Control Board puts dent in city's plans for West Side.
According to city officials, the West Side Rail Yards and the Madison Square Garden site are key engines in the financing of the planned $2 billion westward extension of the No. 7 subway line from its current terminus at Times Square to 34th Street and 11th Avenue.
The No. 7 extension is considered essential in spurring economic activity and real estate development in the Hudson Yards, a swath of land west of 8th Avenue roughly between 30th and 43rd Streets. The city rezoned the district last year and is aiming to spur its development into a western office and commercial district with office stock, transportation, and amenities worthy of midtown.
But last Friday, the Public Authorities Control Board postponed its consideration of the plan to develop Moynihan Station in a move that dealt a surprise blow to state and city officials. The PACB's postponement will also delay the potential relocation of Madison Square Garden into the western annex of the Farley Building. MSG's move would free up a valuable parcel whose development into office towers could provide significant financing for West Side infrastructure.
On top of that, a letter to MTA chairman Peter Kalikow from the state attorney general Eliot Spitzer last week, revealed the increasing scrutiny being directed at a plan Kalikow has endorsed to sell the city the MTA's West Side Rail Yards for $500 million.
The city's acquisition of the West Side Rail Yards would allow it to have a direct hand in developing commercial space in the Hudson Yards, activity that could spur neighboring development, but by itself would likely provide significant financing for the No. 7 Subway
"Our general view is having the rail yards as a big empty hole is a drag on the entire development of the Hudson Yards," said Joshua Sirefman, the interim president of the Economic Development Corporation, which is overseeing the construction of the No. 7 extension. "Clearly, we feel that if we have control of that site we have control of our destinies and we can really figure out how the rail yards fit into the larger picture."
In recent weeks, the city, through its economic development arm, the EDC, and the EDC subsidiary, the Industrial Development Agency, has approved a plan to fund the No. 7 extension by diverting real estate taxes via PILOT payments from new developments within the Hudson Yards.
The plan includes a tax exemption policy that offers graduated tax breaks to developments the further west they are located.
Economic development officials have said the plan will spur the revitalization of the neighborhood, now a district populated by grungy low-rise warehouse buildings that hearken back to a bygone era when the city was a location for manufacturing and various industrial operations.
The city's plan, however, has elicited some criticism from fiscal watchdogs who have drawn attention to the project's potential pitfalls, including the risk of staking the financing for the No. 7 subway on projected development that may not happen on the scale the city is hoping, or could be stymied by an economic recession.
Such possibilities will likely factor prominently into the rating the bonds secure, which in turn will dictate the project's cost of financing.
"We hope to go to the rating agencies and the bond community in the coming months," Sirefman said. "Our ability to control the future of the West Side Rail Yards is one more way to build confidence in the bondholders."
Even if the city is eventually able to acquire the West Side Yards and MSG is relocated however, just the temporary uncertainty surrounding those projects could be costly because the Hudson Yards Infrastructure Corporation, another EDC subsidiary, plans to issue the bonds for the No. 7 Subway extension before the end of the year.
It is not likely that the future of both projects will be hashed out by then, in time to stoke bondholder interest and exert a positive influence on the rating agencies' evaluation of the bonds.
Spitzer's letter expressed concerns that the city's $500 million offer for the rail yards was well under current valuations.
He urged that an accurate valuation of the site be made and that the parcel be sold in an open bidding process so as to assure that the site garners the highest price the market will bear. One valuation has estimated the rail yards to be worth roughly $1 billion.
There is also the sense that Spitzer is flexing his political muscles. Considered the front running candidate in November's gubernatorial race, the attorney general has taken an increased interest in city economic development, slamming the LMDC in recent months and the handling of the WTC redevelopment in general as well as making his presence felt now among the current stakeholders in the West Side's revitalization.
Some observers have speculated that the PACB's decision to postpone its review of the Moynihan Station plan was effectively a method of delaying the project until Spitzer is in office and can have more control of the project.
The postponement came after Assembly Speaker Sheldon Silver, who has a representative on the five-member PACB, stated that he needed more time to review various components of the project, including its financing structure and its proposed partnership between the public and private sectors. Vornado and the Related Companies were selected by the state to carry out the station's development and would lease and operate its commercial spaces.
"It's a lot of things that we are trying to pull together here and Speaker Silver has said that we do not have answers for everything that we're asking for here," Skip Carrier, a spokesman for Silver, said on Friday. "The ESDC approved it, but we didn't get the resolution in the assembly for our review until the middle part of last week. So we haven't had it for very long and it is a bit of a complex proposal."
Last Tuesday, after the ESDC approved the Moynihan Station plan, ESDC officials made statements to the contrary.
"We have given them a lot of information over the past few months, answered all of their questions, we've gone through a very lengthy process and now it's time for final action," said the ESDC's chairman Charles Gargano.
Like the city's plan to ac quire the West Side Rail Yards, the Moynihan Station plan has been a source of some controversy. The project approval the ESDC passed last week included only the plan for the train station and its various commercial components, but not MSG. The MSG move has existed as something of a shadowy plan B that ESDC officials have been loath to talk about.
"MSG has nothing to do with this, this is the Moynihan Station project," Gargano responded briskly when a reporter asked for a status report on that component of the station development. "If there is another proposal by the developer for the extension of the project we'd look at it."
Gargano did however support the move of MSG.
"Removing MSG from its current location is very important because we could improve the existing Penn Station and there could be a lot of economic development," he said. "The question is where does it move to and if we can fit it in without interferring in any substantial way with the development of Moynihan Station, which is the priority. We will look at that. We could call that phase 2, if you want, but we have held a position all along that phase 1 is the important part and that's the building of the station."
But the uncertain status of MSG and the lack of updates for the proposal inspired in many a distasteful perception of the developers and state officials involved in the station's development as scheming and secretive. In the week leading up to the PACB's postponement, there were questions if a Moynihan Station plan should be considered without MSG.
"I think we should make sure that when the PACB votes, it is on the entire project," Kathryn Wylde, the president of the Partnership for New York City, was quoted as saying in an article in the August 15 issue of the New York Sun.
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|Publication:||Real Estate Weekly|
|Date:||Aug 23, 2006|
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