February 11, 2004
Hudson Yards cost breaks $5B
After more than a year's delay, New York City deputy mayor Dan Doctoroff has at last released his plan for financing the multi-billion-dollar Jets-stadium-plus-office-building development known as Hudson Yards - sort of.
Under the plan announced this morning by Doctoroff at a City Hall press conference, the city would create a Hudson Yards Infrastructure Corporation that would sell $2.8 billion of bonds to pay for: an extension of the #7 subway line ($1.76 billion); decking over state-owned rail yards between 10th and 11th Avenues ($351 million); and building new streets and open spaces ($361 million). Not included in this bond issue - and currently being "worked on with the state," according to Doctoroff - are the cost of expanding the Javits Convention Center (previously estimated at $1.4 billion); the public share of a Jets/Olympic stadium ($600 million out of $1.4 billion total cost); the cost of an underground truck parking structure that would service both the stadium and the convention center ($250 million); or the cost of acquiring air rights to 23 acres of Metropolitan Transportation Authority rail yards (Doctoroff: "We need to work out a deal with the MTA for those"). Total public cost: at least $5.05 billion, with more than $2.2 billion of that still unaccounted for.
To pay off the $2.8 billion in bonds, Doctoroff proposed a dizzying array of revenues, all to be collected by the new Hudson Yards Infrastructure Corporation: payments of lieu of taxes (PILOTs) that commercial developers would agree to in exchange for being exempted from paying property taxes or sales tax on construction materials; property taxes on new residential buildings; the sale of both development rights and air rights to the platform built over the rail yards; the sale of "surplus property" generated during construction of the new subway line; and zoning bonuses to be paid by developers into a District Improvement Fund. Doctoroff confirmed, incidentally, that we got it right: by creating the HYIC and using PILOTs, the city would be able to spend billions in public dollars with no more legislative authorization than a single city council zoning vote.
All in all, Doctoroff's presentation presented little new information from what he'd proposed a year ago, with funding still unclear for the stadium, convention center expansion, or acquisition of MTA air rights, and bonds still depending on unsecured projections of office building development that wouldn't even begin until the year 2010 - a mechanism that Dallas development bond expert Ryan Evans scoffed at last year as unworkable: "TIF bonds are tough, because they're risky - you have to hope you get development to pay them back. Well, I'm not going to buy that bond, are you?" Asked if the city could sell bonds without committing general revenues as a backup or buying bond insurance, Evans laughed: "Good luck! Here we not only had enough investment on the ground to pay back the bonds, they still wanted insurance. And then wanted to know what new investment was going to come on top of all of that, which we had to prove. And then we had to have a reserve, just in case."
While Doctoroff announced the companies that would be working with the city to sell its bonds - Goldman Sachs, JP Morgan Chase, and Bear Stearns - he said negotiating the actual bond sale is still another item yet to be worked out: "We've got to convince everybody - we've convinced ourselves - that the demand exists to build the buildings." He'd better have stocked up on ingratiating grins.
One more item of note: conspicuous in his absence was Mayor Michael Bloomberg, who decided he'd rather be in Washington for the day to lobby for more homeland security funds. Too bad, because we would have liked to ask him about his promise last week that "if it's the city [putting up money for Hudson Yards], it's up to the City Council and the mayor. Nobody is trying to cut anyone out." Not to mention his bizarre assertion to Newsday that "We can rent [the Jets stadium] out for eight-odd Sundays a year for somebody that's going to pay us $600, $700, $800 million. This would be the best rental anybody has ever done in the history of the world." (In fact, the Jets would put up $800 million in construction costs, not rent, and would almost certainly reap the revenue from non-football events.) We know city math scores are a problem, but this is ridiculous.
