MTA Reaches $1B Deal with Related, Goldman Sachs

[IMGCAP(1)]NEW YORK CITY-The Metropolitan Transportation Authority has confirmed that they have conditionally selected Related Cos. and Goldman Sachs to develop the air space over the two development sites at the Hudson Rail Yards here, as GlobeSt.com reported. A special meeting of the MTA Board has been called for this Thursday to seek authorization for the $1 billion deal.

Marc Francis, president and CEO of the Great Neck, Long Island-based Delphine Real Estate Advisory Group Ltd., a boutique real estate investment bank, wasn’t surprised of the news. Last week, he told GlobeSt.com that Related would be the one to “get it done.” He explains to GlobeSt.com that he has watched the firm close for years and even performed a lot of legal work for them during the late 1980s. “They are a big company, with all of the relevant development and management components, but they are sharp and aggressive like a small company,” he explains to GlobeSt.com. “They are also very well connected.”

[IMGCAP(2)]According to the MTA, the Related/Goldman Sachs plan will transform the Western Rail Yards into a dynamic mixed-use neighborhood. The community will feature sustainability and extensive affordable housing, centered around an expansive public space.

Gov. David Paterson said in a press conference Monday that “the decision by a joint venture of Related Cos. and Goldman Sachs to invest in the redevelopment of the Hudson Yards demonstrates a renewed commitment to the future of the City and region. This agreement highlights the resilience of public-private partnerships in the face of the national economic downturn that we are experiencing. An alliance between Related Cos.–one of the country’s premier real estate firms–and Goldman Sachs–a global financial leader–will lay the foundation for a reimagined Far West Side that will expand the Midtown business corridor and further strengthen the City and State economies.”

In Oct. 2007 the MTA received proposals from five real estate development firms for both yards. The proposals were evaluated over several months and after negotiations with several of the proposers, the Selection Committee recommended the Tishman Speyer proposal to the MTA Board in March. Less than a week after negotiations reached an impasse with Tishman, the MTA reached an agreement with Related/Goldman.

The 13-acre Eastern Rail Yard, between 10th and 11th avenues from West 30th to 33rd streets, was rezoned in Jan. 2005 as part of the City’s Hudson Yards rezoning, and allows for approximately 6.3 million sf of mixed-use development, including office, residential, hotel, retail, cultural and parking facilities, and requires approximately seven acres of public open space. The Related/Goldman proposal for this area, organized around a grand civic plaza, include five buildings totaling 6.3 million sf. Approximately 1.7 million sf will be residential with no less than 20% as permanent affordable housing; roughly 3.6 million sf will be commercial office; 565,000 sf retail; 265,000 sf hotel; and 55% of the site will be public open space.

The 13-acre Western Rail Yard, bordered by West 30th and 33rd streets, between 11th and 12th avenues, needs to go through the City zoning/Uniform Land Use Review Procedure approval process. According to an MTA release, the Related/Goldman Sachs plan adheres to the design guidelines outlined in the MTA’s RFP, and the development consists of approximately 5.8 million sf, including: eight buildings totaling 5.6 million sf with more than 3.6 sf as residential with no less than 20% as permanent affordable housing; 1.9 million sf of commercial office within one building; 192,000 sf of retail; a 120,000 sf school; and more than 55% of the site as public open space.

The High Line, which borders the Hudson Yards on the south and west, is retained as an integral part of the Related/Goldman Sachs proposal. The High Line will be rehabilitated and maintained as a linear open space. The Related/Goldman Sachs plan will achieve LEED certification by the USGBC, according to an MTA statement.

The business and legal terms of this deal follow those previously negotiated with the Tishman Speyer organization, a 99-year ground lease, severable, with options to purchase severed fee parcels. The net present value of the proposal is slightly more than $1.05 billion. “The agreement also allows the developer to opt to delay certain rent payments where no building has begun construction for up to two years, provided that the developer increases its rent guarantee by the full amount of the deferred rent once either construction starts or the delay period ends and the future rent is increased by the value of one half of the amount of the deferral. The maximum exposure to this provision (in the event that no building has commenced and the delay period is the full two years) would make the net present value to the MTA slightly more than $1.01 billion.

Stephen Ross, chairman of Related and Jeff Blau, president of Related say in a prepared release that “we have always believed that the West Side Yards present a unique development opportunity to shape the future of our City. …We are confident that working closely with the visionary leadership of the State and City and the MTA, using the absolute best architectural, planning, engineering and construction talent, and having the financial strength and acumen of Related and Goldman Sachs, we will achieve our shared goals.”

Mayor Michael Bloomberg said that this is great news for the City. “Despite the setbacks of the last few weeks, we are certain that Related and Goldman will realize this tremendous opportunity to develop what is really the only large parcel of undeveloped space left in Manhattan. The attractiveness of this area for developers stems in part because the City is funding an extension of the No. 7 line, making this vital new mixed-use community of residential, commercial and office space a truly transit oriented development. We will continue to work with the State and MTA and with the developer to help make the Hudson Yards development a reality.”

MTA executive director and CEO Elliot Sander said that revenues from this development are critical to funding MTA’s capital needs, “but we made it clear that we would not settle for anything less than a fair deal,” Sander said. A special meeting of the MTA Board has been called for this Thursday to seek required approval of the deal. If the Board authorizes the signed Conditional Designation Letter, these documents and the $11 million initial deposit would be released from escrow to the MTA. The MTA would then enter into a contract with the developer within the next few months. The proposal for the Western Rail Yard would then begin an environmental and public review, which consists of preparation of an environmental impact statement followed by the ULURP, a six-month series of reviews by the community board, Borough President, City Council and City Planning Commission. Construction on the WRY may begin after completing this process, expected to be complete by the end of 2009. The ERY was rezoned in Jan. 2005 and construction could begin upon completion of the contract with the developer, according to a statement.