up to $1 billion, meaning a promised set of occupants is needed to get financing.
For the agency, this delay is obviously a fiscal inconvenience. It has been nearly two years since Tishman Speyer originally agreed to buy the land, and the MTA could see another $1 billion deal disappear at a time when they most need the money.
Meanwhile, the 7 line extension continues onward. The subway extension will be built, and at the rate Related is going, it will open well before the bulk of the Hudson Yards development takes place. At least those who eventually build there will have a subway line. Whether the extension is still the best use of city spending on transportation expansion remains an open question.