Stephen Ross’s Related Cos. received approval for a $328 million exemption from New York City taxes for the construction of an 80-story skyscraper and a shopping mall at its Hudson Yards development on Manhattan’s west side.
New York’s Industrial Development Agency today approved the subsidy, said Patrick Muncie, an agency spokesman. The project was previously granted a $106 million tax break for the first tower at Hudson Yards, and it also will benefit from $3 billion of city bonds sold to extend the No. 7 subway line, according to an analysis by the city’s Independent Budget Office.
The planned 13.3 million-square-foot (1.2 million-square-meter) project, which Mayor Michael Bloomberg has called one of the largest private developments in U.S. history, aims to expand Manhattan’s midtown business district west toward the Hudson River, with offices, apartments, parks and cultural venues. Work on the complex, much of which requires a platform to be built over a rail yard, has proceeded slower than anticipated, costing the city more than $100 million in expected tax revenue, the IBO said in an April report.
The new abatement means “the city will need to pump more money than previously expected into Hudson Yards to meet the development’s debt-service obligations,” Doug Turetsky, the IBO’s chief of staff, said in an Oct. 3 statement.
Today’s decision breaks with a Bloomberg administration policy to reduce public subsidies for retail development, according to the IBO, a non-partisan group that studies city budgets and taxes. The mayor is founder and majority owner of Bloomberg News parent Bloomberg LP.
In testimony before the Industrial Development Agency last week, Andrew Rosen, a vice president of New York-based Related, called the tax benefit “indispensable to the construction of this world-class commercial project in what today remains an underutilized portion of the city.”
The subsidy is consistent with plans for Hudson Yards approved in 2006 by the agency, City Council and the Office of Management and Budget, according to Jonathan Gouveia, senior vice president of strategic investment for the city’s Economic Development Corp., which oversees the agency.
Construction of what is being called the north tower requires the creation of a platform over 26 tracks that make up a portion of the Metropolitan Transportation Authority’s West Side Rail Yard, an “enormous swath of land,” he said. The MTA leases the yards to the developers.
“It’s incredibly expensive and prohibitive,” Gouveia said in an interview after the vote. Without the abatement, “you would likely never see the development of this yard.”
Related’s partner in the project is Oxford Properties Group, the Toronto-based real estate arm of Ontario Municipal Employees Retirement System.
Under the terms of the exemption, Related would get a 40 percent break on its real estate tax for four years, with the remaining 60 percent going to the Hudson Yards Development Corp. to cover its bond expenses. After that, the benefit would be reduced until the 25th year, when it would end.
The application for the subsidy combined the 2.4 million-square-foot office tower with five levels of shopping totaling 1.1 million square feet. The developers expect to finance the $4.1 billion project with a combination of loans, equity and funding from tenants, according to the application. The cost estimate includes $721 million for the platform over the eastern portion of the train yard. A western section would be developed later, according to Related’s proposal.
Media company Time Warner Inc. (TWX:US) is in negotiations to relocate its headquarters to the north tower from Related’s Time Warner Center at Columbus Circle, a person with knowledge of the talks said in July.
Construction has started on the 895-foot south tower, which is being built on solid ground. Coach Inc., the largest U.S. luxury-handbag maker, will be its largest occupant. Tenants include cosmetics company L’Oreal USA and SAP AG (SAP), the German software firm.
Land values in the Hudson Yards area have been skyrocketing in anticipation of the No. 7 line’s expected opening next year, said James Parrott, chief economist of the Fiscal Policy Institute, a non-profit research group that generally opposes public subsidies for private construction.
While it’s appropriate for a city to extend subway lines to spur economic growth, additional incentives shouldn’t be granted in areas where developer interest is already strong, especially for retail projects, he said in an interview.
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