West side storey: Manhattan s $25bn Hudson Yards project

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1 Prime property West side storey: Manhattan s $25bn Hudson Yards project With a glut of unsold high-end homes, does Manhattan need another residential building boom? CGI of Hudson Yards Viewed from the Hudson River Related-Oxford 5 HOURS AGO by: Hugo Cox In spite of President Trump s bellicose rhetoric about rebuilding US infrastructure, America s municipal bond market, through which US states and cities fund public works and infrastructure projects, has been sluggish this year. In May, for example, new bond issues were down roughly a fifth on the same month a year before, according to BlackRock. So bond bulls took heart when, that month, a $2.15bn bond sale received orders from retail and institutional investors topping $8bn. The target of investors excitement was Hudson Yards, a $25bn project converting 28 acres much of it rail yards and industrial hinterland into a sprawling complex of fancy homes, smart offices and high-end shops. It will be, according to Stephen Ross, chairman and founder of the developer, Related Companies, the largest private-sector residential and commercial development in US history. (Hudson Yards Infrastructure Page 1 of 7

2 Corporation, the bond issuer, is a local development corporation created by the City of New York.) The Related development is part of a wider regeneration of Manhattan s one last frontier, as the city s planning department website describes it. As frontiers go, several dozen blocks may seem modest, but on Manhattan an area of this size which stretches west of Eighth Avenue, from West 30th to 42nd streets is a developer s gold mine. When the area was rezoned in 2005 the city s planning department predicted it would create 13,500 new homes. The Vessel, designed by Thomas Heatherwick Forbes Massie-Heatherwick Studio All of which raises the question: does New York really need another residential building boom? The last had mixed results. Jonathan Miller, an appraiser and president of Miller Samuel in New York, says a major result of recent homebuilding on Manhattan has been a growing inventory of unsold homes. Page 2 of 7

3 The number of two-bedroom condos for sale in the second quarter of 2017 was up a third on the same period the year before, according to Stribling, a local agent, even as the total number of Manhattan home sales barely budged. The mismatch between supply and demand is starkest at the top end. In Q2 2017, 30 per cent of homes for sale cost more than $3m but this category comprised only 18 per cent of homes sold. For homes above $20m, the ratio of for sale to sold properties was 10 to one. High margins for developers building the plushest apartments and strong historical demand from the international super affluent have meant that much of the new building has been aimed at rich buyers, while the supply of more affordable housing has lagged. The result has been a two-speed market for prices, with top-end homes falling even as average prices continue to climb. In Q2 2017, the average price per sq ft of a Manhattan home was up 10 per cent on the same period the year before, and 18 per cent on 2015, according to Stribling. By contrast, values for homes sold for more than $5m have fallen 2 per cent in the past year. Stories abound of sellers of eight-figure homes in West 57th Street s dizzying new residential towers cutting their prices. CGI of 30 Hudson Yards office space Related-Oxford Page 3 of 7

4 CGI of an outdoor terrace restaurant planned at Hudson Yards Related-Oxford Politicians, meanwhile, are taking aim at how conspicuously Manhattan s housing market displays the city s underlying economic inequality. Nearly a third of the homes for sale on Manhattan in Q were priced above $3m. In March, New York mayor Bill de Blasio used the new super-slim residential tower on 432 Park Avenue, perhaps the city s most expensive address and, he noted, home to some of the wealthiest people on the earth, to promote his proposed mansion tax on homes valued above $2m. The perils of inequitable house prices are compounded by Manhattan s high commercial rents, which for decades have been pushing businesses to cheaper neighbouring areas, such as Jersey City. At the time of the Hudson Yards rezoning, a city planning report lamented the environmental impact as workers switched to cars from public transport for their commute. The financial impact of the exodus was serious, too: along with income tax, real estate taxes generated by Manhattan office space are the major contributor to our city s operating budget, noted the report. Twelve years later the problem is even starker, says Keith DeCoster of Savills New York office. In most of Manhattan even class B office buildings those one notch below the newest and smartest are impossible to find for less than $50 per sq ft per year. Across the Hudson River in Jersey City, class A office space is going for $20 per sq ft per year, he says. The result is that Jersey City has captured several large leases recently from tenants moving some or all operations out of Manhattan. Will the Hudson Yards project address these commercial and residential failings? Its Page 4 of 7

5 planned 24m sq ft of new office space and 3m sq ft of retail and hotel space will, it is hoped, help to keep Manhattan businesses local. While only one office building, 10 Hudson Yards, has been completed so far, by 2022 there will be nearly 9m additional sq ft, according to planning department estimates. Already, Hudson Yards tenants include L Oréal, SAP and The Boston Consulting Group. BlackRock has agreed to move its headquarters to 15 floors of a 58-storey tower in the neighbourhood by Living area with kitchen at One Hudson Yards Scott Frances Of the 13,500 new homes forecast by the planning department in 2005, meanwhile, roughly one in three will be classified as affordable (meaning a household spends less than 30 per cent of its income on rent), according to the city s planning department. Eight buildings containing 2,082 homes in all will be ready by the end of next year; six of these will comprise entirely rental properties. The original planning department estimate, meanwhile, now looks sheepish. Since 2005 nearly 8,000 new homes have been built in the area; 11,000 more will be completed by 2028, according to Cushman & Wakefield. Hudson Yards promises much in the way of public space. At the centre of a five-acre park will sit Vessel, a 15-storey open-air structure designed by Thomas Heatherwick. The honeycomb-like layout of staircases and landings, clad in copper-coloured steel, will act as a viewing gallery for the visiting public. Revealing the plans in September, de Blasio lauded the site s inclusive vision, a welcoming vision for all New Yorkers. Page 5 of 7

6 The scale of the development is all the more striking for what lies beneath it. Much of the new building work sits on top of platforms spanning the network of railway tracks as they emerge from the tunnels burrowed beneath the Hudson River connecting Manhattan to New Jersey, to the west. Together with lines coming in from the north and east, these carry the half-million or so daily commuters disgorged at Penn Station, at the eastern edge of the Hudson Yards neighbourhood. Manhattan has a rich history of burying unsightly railway lines. In the early 1900s, following public outrage at the filthy state of the New York Central Railroad yards, also on the east side of Manhattan, the state government passed a law requiring that the train firm cover its tracks. Decks were built over the newly electrified tracks from Madison Avenue to Lexington Avenue, spanning the area between East 42nd and East 56th streets. Among the developments built above these was Park Avenue with Grand Central station its crowning jewel at the heart of the city s central business district. The mayor s talk of inclusivity leaves open the question of what will happen to the plush homes that are helping to finance the development and, presumably, exciting investors in the recent municipal bond issue. A 71-floor residential skyscraper, 15 Hudson Yards, is due to be the first new building completed, in October Nearly two-thirds of the homes, which went on sale last autumn, are still available. Page 6 of 7

7 It s been obvious for a while that the super luxury market has been flooded, says Kirk Henckels of Stribling. He believes that Hudson Yards developers will be changing the mix of apartments in buildings, including 15 Hudson Yards where the priciest home is currently for sale for a shade under $14m from more expensive, larger apartments to smaller, cheaper ones. Failing that, the developers might hope their president will apply some of his talent for talking up flagging property deals. Photographs: Related-Oxford; Forbes Massie-Heatherwick Studio; Scott Frances Copyright The Financial Times Limited All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by or post to the web. Page 7 of 7