08/05/2012 1:51 am

Manhattan’s last untamed strip, the Hudson Rail Yards, is to be the eventual home of 560,000 square metres of crystalized offices, spread across three towers; 465,000 square metres of new york city living, including a mix of affordable housing, luxury rentals and high-end condominiums; Over 90,000 square metres of New York City retail space, more than enough space to squeeze in a I Heart New York City shirt vendor or two, amongst the movie theatre and department stores. This 26 acre site will also comprises a hotel, school and 14 acres of parks and open space. In comparison, Sydney’s Baranagaroo South is being developed by Lend Lease and is a site double in size to Hudson Yards (54 acres), however the site is not being utilised anywhere near the extent as our New York counterparts. Baranagaroo will eventually become a home to 490,000 square metres of residential, commercial, retail and leisure.

The Related Companies’ Stephen Ross (@Related_Group) sees the Hudson Yards site as, “the new heart of New York City”. He may not be too far off the mark. Ten years and $12 billion into the future,  the Hudson Yards will be the most significant private development project in the Big Apple since, John D. Rockefeller Jr, in the 1930s, who spent $250 million (more than $3 billion in today’s terms) to create the 22-acre Rockefeller center.

Ross and Related are doing something truly spectacular. As Forbes recognises, “using every real estate trick he’s learned over his 71 years, Ross is trying to demonstrate that even in a hub of unions, regulation and bureaucracy, private developers can still accomplish grand things”. The Hudson Yards have notoriously been the graveyards of many well known developers and Mayors alike, including Ed Koch, David Dinkins and Rudolph Giuliani. All causalities of the boom-bust cycle that has savaged New York’s real estate market for decades.

“Using every real estate trick he’s learned over his 71 years, Ross is trying to demonstrate that even in a hub of unions, regulation and bureaucracy, private developers can still accomplish grand things”


When Mayor Bloomberg took office in 2002, he set about developing the yards, with a bust proof plan of bringing the 2012 Olympics to New York and housing it at the Yards. Unfortunately, the city did not agree and state politicians voted down the plan in 2005 and the opening ceremony is now only weeks away across the Atlantic. However, Bloomberg’s efforts had ignited a spark, earmarking $2 billion for a subway link to the area, as well as tree-lined boulevards between 10th and 11th avenues. Bloomberg pushed through vital rezonings to allow development to occur.

The main rezoning of the area from 28th to 43rd Streets and west of Eight Avenue was granted in 2005. Since then more than 5000 apartments have been built and more than $5 billion in private development has poured in the area.

Top real estate developers lined up to place bids to develop the Yards, including Tisman Speyer. However, Ross and Related secured News Corp. as their major tenant, and the proposal was dubbed by the press “Murdochville”. Remarkably, the night before the second-round bid was due, News Corp. pulled out and Ross was forced to withdraw the proposal, resulting in the project going to Tishman Speyer.

The deal fell apart two months later and the land was open again. Ross, with the help of Goldman Sachs as an equity partner, placed a new bid with sans anchor tenant. However, four months later Lehman Brothers filed for bankruptcy, and you know how the story goes. Meanwhile, Related spent all of 2009 getting the property rezoned and getting the details in place with the Metropolitan Transportation Authority (MTA). Just as MTA wanted to get Related to put pen to paper on the lease, Goldman Sachs pulled out as equity partner.

Ross, not wanting to be another victim of the real estate graveyard, got creative. He replaced Goldman with Oxford Properties, the real estate arm of a Canadian pension fund, remarkably convincing them, that a 40% ownership stake was worth funding 50% of the project. Then Ross renegotiated an extremely unorthodox lease with MTA, who were anxious to move forward with him.

"Ross, not wanting to be another victim of the real estate graveyard, got creative."

The two parties decided to put in place three economic triggers:

  • An 11% fall in Manhattan’s commercial vacancy rates;
  • Residential prices hitting $1,100 a square foot and
  • Increasing construction activity.

All triggers needed to be in place simultaneously for the lease to take effect. This has not occurred yet. On top of that, Ross has the option to buy the land under each building at market value as they are completed. Ross can now press on, with security of his lease costs not kicking in until the economy improves enough to justify it. Furthermore, within ten years he can own a majority share of the 26 acre site.

The challenges are still everywhere for Ross. Before a building can be built the master builder, Tishman Construction, must lay 17 acres’ worth of roughly 6 foot-thick steel-and-concrete platforms over the train yards - without disrupting service for more than 300,000 New Jersey and Long Island commuters. The development also faces market challenges with the World Trade Center opening next year. It is unloading 2.6 million square feet of  office space and backed by $6 billion in government tax breaks and other financial incentives to lure tenants. Although 60% leased, 1 WTC still has more than 1 million square feet empty, approximately the same amount that remains unfilled in the first of Related’s high rise towers.

Ross is relying on remaining competitive with an offer as unorthodox as the deal he signed with MTA for the site. Commercial tenants will have the option to either lease or buy their space at cost. Essentially Related and Oxford will not obtain a profit on the office space but will use their tenants as de facto lenders, selling their commitments to cover the upfront costs of platform and building construction. Ross is aiming to make his money in residential and retail. Stating that he doesn't believe they need to make their money in office space.

So can Ross and Related achieve the impossible? Well, the real estate market is improving, the project is moving along, with hard hats on the ground, and the city is coming to the table with tax breaks and key infrastructure. Read more about the Related's Hudson Yards project here.

Meanwhile, closer to home, construction of Baranagaroo South is well underway.  At the Headland Park, early works have been completed and within two months a construction company will be appointed to begin major works on the park. Further details on these works and other activities are available here.