How Covid-19 left Hudson Yards’ $ 25 billion strangely deserted

When Hudson Yards opened in 2019 as the largest private development in U.S. history, it aspired to transform Manhattan’s Far West Side with a sleek set of ultra-luxurious condominiums, from office towers to powerful companies like Facebook and a mall with coveted international brands and celebrity restaurants. chefs like José Andrés.

The whole surrounded a copper sculpture which would be to New York what the Eiffel Tower is to Paris.

But the pandemic has ravaged New York City’s real estate market and its first development, $ 25 billion, raising important questions about the future of Hudson Yards.

Hundreds of condominiums remain unsold and the mall is empty of customers. Its main tenant, Neiman Marcus, filed for bankruptcy and closed permanently, and at least four other stores, as well as several restaurants, have also closed.

The centerpiece of the development, the 150-foot-tall scalable structure known as the ship, closed to visitors in January after a third suicide in less than a year. Office buildings, whose workers have maintained many stores and restaurants, have been largely empty since last spring.

Even more perilous, the promised second phase of Hudson Yards – eight additional buildings, including a school, more luxury condos and offices – appears to be on hold indefinitely as the developer, the related companies, seek federal funding for a platform. of nearly 10 acres on which it will be built.

Related, which had indicated that the entire project would be completed in 2024, no longer offers an estimated completion date.

The woes of the project are in many ways a microcosm of the larger challenges the city faces as it tries to recover.

Related said he relies on wealthy buyers to fill his condos and on deep-pocketed customers packing the mall to make Hudson Yards financially viable.

But that was before the coronavirus hit New York City.

With the pandemic forcing white-collar workers to stay at home – and keeping foreign shoppers and tourists out – it’s unclear when, or if, demand will pick up again for the vast supply of high-end spaces. range and top-notch office space that clutters the city.

“The challenges facing Hudson Yards are not unique,” ​​said Danny Ismail, analyst and office coverage manager for real estate research firm Green Street. “All commercial real estate in New York City has been affected by Covid-19. However, I would say that after the pandemic, Hudson Yards and the area around it will be one of the best office markets in New York City. “

The creation of Hudson Yards capped nearly 30 years of planning for Manhattan’s last large undeveloped piece of land, industrial land between Pennsylvania Station and the Hudson River.

It is New York’s largest public-private enterprise and the city’s largest development since Rockefeller Center in the 1930s, helped by around $ 6 billion in tax breaks and other government assistance, including metro expansion to the West Side. Even with the expansion of the subway, Hudson Yards is still relatively isolated from the rest of Manhattan, off the beaten track of busiest avenues for tourists, shoppers, and workers.

Related admitted he faced the same financial woes as the rest of the city, but said tenants were still moving into the project’s office buildings and Hudson Yards would eventually rebound.

Four office buildings in Hudson Yards – including 50 Hudson Yards, which are under construction – are 93% leased, a spokesperson for Related said, although it is not clear to what extent this has happened. ‘last year. Facebook signed a lease at the end of 2019 for approximately 1.5 million square feet.

“Our strong rental of office space, even during the pandemic, is why we are well positioned to lead New York’s return of Covid and why adjacent neighborhoods and the entire West Side will recover faster,” the door said. -speak, Jon Weinstein.

Yet the issues facing Hudson Yards caused Related to rethink its plans.

Led by billionaire founder Stephen M. Ross, the company set out to build Hudson Yards in two phases. The first phase, opened in 2019, includes four office towers, two residential buildings, a hotel and the shopping center.

The second part was to include 3,000 residences spread over eight buildings closer to the Hudson River, as well as a 750-seat public school and hundreds of low-cost rental units. At least 265 apartments are supposed to be “permanently affordable” according to a 2009 agreement between the Town Hall and the Connexes.

In total, Hudson Yards was to span 28 acres above existing rail yards and cover 18 million square feet of space, roughly double the size of downtown Phoenix.

The developer has considered an array of new options, including even a casino, although that idea is no longer in the foreground, according to Weinstein.

Bound can’t build the second half until he builds a bridge over the yard. The company, with Amtrak, has spoken with the Federal Department of Transportation about a low-interest loan to finance the platform and preserve the right-of-way of a new railway tunnel under the Hudson River that Amtrak plans to build.

Related has requested more than $ 2 billion, according to two officials briefed on the proposal who have not been allowed to discuss it publicly.

“Residential is going to have to recover, or they change it and are looking at a different product line there,” said Robert Alexander, tri-state region president for CBRE real estate brokerage, which markets space at Hudson Yards. “For me, this is a major development site and there are very, very, very few major development sites in New York City.”

Related is also facing pressure from its investors to provide more comprehensive accounting of project finances. A group of 35 Chinese investors – a fraction of the roughly 2,400 who contributed $ 1.2 billion to Hudson Yards – sued the company last year, accusing it of refusing to open its books or saying when to could repay their investments.

An arbitrator in the case recently dismissed the investors’ claims and ruled that Related was not required to disclose detailed financial information.

Lawyers for the company said Hudson Yards was facing “significant headwinds due to Covid-19” and that due to the economic downturn and foreclosure restrictions, it may not be able to recoup its investment in at least one property there, 35 Hudson Yards, a mixed-use tower with a hotel, according to documents filed by The New York Times.

Another group of Chinese investors, whose contributions of $ 500,000 per person were part of a visa program in the United States who may pave the way for them to citizenship, would also consider taking a similar lawsuit against Related, according to a person familiar with the situation who was not authorized to speak publicly.

Related was clear before the outbreak that he intended to make most of his money in Hudson Yards from his condos and mall, as Mr Ross said he was renting office space at cost, without realizing of profit.

The pandemic has laid bare the difficult road of Linked Faces. In 2020, 30 residential units were sold in Hudson Yards, up from 157 the previous year, according to an analysis for The Times from expert firm Miller Samuel.

So far this year, several condos are under contract at Hudson Yards, according to Related, a possible sign the market could stabilize.

Still, Manhattan has a record number of condos for sale right now, especially luxury units like the ones at Hudson Yards, and it could take years for sales to really bounce back, according to Nancy Wu, an economist at StreetEasy.

“Hudson Yards was built for a buyer who is no longer there and maybe part of a tenant who is no longer there, and he was someone who wanted to live in Manhattan but not live in the city per se. “said Richard Florida, professor at the Rotman School of Management and School of Cities at the University of Toronto, referring to the homogeneity of the development and its somewhat isolated location.

The image of retail is also bleak. The vast space occupied by the failing Neiman Marcus store will no longer be occupied by another retailer. Instead, Related will convert it to more offices.

Meanwhile, the company intervened in the Neiman Marcus bankruptcy case, claiming the department store owed $ 16 million for breaking its lease and an additional $ 129,000 for removing its signage throughout the mall, including a giant sign hanging from five floors. glass atrium.

While the mall was closed with foreclosure orders from mid-March to early September, buyers are still largely absent.

Related fought its other besieged retail tenants, even threatening stores with fines of $ 1,500 a day for not staying open after the mall reopened.

Several stores, including Forty Five Ten, a luxury clothing store in Dallas that opened alongside Neiman Marcus, have closed permanently. The mall opened with 79 stores and now has 89, Related said.

Related said the mall has added at least 11 stores since September, including Herman Miller, Levi’s and Sunglass Hut.

In the weeks leading up to Christmas, tourists and office workers were scarce and some stores were still closed, while others like Rolex were only open by appointment. Mall employees outnumbered shoppers inside the cavernous building, where the busiest spot seemed to be the Blue Bottle Coffee queue.

Weekday traffic at the Hudson Yards subway station, part of the No.7 Line extension that the city paid to make development possible, plunged to an average of 6,500 passengers in December, a sharp drop by compared to the daily average of 20,000 in 2019, according to the Metropolitan Transportation Authority, which operates the metro.

The lack of buyers at the mall reduced Related’s revenue as the company structured some retail leases so that stores pay rent based on a percentage of their monthly sales. In addition, a number of leases were specifically tied to the fate of Neiman Marcus – if he closed, small stores would not have to pay rent or could break their leases without penalty.

Related would not comment on its terms with tenants, including whether some were withholding rent payments.

Mr. Weinstein, the company’s spokesperson, said retail will “always be a key part of our new neighborhood.”

Despite the uncertainty, Hudson Yards has already helped transform the neighborhood into a key business district and part of a stretch of Manhattan along the West Side that is becoming a major technology corridor.

The development has attracted a number of companies including HBO, CNN, L’Oreal USA, BlackRock and Tapestry, the parent company of Coach, Kate Spade New York and Stuart Weitzman.

“I think New York City will be fine, and Hudson Yards will be fine,” Florida said. “Will Hudson Yards be the same as expected?” This is the open question.

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