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January 23, 2010

The dirt on development

Crain's takes the measure of six key projects citywide and assesses the chances that renderings will become realities

By Andrew Marks

The deepest recession in decades and a financial market catastrophe that has all but dried up once-mighty credit flows have both contributed to the 550 stalled real estate development projects that dot the city, from Riverdale in the Bronx to Todt Hill in Staten Island.

For the city's biggest projects, ranging from the rebuilding at Ground Zero to the transformation of the rail yards in downtown Brooklyn into a 22-acre mini-metropolis, the normal headaches of political infighting, community opposition and myriad legal challenges now pale in comparison with the great question of the moment: When will tenants once again start banging on doors to demand more office space for their companies or more living space for their families? Only when the market shows signs of reversing its downward spiral—as assessed by measures ranging from rents to land prices—will lenders even think about further risking their battered balance sheets.

As the new year gets under way, Crain's takes a look at half a dozen of the city's biggest projects and judges their chances of completion.

ATLANTIC YARDS

Size/Scope: 22 acres; an arena and 16 mixed-use towers

Date announced: December 2003

Original cost estimate: $2.5 billion

Current cost estimate: $4.9 billion

Developer/lead government agency: Forest City Ratner Cos./None

Thanks to a Russian billionaire, the New York State Court of Appeals and an overwhelming response from bond buyers just last month, it appears that Bruce Ratner's mega-redevelopment of downtown Brooklyn will start to become a reality. At least, that's the case for the new home of the Nets basketball team, the 18,000-seat Barclays Center planned for the corner of Flatbush and Atlantic avenues; construction could begin this month.

The overwhelming bulk of the project still awaits financing, not to mention tenants. After the dismissal of Frank Gehry last year over cost issues, the project also needs an architect.

But Mikhail Prokhorov's $200 million purchase of a majority stake in the Nets and a chunk of their new home, along with Forest City's successful sale of $511 million in bonds, has given the project something it hasn't had in months: hope.

The arena is now expected to be completed this year. But the fate of the original plan, including more than 300,000 square feet of office space, 250,000 square feet of retail, a hotel, and 6,400 apartments—2,000 of which are earmarked for affordable housing—is still in doubt.

“Taking that first step is very important, but between the economic downturn, the luxury housing glut and the state of the office market, it will be a steep climb to get all that built in the next 10 years, if not much longer,” observes Mary Ann Tighe, chief executive of the tristate region for real estate brokerage CB Richard Ellis.

HUDSON YARDS

Size/Scope: 26 acres; 12.4 million square feet of commercial, residential and recreational space

Date announced: September 2006

Original cost estimate: $15 billion (including $2.1 billion for extension of the No. 7 line)

Current cost estimate: $15 billion

Developer/Lead government agency: Related Companies/ Metropolitan Transportation Authority

It may be a first in New York: At Hudson Yards, the sprawling, mixed-use project slated to be built above the rail yards west of Penn Station, the city is actually further along with its part of the project than the private developer is. The MTA broke ground early last year on the extension of the No. 7 subway line to 11th Avenue and West 34th Street, and it plans to complete the project in 2014.

In the meantime, Related Companies, which has agreed to build the planned 5.5 million square feet of commercial space, 5,500 apartments and 4 acres of parkland atop a $1 billion platform over the yards, is in a holding pattern. Last February, the developer—which stepped in after original winning bidder Tishman Speyer Properties dropped out the previous spring—requested a one-year extension on closing its $1 billion deal with the MTA.

Related's first $43.5 million payment is due in just a month, and company officials are hopeful.

“We're working diligently with the MTA and expect to meet the deadline,” says a company spokeswoman.

A crucial rezoning of the western section of the site was approved last month after the city and Related tentatively agreed to preserve or build 551 affordable apartments in the area, in addition to the 743 that were already pledged.

With both the developer and the city committed to the plan, its prospects look good in the long run.

“The opening of the subway means that something will get built there,” says Jon McMillan, a director at TF Cornerstone Inc., which is building apartments on West 37th Street that will front the yard's planned boulevard. “Once we've got the 7 line here, it will be [an example of], 'If you build it, they will come.' ”

MOYNIHAN STATION

Size/Scope: 400,000 square feet (plus 750,000 square feet of private retail and commercial redevelopment)

Date announced: May 1999

Original cost estimate: $500 million

Current cost estimate: $1.4 billion

Developer/Lead government agency: None yet/Empire State Development Corp.

The plan to shift passengers from cramped, dingy Penn Station to a new space in the rebuilt Farley Post Office across Eighth Avenue has long made sense. But efforts to line up agreements from local landlords, as well as the necessary city, state and federal approvals—and cash—have repeatedly fallen short.

“It has been a case of one lost opportunity after another,” says Vishaan Chakrabarti, now director of Columbia University's real estate development program, who was a director at the Department of City Planning before moving to Related Companies to develop a public-private plan for the station in 2005.

That plan, which would have moved Madison Square Garden into the back of the Farley Building, went by the wayside when MSG pulled out in April 2008. The Paterson administration is now hoping that working out a less-grandiose scheme will finally get shovels in the ground.

“We're taking a phased approach now, and we could be poised to start the first actual work on Moynihan [this month],” says Peter Davidson, executive director of the Empire State Development Corp.

The state has applied for $98 million in federal stimulus money to get the project rolling, but getting the funding is hardly assured.

“We think our chances are good,” Mr. Davidson says.

That money, along with another $100 million previously obtained from Washington, would let the ESDC start below-ground work to extend passenger concourses and build additional platforms to service existing tracks under Farley. The second phase—developing the station above the tracks—could go ahead simultaneously. But that would require another $400 million.

In the most hopeful sign to date, Amtrak agreed in September to move its operations, serving about 25,000 daily commuters, to the new station—should it ever be built.

Nothing is set as far as the 750,000 square feet of retail and commercial office space proposed for the rear of Farley. Discussions with private developers are continuing, says Mr. Davidson.

“The market is not yet conducive to solidifying a deal, but we have reason to be optimistic and are progressing steadily toward that end,” he adds.

GROUND ZERO/ WORLD TRADE CENTER

Size/scope: 16 acres; 10 million square feet in six office towers, memorial, museum, transit hub, performing arts center

Date announced: January 2003 (master plan)

Original cost estimate: $10 billion

Current cost estimate: $15 billion to $18 billion

Developer/Lead government agency: Silverstein Properties Inc. and Port Authority of New York & New Jersey/Lower Manhattan Development Corp.

First, the good news: The Sept. 11 memorial is on schedule to open on the 10th anniversary of the terrorist attacks. The surrounding plaza, however, will not follow until 2013.

After that, the news becomes still more grim. Gov. David Paterson and Mayor Michael Bloomberg failed in their attempts last August to get leaseholder Silverstein Properties and the Port Authority, the site owner, to settle their long-running dispute over financing two of the three buildings that Larry Silverstein is hoping to build on the site. Mr. Silverstein opted for binding arbitration instead.

As recently as 2008, Towers Two and Three were targeted for completion in 2012. According to a Port Authority estimate, that date could now stretch to 2037, though Mr. Silverstein is aiming for 2016.

Tower Four, a planned 1.8 million-square-foot property that rose above grade last month, could also soon be in limbo. Although both the city and the Port Authority have committed to lease 600,000 square feet apiece, the building's 2012 completion date now hinges on resolution of a range of issues with the agency, including the schedule for the completion of necessary infrastructure.

“The dispute delays development of the entire site, not just the towers,” says Seth Pinsky, president of the New York City Economic Development Corp. Because of the way the master plan was developed, he explains, “every element of the site is necessary for the completion of the other elements.”

No matter what an arbitrator decides, the arguments and delays will go on for years.

“The arbitration solves only one of hundreds of disputes [between Mr. Silverstein and the Port Authority],” says Mr. Pinsky. “They need to agree to work together.”

Meanwhile, the transit hub is running as much as five years behind its planned 2013 completion date. 2019 now looks like the best bet for 1 World Trade Center, the erstwhile Freedom Tower.

“The government agencies have made the project much more difficult than it should be,” says Daniel Libeskind, Ground Zero's master planner. “But we used to argue about major things, and now we're down to discussing street widths.”

JACOB K. JAVITS CONVENTION CENTER

Size/Scope: Renovation of 790,000-square-foot building plus 40,000-square-foot expansion

Date announced: June 2004

Original cost estimate: $1.8 billion

Current cost estimate: $463 million

Developer/Lead government agency: Empire State Development Corp. fills both roles

The Javits Center has been lambasted as an undersize embarrassment to the nation's largest city almost since its doors opened 23 years ago. Over time, a series of proposals to expand it—and even to supplant it with a convention center in Queens—have come and gone.

After years of false starts, the latest plan has at least one thing going for it: its sheer modesty, with a downscaled price tag to match. The plan entails spending a mere $463 million on a retrofit and 40,000-square-foot expansion of exhibit space, replacement of the roof and construction of an entirely new exterior envelope.

That's quite a comedown from the Pataki administration's $1.8 billion scheme, much less the $5 billion project, including a 160,000-square-foot expansion, advanced by Eliot Spitzer.

“There's a lot less to it, but something is a lot better than nothing,” says Louis Coletti, president of the Building Trades Employers' Association, of the latest plan, which will be entirely funded by a bond issuance backed by a $1.50-per-day tax on hotel rooms that will be applied for the next 40 years. “It means jobs, and it will result in a more appealing convention center that will bring more money into the city.”

Work began last July on the extension—which includes “support” space ranging from loading docks to bathrooms—and is expected to be completed in July of this year. After that, it will serve as “swing space” for exhibitions while the entire existing structure undergoes a phased renovation, expected to be completed in full by 2013. The center's leaky black windows will be replaced with a translucent skin, and new HVAC systems will be installed.

“The Javits Center project still includes an expansion,” points out Peter Davidson, executive director of the Empire State Development Corp. “But everyone agrees that the first need is to rehabilitate what we already have.”

WILLETS POINT

Size/scope: 62 acres; 1.5 million square feet of office, retail, entertainment, hotel and residential space for 18 acres in first phase

Date announced: Spring 2007

Original cost estimate: $3 billion

Current cost estimate: $3 billion

Developer/lead government agency: None yet/New York City Economic Development Corp.

The city's Economic Development Corp. garnered 29 responses to last November's search for developers interested in turning the Iron Triangle—a heavily polluted industrial zone of auto repair shops, junkyards and manufacturers—into a Queens version of Battery Park City. In coming weeks, the EDC will whittle that list down and send out a request for proposals to build the envisioned residential and office buildings, park, school and convention center.

Persuading the remaining land-owners in the area to sell their properties may be far harder. Working with a budget of $400 million, the EDC has bought up more than 60% of the site, and 70% of the property where the redevelopment will be concentrated. But Richard Lipsky, a lobbyist representing Willets Point United—a group of 20-plus holdout property owners—estimates that the city will need at least $700 million, based on prices paid thus far.

“It's pretty clear they're intending to use eminent domain to force out businesses that don't want to leave,” Mr. Lipsky says.

EDC President Seth Pinsky insists that his agency will continue to negotiate, but adds that his staffers will do what's needed to keep the ball rolling. In fact, eminent-domain procedure hearings could begin as soon as this month.

The EDC has scrapped its original plan of bringing in a single developer in favor of adopting a rolling, three-phased project, starting with the southernmost section bordering Citifield, that could have multiple developers.

The only bids solicited thus far have been for the $150 million infrastructure contract to bring in badly needed sewage and storm-water drainage systems. Work is expected to begin in 2011, paving the way for a planned 1.5 million square feet of retail, entertainment and commercial space, 2,000 housing units and 400 hotel rooms.

B'KLYN BRIDGE HAS A PARK TO SELL YOU ON ... REALLY!

So it took 25 years. With the official opening of the park's first phase, Pier 1, at the base of the Brooklyn Bridge, slated for this winter and the first phase of Pier 6 debuting in the spring, the struggle to transform the moribund piers along the Brooklyn waterfront into a park will be over.

Almost. While money is already in the coffers to bankroll Piers 4 and 5, the joint state-city project needs another $100 million or so to finish Pier 6 and move on to Piers 2 and 3. Peter Davidson, executive director of the Empire State Development Corp., is confident.

“We've got two years to line up the financing,” he says. “In the meantime, we'll be getting the first 70% done.”

Size/Scope: 85 acres stretching south along 1.3 miles of waterfront from the Manhattan Bridge

Cost: $350 million

Who's in charge: New York state

Completion date: 2013

Posted by eric at January 23, 2010 11:04 AM