Another Two Months for Related at Rail Yards; Goldman Bails as Partner
Eliot Brown Jan. 29, 2010, 8:23 p.m.
Giant developer Related Companies will have another two months before it must sign a contract with the M.T.A. to develop the West Side rail yards, Manhattan’s largest remaining development site, pushing back a deadline that was set to expire at the end of this month.
Related and the M.T.A. recently reached a revised agreement over the financial structure of the deal, and the additional two months have been attributed by those involved with the project as time needed to finish documents related to the $1 billion, 99-year lease for the property. The deadline extension has been expected by those involved and familiar with the project, and Related executives have recently been expressing confidence that they indeed expect to sign the contract once the documents are ready.
Apparently unconnected with the two-month extension, Related’s minority partner in the deal, Goldman Sachs, has dropped out of the development, providing a blow to the developer financially, if not image-wise as well.
Details were not immediately available about Goldman’s departure, though Related expressed a continued commitment. “Related is and remains the majority partner of the venture. Goldman Sachs has informed us that they will no longer be moving forward as a minority partner,” Related spokeswoman Joanna Rose said in a statement. “Related remains fully committed and has the capabilities to execute on this historic development opportunity to create New York’s next great neighborhood.”
A bit more info about the contract with the M.T.A. is in a memo from the agency, obtained by The Observer, sent late Friday to the M.T.A.’s board. The memo says that Related has until March 31 to sign the contract, when it will have to plunk down $21.75 million and trigger another $21.75 million in payments over the following year. (The whole deal is valued at a $1 billion transaction for the MTA in today’s dollars; the entire 12 million-square-foot mega-development, if built out fully, would run an estimated $15 billion.)
Should Related, led by Stephen Ross, indeed sign the contract by March, it would then obligate itself to close on the deal once the economy improves to the point where it hits a set of quantifiable triggers that include commercial vacancy rates, according to multiple people familiar with the deal. Thus the true test of whether or not the deal for the rail yards will happen is at that point—when Related must close on the deal and commit to the full 99-year lease (and the $1 billion in payments) or back out.
THE PROCESS HAS become considerably more drawn out and far more uncertain than imagined at the economy’s peak, when the M.T.A. was first soliciting bids for the site. The M.T.A. had planned for the $1 billion to start rolling in, and budgeted accordingly in its capital plan.
Now Related must find major tenants willing to leap over to the far West Side and be anchors for a new giant complex of hotels, retail and office towers. And the development must have a certain critical mass of tenants to get going: the platforms alone for the two 13-acre rail yards are estimated to cost up to $1 billion, meaning a promised set of occupants is needed to get financing.
The City Council and the Bloomberg administration recently rezoned the western rail yard (the eastern was rezoned in 2005), likely adding value to the property and clearing some uncertainty out of the air.
Below is the memo to the M.T.A. board:
Here is an update on developments relating to the West Side Yards.
As previously outlined, MTA and Related have agreed to a set of closing triggers and are extending the conditional designation letters for the ERY and WRY by an additional sixty days for the parties to finalize contracts. We were advised today that Goldman Sachs does not intend to proceed as Related’s minority partner on the projects. However, Related, as managing partner, has reaffirmed its commitment to the projects, on the same economic terms as previously laid out. Related also has expressed its commitment to finalizing the ERY and WRY contracts (and related transactional documents) by the end of March. As before, at contract signing Related would be required to deposit $21.75 million into escrow, and pay an additional $21.75 million in contract deposits, in two installments 180 days and 360 days after contract execution.
The development of the Far West Side has reached significant milestones recently, including the re-zoning of the Western Rail Yard and the completion of the first phase of construction on the extension of the #7 line, both of which occurred in December. We remain excited and optimistic about finalizing our agreements with Related to advance these transit-oriented developments on Manhattan’s West Side.