Crain's: MTA Should Pick Most Financially Sound Developer

Unsurprisingly in the wake of the subprime crisis and general market shakiness, much of the Rail Yards dialogue has turned away from design and towards financials.

Of course, guessing is a bit tough, given the MTA's refusal to make the financial bids public (which the HYCAC called for as part of its summary of top community concerns).

Background on the financial situations of each of the developers has led to a lot of speculation over which one would be the surest bet for the MTA, an agency that knows its way around fiscal headache.

A Crain's editorial recently endorsed Related and Tishman Speyer for the site, pointing to anchor tenants to add heft to the deal:
"There are no more resourceful, experienced or financially solid real estate companies in New York. Their tenants, News Corp. for Related, and Morgan Stanley for Tishman, offer a strong likelihood the project will get off the ground."
The Crain's site is for subscribers only, but the complete editorial is after the jump.

The MTA still plans to announce a decision by the end of March.

Best choices for Hudson Yards

The Related and Tishman proposals stand above the rest

The Metropolitan Transportation Authority is turning out to be a tough negotiator as it seeks to choose a developer for the 26-acre Hudson Rail Yards site. Although the MTA is well within its rights to seek the best deal it can, it needs to make its decision based on what is best for the city's economic future. When the city's long-term interests become the yardstick to measure the developers' proposals, the bids from The Related Companies and Tishman Speyer prove superior.

The idea that the city needs to reclaim what is without a doubt the most underutilized area of Manhattan goes back to the Giuliani administration, which drafted a plan to rezone the area. The idea received a boost in 2001 when Sen. Charles Schumer's long-term blueprint for the city, drafted in consultation with top business leaders, said New York's economy would never reach its potential unless it created more office space by extending midtown to the Hudson River. The Bloomberg administration embraced that objec-tive and won a rezoning, which set the process in motion.

The opportunity for a developer is enormous, but so is the risk. The MTA expects a payment of around $1 billion. Anoth-er $1.5 billion or so will be required to build a platform over the rail yards–an enormous challenge since construction can't disrupt the operations of the Long Island Rail Road. Consider that $2.5 billion a cover charge, after which a devel-oper must market the neighborhood to office tenants and residents while laying out more money to begin building.

Only the most financially secure and experienced can be entrusted with the task–which excludes Extell Development Corp.

Brookfield Properties and a joint venture of The Durst Organization and Vornado Realty Trust have both made serious and interesting proposals. Brookfield, however, doesn't bring a tenant to guarantee the project can be launched immediately, and its plan diverges from the guidelines the bidders were given. The other companies would demand a chance to revise their proposals if Brookfield is chosen. Durst and Vornado emphasize residential over commercial development, which puts them farthest from the original spirit of the rezoning.

The Related and Tishman proposals stand above the rest on all the important criteria. There are no more resourceful, experienced or financially solid real estate companies in New York. Their tenants–News Corp. for Related and Morgan Stanley for Tishman–offer a strong likelihood the project will get off the ground. Maybe most signifi-cantly, both designs provide spectacular public spaces: the Bryant Park-like gathering spot in the Related concept and the re-creation of Rome's Spanish Steps in Tishman's plan.

Both companies face hurdles. Related must make it clear how the public space won't become just a theme park for Rupert Murdoch's News Corp. Tishman must show that it will be able to lure a diverse group of companies rather than depend on cyclical financial services giants.

Some have wondered if it wouldn't be best to try to push the two companies to combine forces. While that makes financial sense, the visions the two have presented are most likely incompatible.

The MTA should continue seeking the best deal possible as long as it doesn't put immediate gain ahead of what is best for New York.
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