has the latest
on an increasingly complicated set of requirements for developers, as outlined by the MTA in their January 28 letter
According to the article by Theresa Agovino, the winning developer will be contractually obligated to create a set of seperate funds that will go to the MTA for Rail Yards expenses and earmarks for other MTA projects (including a $9.2 million fund to improve the MTA's LIRR facility near Shea Stadium).
None of these expenses would be paid back if the deal should fall through. Given the uncertain economic climate and fear of a national recession, it looks like the MTA is raising the bar to safeguard the site against developers pulling out later. Essentially, the agency is transferring risk onto the developers.
The MTA will also require developers to front "transaction payments" to back any condo sale or other transaction on the site once it's built out. The tricky part is, the MTA doesn't specify a set amount for these payments-- bidders have to come up with their own maximum figure.
Full text after the jump.
MTA Hudson Yards Deal Fraught with Caveats
The site's winning developer could to pay tens of millions of dollars that won't necessarily be refunded if the deal falls apart.
Shea Stadium is nowhere near the Hudson Rail Yards on the west side of Manhattan, but the group selected to develop the 26-acre site must establish a $9.2 million fund to improve a Long Island Rail Road facility near the ball field.
Some of the five groups vying to build on the rail yards site say the request is emblematic of the tough deal the Metropolitan Transportation Authority is driving as it selects a developer for the mega site.
According to the documents the MTA sent the five development teams interested in the site, which were obtained by Crain's New York Business
, the group behind the winning bid would have to pay tens of millions of dollars that won't necessarily be refunded if the deal falls apart.
For example, the developer would have to create a $5 million fund for expenses for each of the two yards. A $10 million fund, or $10 million letter of credit, would also be required for environmental expenses for each yard. The MTA reserves the right to draw on the funds and won't reimburse the developer for any money it spends should the developer leave the project.
"They want us to take tremendous risk," says a source at one of the development teams. The five development teams are being asked to bid on the project as the credit crunch continues and some analysts fear the nation is slipping into a recession.
Some of the developers competing for the site said the MTA's decision to lease the site instead of sell it outright complicates the bidding process because there are so many more issues to consider, creating a high-stakes chess game. The MTA does not set a minimum rent, leaving it for the developers to decide what to offer. It also asks for the certain "transaction payments" such as a percentage of any condominium sale or licensing fees from antennas, cell phone towers and billboard and signage. The developer must decide how much it is willing to pay.
"This is more complicated that a straight sale," said one developer who requested anonymity.
The MTA also said it would like an equity position in the project. It doesn't ask the developers to set a percentage but wants them to indicate their receptiveness to such an idea. It also requires that the MTA, state and various connected agencies be indemnified from any lawsuits stemming from the site.
The five development teams are: The Related Companies; Extell Development Co.; Brookfield Properties; a joint venture between Morgan Stanley and Tishman Speyer; and a joint venture between The Durst Organization and Vornado Realty Trust.