It was a sweet victory: Oxford won Coach away from other projects. But for Hudson Yards to be a success, Mr. Hutcheson and his staff will have to do it over and over again in a tough market. For the past decade, companies have been content to stay put in the space they already occupy. New space is enticing, but if they are going to commit to a move into a prime new tower, they need to be confident that business will be good for years to come.
And as the European debt crisis plays out in slow motion and unemployment remains stubbornly high at home, that’s by no means a sure thing.
Building for growth
It was early 2008 when developers first lined up to bid on the Hudson Yards project. Enticed by the opportunity to build new space in a city dominated by 50-year-old towers, they echoed Mayor Michael Bloomberg’s claim that the site was a “once-in-a-generation opportunity.”
Despite the vacancies created by a recession that hammered the job market, many companies are still having trouble finding Class-A space in Manhattan. That’s particularly true for large companies such as Goldman Sachs, which often want to consolidate as many of their employees as possible in one location. That’s why the investment bank decided to build its own tower, rather than try to find space to consolidate its employees in one location.
“What exists in this city is not appropriate for what the large companies want to do with their staff now,” said Peter Kozel, chief economist and executive managing director of Colliers International New York. “There is an enormous premium possible for any new buildings.”
The city’s government estimates that New York will need to accommodate up to 500,000 new workers by 2025, in 100 million square feet of space. That requires major investment from private developers in new buildings to make up for a dearth of new projects. Since 1990, only 27.6 million square feet has been built.
“If you assume – and this is a big assumption – that everything goes well in the next few years, you’re going to see the Hudson Yards project in high demand,” Mr. Kozel said. “About half of that needed space will need to come from new construction.”
It is the city’s second shot at building on the Hudson Yards site, after abandoning an unpopular plan in the early 2000s to have the New York Jets football team build a stadium atop the tracks. The Metropolitan Transit Authority didn’t want to give up on developing the site, however, because it is counting on up to $1-billion in funding from the project to buttress its budget.
Soon after the failure of the stadium plan, it shifted its focus away from sporting venues to office towers, and put together a plan that would see the busy yard transformed to a bustling multi-use neighbourhood.
The renewed plan was greeted with enthusiasm from five bidders – including Canada’s Brookfield Properties Corp., which is one of the largest landlords in Manhattan. But Brookfield began to worry about the state of the economy early in 2008, and wasn’t sure it wanted to be part of a project that would need an initial investment upwards of $2-billion. It pulled out.
“The upside was obviously huge, but the downside is you go out and build a bunch of buildings on spec [that is, without signed tenants]and you call it wrong,” said Richard Clark, the New York-based CEO of Brookfield Properties.
Tishman Speyer, the owner of the Chrysler Building and Rockefeller Center, won the bidding. Within months, however, Tishman withdrew because it couldn’t come to terms with the transit authority and city.
Related Cos. – perhaps best known for building the Time Warner Center next to Central Park – seized the second chance. It lined up two key partners, Goldman Sachs and Canadian-born sports mogul Jay Cross, to run the project. Mr. Cross was president of the New York Jets when it was considering building on the site, so he was familiar with the challenges. He had also been involved in developing other stadiums, including Toronto’s Air Canada Centre. (Prior to that, he represented Canada in sailing at the 1976 Montreal Olympics.)