NEW YORK — The Hudson Yards trace a rectangular scar on the western hip of Manhattan, hemmed in to the north by 33rd Street, and stretching two blocks eastward from the Joe DiMaggio Highway, which skirts the banks of the Hudson River. From above, it appears as though someone has peeled back a layer of asphalt to expose the inner workings of the city's railway system: 26 acres of tightly packed, parallel tracks converge in a funnel at one end, before disappearing underground and into the throat of nearby Penn Station.
The western and southern fringes of the yards, on 30th Street, are wreathed by the curving hulk of the High Line, an elevated trestle that has long since fallen into rusty disuse. Sidewalks are choked with weeds and the occasional empty bottle of cough syrup, while pedestrians are almost non-existent — a jarringly desolate counterpoint to the bustling crowds and skyscrapers just a brief stroll away.
Yet, if one is to believe local politicians, this squalid piece of land is the "next frontier" in New York's development (Governor Eliot Spitzer), a "once-in-a-generation opportunity" (Mayor Michael Bloomberg) and, just possibly, the second coming of the iconic Rockefeller Centre (deputy mayor Don Doctoroff).
Only a few years after abandoning an unpopular scheme to build a football stadium above the tracks, the Metropolitan Transit Authority has shifted gears, and invited proposals to transform the yards into a thriving neighbourhood, complete with housing, commercial towers, a cultural centre, hotels and more than a dozen acres of public space.
The cost of the project, at an estimated $12-billion (U.S.), is massive, as is the potential payoff — not just for New York itself, which suffers a chronic shortage of space, but for the five companies competing to develop what is regarded as the largest untapped building site in the city, never mind one of the most logistically complex. The sheer magnitude of the project would make it a transformative undertaking for any of these builders, but none more so than Canada's Brookfield Properties Corp.
Brookfield, which has a Toronto parent but is based in New York, is widely regarded as a formidable office landlord, with a portfolio of roughly 100 properties that punctuate the skylines of New York, Los Angeles, Toronto and Boston, among other urban centres. In Manhattan's financial district it has a dominant foothold, boasting five buildings, with a combined nine million square feet, huddled close to Ground Zero.
As a developer, however, its credentials are far less certain. Although it has attempted to rebuild this part of its business recently, acquiring more than 16 million square feet in development sites, it is still regarded as an upstart. The Hudson Yards would change that perception overnight, conferring instant credibility, nearly doubling the company's development portfolio and, if things go as planned, adding as much as 40 per cent to its operating profit (or about $400-million, based on last year's figures).
"They're meaningful, but I think collectively and individually they haven't yet put us on the map as a development company," conceded Ric Clark, Brookfield's chief executive officer, referring to the company's current pipeline of projects. "What does the Hudson Yards mean to us? This project, as well as the one that we own two blocks to the east on 9th Avenue, is of such a scale that from a branding standpoint it will be very, very meaningful to the company. It's a huge opportunity."
Bucking an underdog image
Brookfield may be an underdog in the Hudson Yards sweepstakes, but at least it has a chance, something that would have been almost unthinkable five years ago with a project of this size. At the end of the 1980s, when the economy cratered and it became painfully apparent that the commercial real estate sector had been grossly overbuilt, the company exited the business and chose to focus instead on buying assets, managing buildings and leasing.
Early this decade, however, around the time that Mr. Clark took over as CEO, the company decided it should once again be a full-service real estate company, and create a development expertise that could attract new tenants.
Since that time, Brookfield's development arm has swelled from three people to 25, although in a company of 1,200 employees this remains a tiny number.
Currently, four projects are under way, including the Bay Adelaide Centre in Toronto and Bankers Court in Calgary, which together account for about 3.1 million of the company's 17 million square feet of development sites.
Hudson Yards, to put these figures into context, would consume 12 million square feet on its own and, assuming a rough valuation yardstick of $1,000 a square foot, could cost more than $12-billion. Developers typically finance about 80 per cent of these costs, but that would still require a contribution of between $2-billion and $3-billion, roughly one-third of Brookfield's market capitalization.
Little wonder that the project has galvanized some of the most powerful names in North American real estate: Tishman Speyer, owner of the Chrysler Building and Rockefeller Centre; a partnership between the Durst Organization, one of New York's oldest family-owned real estate empires, and Vornado Realty Trust, which owns 64 million square feet of properties and a sizable chunk of development sites near the yards; Related Cos., which is best known for developing the Time Warner Center in midtown Manhattan; and Extell Development Co., a smaller firm that made headlines two years ago after buying nearly $2-billion worth of land on the Upper West Side from Donald Trump, round out the list of bidders.
For several weeks last month, all of these groups were crammed into a small showroom across from Grand Central Station, where the public could inspect their models, talk to company officials and provide commentary in a suggestion box.
Brookfield, with some luck, won a coveted spot next to the entrance, and its presentation was arguably the most sophisticated — walls were plastered with images of gleaming glass buildings and families gamboling in green parks. One model — rendered in a kind of clear plastic — outlined its proposed design, while a larger, cut-out version depicted how the new Hudson Yards would meld with midtown Manhattan. Much like the other proposals, this one featured a mixture of eco-friendly skyscrapers, and affordable housing, retail shops, cultural facilities and green space, all rising up, somewhat improbably, through a massive slab suspended above the rail yards.
Aesthetically, though, the Brookfield design bears some striking differences from its peers, thanks to the large group it assembled to craft its proposal. Six architectural firms, three planners and a pair of engineering companies combined on the project, in part so that the area would reflect the diverse architecture of the city (and avoid the kind of heavy, monolithic ambience that has come to characterize the redeveloped Battery Park).
The centrepiece of Brookfield's vision for the yards is undoubtedly a two-tiered residential complex, overlooking a wide park at the western end of the yards, that is tethered part-way up by what looks like a giant glass band (the horizontal supports are meant to double as indoor running tracks). Two commercial towers would loom at the opposite end, near 10th Avenue, the most imposing of which would be 400 metres — just shy of the Empire State Building. There would also be 15.4 acres of public space and parks.
Yet the slick presentations belie a vexing logistical problem for the builders: pouring foundations and erecting a platform without disrupting the train traffic. Every morning, after disgorging passengers at Penn Station, the trains continue east and park in the yard; at rush hour, they swing back to Penn, pick up travellers, and transport them to Long Island and New Jersey.
The MTA has said it can close just four of the 30 tracks at any one time to facilitate construction, meaning any development effort will require considerable precision.
Most developers, including Brookfield, are pitching a plan that would set foundations in the ground, and use the buildings to help disperse the weight of the platform, which would reach 10 metres above street level at its highest point. The exception is Extell, which has proposed suspending a thin platform, in a kind of gentle curve, by way of rods that would be strung between buildings on the northern and southern reaches of the yard.
None of the builders have revealed the cost of their plans, but the platform itself is expected to cost roughly $1.5-billion to build. Observers have pegged the development rights at between $500-million and $1-billion.
"A lot of times, when you have a big master plan project, you have flexibility and time; you can adapt and change," explained Josh Sirefman, a former senior official in the Bloomberg administration who joined Brookfield early last year and is helping to spearhead the Hudson Yards effort. "You don't have that luxury here. You have to know, when you build that platform, where the buildings are going, because the railroad wants you to get in, get out, and be done. There's an intense amount of co-ordination with what hours you can work."
Complicating matters further is the uneven grade of the area, particularly a steep hill that descends from 10th Avenue, which is well above the yards, to the Hudson River, where trains are at street level. The unusual nature of the site has created all kinds of unexpected headaches; merely designing lobbies for Brookfield's office towers here required an enormous amount of engineering work, given that their placement would be directly above a sensitive area of the tracks.
But the company has been grappling with precisely this issue for some time now, given its other development project at 9th Avenue, directly across from the Farley Post Office, a Beaux Arts colossus that is itself slated for redevelopment.
This 9th Avenue site, about 40 per cent the size of yards, may be even more complex, given its placement above a busier portion of underground tracks. Brookfield is hoping to break ground on a platform at this site next year, and will no doubt argue that this puts it in a unique position to develop the adjacent corridor of the Hudson Yards.
"I think one of the advantages that we have over the other four competitors is we've actually spent a couple of years studying how to do exactly this, which is how to build a platform and a structure over an active railway in order to create the site," Mr. Clark said. "We've got a bit of a head start versus our peers in that regard."
It also has a head start in some courts of public opinion (two online polls showed its proposal to be the clear favourite), although it's far from clear that that will carry much, if any, weight. More importantly, Brookfield has cultivated the support of some urban activists who are closely involved with Friends of the High Line, a well-mobilized group that has been lobbying for the restoration of the elevated tracks around the yards.
This kind of political savvy is evident in Brookfield's hirings — in addition to recruiting Mr. Sirefman from City Hall, its board of directors includes Diana Taylor, the girlfriend of Mayor Bloomberg —but that is merely the cost of entry in the New York real estate world, where most of the big developers can boast of strong ties to government decision makers.
Popular as Brookfield's plan seems to be, the bidding could hinge on an element that it lacks — an anchor tenant. Even Governor Spitzer raised this question with company officials when he made a surprise visit to the showroom a couple of weeks ago. (The company's intelligence isn't bad, either. Mr. Clark was being interviewed for this piece when a secretary handed him a slip of paper, explaining that Brookfield had been tipped about Mr. Spitzer's imminent arrival; after turning chalk white, he excused himself, scrambled to his car service and made it to uptown in 10 minutes, just as the Governor was about to leave).
Related Cos., a veteran developer viewed by some as the front-runner, has a pair of heavyweight partners in Rupert Murdoch's News Corp., which would build its corporate headquarters here, and the investment bank Goldman Sachs Group Inc.; the Durst-Vornado team has inked publishing giant Condé Nast to a potential deal; and Tishman Speyer has joined forces with another investment bank, Morgan Stanley, raising the spectre that Hudson Yards could become an alternate hub of media or financial power. Along with Brookfield, only Extell has yet to announce an anchor.
New York Magazine, which recently handicapped each developer's chances (Related was the odds-on favourite; Brookfield was pronounced the "dark horse"), suggested those with anchors will have a leg up on the competition, which is expected to be decided in February or March. It also predicted, however, that the city will choose not to hand the entire project to one bidder, and that Brookfield's lack of a committed partner might give it the flexibility to grab a piece of the action if the work is spread around.
world-class ambitions
Mr. Clark and his team, not surprisingly, insist that the lack of a blue-chip tenant at this stage will not hurt their chances. They claim that a well-conceived development plan will lure corporate interest, and argue that signing up a partner too soon could leave a lot of potential revenue on the table.
"We felt that it was not appropriate to enter into a below-market deal," explained Mr. Sirefman.
"We're very confident about our ability to absorb all the space."
Given the collapse of the residential mortgage market this year, the crumbling economy, and looming layoffs at the big brokerage firms — which are among the city's biggest tenants — this may seem an odd time to be salivating over a project as massive, costly and potentially risky as the Hudson Yards. Then again, this is New York, where the general laws of real estate do not always apply.
According to the department of planning, the city will have to find 111 million square feet of room by 2025 to accommodate an estimated 440,000 new workers. Midtown's proportional share of that would be about 45 million feet, a number that could be all but impossible to reach without earnest development of the area in and around the Hudson Yards.
Officials here are concerned that if more space isn't added, the city will increasingly lose commercial tenants — and lucrative tax dollars — to nearby New Jersey and Long Island, where it is cheaper to develop and build.
There are other factors at play, which add to Mr. Clark confidence that he can secure big-name tenants for the site. One is security. After 9/11, companies are enticed by the prospect of a new building that has been upgraded with the latest in security measures, whether it be reinforced cores, blast-resistant glass or a foundation that is placed further away from the street.
The brokerage firms provide another source of opportunity. Yes, they have been badly shaken by the subprime mortgage debacle, and many will no doubt put a clamp on their wallets for the foreseeable future.
Yet there is a growing trend in the sector toward reconsolidating a firm's operations under a single roof, and reversing the dispersion that was set in motion by security concerns after the terrorist attacks in 2001. Some of these firms have outgrown their multiple locations, while others believe it would simply be more efficient to house the bulk of operations together. Morgan Stanley's decision to sign up as a partner is a case in point.
If Brookfield could somehow snag Hudson Yards, Mr. Clark believes it could increase operating profit by between 30 and 40 per cent — that is on top of the 50-per-cent increase he expects from the company's current development pipeline.
Over the next decade, he doesn't think it unreasonable that the development contributions may double Brookfield's operating profit. Of course, given the long-term nature of this business — the Hudson Yards platform likely wouldn't be completed until 2014, and that's if things move on schedule — it takes a while for these projects to make their way to the bottom line. In the meantime, Mr. Clark and his development group would gladly settle for some acknowledgment.
"I think it's world class now," he insisted of the development business. He paused a moment, before continuing: "What we potentially lack at the moment is recognition of our abilities."
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source: theglobeandmail.com
