Then Goldman pulled out, too, saying it was too risky. Ultimately, it was Mr. Cross’s Canadian connections that salvaged the project. He knew that Canadian pension funds had considered investing in the project in its early days.
He turned to one of his oldest friends – Oxford’s Mr. Hutcheson. The two have known each other since Mr. Hutcheson graduated university, and had kept in touch over the years.
In a remarkable bit of timing, Mr. Hutcheson had just returned from a stint in New York to take up the top job at the Canadian developer. His priorities at Oxford have been to expand the company’s international presence with high-profile projects in London and a desire to break into the U.S. market in a meaningful way – particularly New York.
All of the developers eyeing the west-end neighbourhood said building new space will cost them approximately as much as buying a new building. And having shiny new space should make it easier to attract large tenants, some of whom are finally expressing an interest in moving into better offices after more than a decade of automatically renewing where they are.
“At some point they have to stop kicking the can and look at the quality of the space they are in,” said Mr. Cross, who is running the project for Oxford’s partner Related. “When markets tighten, rent goes up whether the building is new or old. We believe it will be better to be in the new space.”
While typical rents for midtown Manhattan office space plunged from $150 a square foot to as little as $50 through the recession, they are already back above $100. And that’s for old space – by the time any of these buildings open, the price could hit those highs once again.
“We certainly think there are tenants who are in the market now who are going to look at the numbers and realize they could be paying about the same thing or even a little bit less to be in one of our new towers,” Mr. Hutcheson said. “That’s what we’re counting on.”
While the cost of building a New York flagship may be daunting, the company won’t be shelling out $15-billion in cash. Mr. Hutcheson estimated the two partners may need to invest up to $1.5-billion to get things going, but once work begins on the condos, the site will actually start generating cash.
While the broader U.S. housing market is weak, Manhattan has been insulated from the worst of the carnage. And even though the neighbourhood is considered out of the way, a new subway line will connect Hudson Yards to Grand Central station by 2013 – two years before any of the residential towers are built.
“This isn’t a case of building a new area and hoping the transit catches up,” said Dean Shapiro, who is running the project for Oxford in New York. “The trains come first. That certainly helps people understand that this project is for real.”
But for all of that, plenty of risk remains. The developers are trying to sell prospective tenants on a site that is largely unimaginable. Even the best models and 3-D displays can’t properly capture the neighbourhood’s sheer size, and before companies commit to relocating, they’ll want to know the project will proceed as planned.
And as the U.S. economy continues to tilt dangerously toward stagnation, if not recession, many corporate executives could be lacking the confidence needed to sign a lease and make a move. That goes double for financial firms – the anchor tenants in many Manhattan towers – that are leery of possible financial losses stemming from the European crisis and cautious about new spending.
Despite all of that, the developers believe future generations will walk over the site everyday without even realizing it was once an inaccessible, industrial staging ground, built amid huge economic uncertainty.
If not, it will be a tale of heartbreak worthy of a Broadway production. The cost to Oxford, and to the fund that pays the pensions of hundreds of thousands of Canadians, will be significant.
“If we’re lucky – and that plays a big part – then we are going to the get the timing right,” Mr. Cross said. “We all know about ‘location, location, location.’ That was true for a long time, but everyone has kind of figured that out. Now it’s all about timing, and I sincerely hope we’ve managed to get that right.”