2011 Real Estate Symposium: Future Development in New York Panel
By Jason Chiang ’12
The Future Development in New York panel, moderated by Tommy Craig ´82, senior vice president, Hines, and adjunct professor, Columbia Business School, addressed the challenges and opportunities of creating large, mixed-use development projects in New York. Jay Cross, president of Related Hudson Yards, Related Companies discussed the progress made on realizing the massive Hudson Yards project; Veronica Hackett, senior vice president, development, U.S. Commercial Operations, Brookfield Office Properties, discussed Brookfield’s creative approach to building on top of the Penn Station rail yards; and Philippe Visser ´04, director, World Trade Center Redevelopment, Port Authority of New York & New Jersey, updated attendees on the challenges and progress made on the World Trade Center Redevelopment. Tommy Craig discussed Hines’ vision for 53W53rd and the new paradigm for building high end residential products in New York.
Two common themes emerged from the panel. First, creating infrastructure is easily the biggest physical challenge of development. Aside from satisfying the infrastructure requirements for the property itself, building additional infrastructure at the behest of the city or various other governmental organizations (e.g., the Metropolitan Transit Authority) can be even more onerous. Second, the ability to create a neighborhood and destination is considered critical to driving end-user demand and thus the overall success of a development.
In the case of Hudson Yards, Jay Cross discussed Related’s strategy of creating a true destination out of Hudson Yards by leading with the office development before proceeding to create residential stock. The success of signing Coach to be a lead-off tenant in the property has shown that the project is both viable and desirable. From the city, the extension of the 7 subway line from Times Square was critical in having the project succeed. Additionally, the inclusion of the Highline through the development creates the sense of destination and neighborhood. In return, Related needed to include several acres of public space, as well as cultural and educational space.
The Brookfield development east of Hudson Yards also presented special challenges. While Brookfield owns 5 acres of land on which to build the site, the property would straddle current open air rail yards actively utilized by NJ Transit and Amtrak. Given both the high costs and only few hours everyday of working on the rails, Veronica Hackett discussed the creative solution of constructing a deck of pre-cast concrete that would be erected over the rail yard. The development would still sit on terra firma, but a portion of the site would be situated on a concrete bridge over the rails. Creating the bridge was an important signal to the city, investors and tenants that the project could succeed.
In the case of the World Trade Center, infrastructure and economic considerations presented a (well-documented) challenge. The ownership group is specifically targeting law, media and technology firms to relocate downtown and provide the project with a substantial tenant base in addition the giant anchor tenant Conde Nast. The new Fulton Street Transit Hub, a massively complex development from an ownership and management perspective, has already created buzz as an architecturally distinct project and a gastronomic and retail destination, especially as Westfield has agreed to become a joint venture partner.
Finally, Tommy Craig discussed 53W53rd as the first in a wave of new residential developments capitalizing on the idea that “status matters” within the wealthy global elite. Hines’ challenge had been to identify and focus on who would buy units in this uncertain economic environment for delivery in 2014. With publicity surrounding many new high-end residential mega tower developments within Midtown, it was important for Hines to differentiate the product itself with new construction methods (e.g., no sheer walls around the core) and avant garde architectural designs. The project’s unparalleled views also allow Hines to project unit sales above replacement cost.
The panel concluded with a question and answer session that opened a vibrant discussion of the risks inherent in New York City development. Stemming from a question of how the panelists arrived at the critical “go/no go” decision, either because of or in spite of thorough due diligence and planning, the panelists emphasized the need for pre-leasing commitments. With tenants in place, the risks involved are reduced for many of the projects represented on the panel. For the three commercial projects, they all believed that the future of Midtown is on the West Side, and increasingly, there are large single users of commercial office space that have very limited options from existing supply. Additionally, all the panelists agreed that there is a flight to international quality occurring with tenants all over the globe. Because of limited recent office construction, and the trend of converting existing Class B office buildings to residential stock, there will be a continued pent up demand for best-in-class office product in New York.