Name: Pandemic May Make Hudson Yards A Bigger Taxpayer Money Pit
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Pandemic May Make Hudson Yards A Bigger Taxpayer Money Pit

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Open in Our AppGet the best experience and stay connected to your community with our Spectrum News app.SHAREIf pandemic Manhattan is a ghost town, Hudson Yards is its ghost capital.The million-square-foot mall built into the base of 20 Hudson Yards is open but eerily empty, its assemblage of single-named highest-end stores—Dior, Fendi, Cartier, Rolex—entirely devoid of anyone except the occasional shop staff. The Neiman Marcus outlet that took up the top three of the mall’s seven stories , in the wake of the company’s bankruptcy. The in the basement is cordoned off, the Shake Shack upstairs is closed. The Vessel is open but virtually deserted; the adjacent park is mostly used these days by idling cement mixers and construction workers on their lunch breaks. Across 11th Avenue to the west, the massive Amtrak rail yards sit untouched, with no sign of construction on the deck that would allow the project’s Phase 2—originally slated to bring —to be erected on top.None of this, needless to say, is what Hudson Yards was supposed to look like, a year and a half after its . By now, the was supposed to have remade not just the four square blocks that have already bloomed with skyscrapers, but the entire surrounding neighborhood, the last stretch of Manhattan’s West Side left to be remade from its Hell’s Kitchen industrial waterfront roots.And all the taxes generated by that development—less about in tax breaks agreed to by the city’s Industrial Development Agency in 2006—were supposed to start paying off more than $3 billion in debt that the city took on to extend the 7 subway line to 11th Avenue and build new parks and roads, all of which Mayor Michael Bloomberg claimed was needed to jump-start development.Instead, the city is now facing an economic future that was unthinkable only a few months ago. In particular, demand for Manhattan office space is at historic lows, with a combination of pandemic layoffs and the growing popularity of working from home having as companies rethink their future plans.“For the short term, it is very uncertain,” says Independent Budget Office tax expenditure analyst Elizabeth Brown. “I don’t think there’s an immediate threat” to the project’s solvency. But, she adds, that’s partly because the city can step in to provide more tax revenue from other sources if need be.New School researcher Bridget Fisher, who has long tracked the bouncing ball of Hudson Yards subsidies, is more worried: “It’s likely that this will be the second time that the city is called on to bail out Hudson Yards because of a lack of revenue.”The Hudson Yards financing model is a tangled mess of public and private corporations, with enough hidden nooks and crannies that could go unnoticed for years. Initially created in 2004 to grease the skids for , the Hudson Yards Infrastructure Corporation sold in bonds to fund the extension of the 7 train by a single stop to promote West Side development. (The A/C/E trains just a couple of blocks to the east were thought to be too far a walk for football fans; no one seems to have done the calculus as to how it would play with upscale residents or Fendi shoppers.)To pay off the bonds—plus another few hundred million for such sundries as those pocket parks and —HYIC would cobble together money from property taxes (technically “payments in lieu of” taxes, or PILOTs, since the entire state-owned site is tax-free), air rights payments, and fees for exceeding zoning limits, all siphoned off from their normal path into the city’s general fund.The total public subsidy for the development, as , has amounted to $5.6 billion, with $3.3 billion of that coming via tax money redirected to pay for the subway extension and new parks and roads, and most of the rest via money that will never be collected thanks to the discounts that Bloomberg gave developers on their tax bills.If all those tax kickbacks aren’t enough, it’s up to the city to step in to fill the gap. That’s what happened after the 2008 economic crash caused delays in Hudson Yards’ initial construction schedule: New York City through 2015 to shore up HYIC’s finances. And though those payments were in recent years thanks to better-than-expected Hudson Yards revenues, the city remains on the hook if things take a turn for the worse.And for the worse is where things seem headed, at least in the short term. Most of the air-rights payments and zoning bonus fees have mostly already been pocketed, leaving the PILOTs (and Tax Equivalency Payments, or TEPs, the residential-building equivalent of PILOTs) to make up the difference as the site is fully built out and rented. If that doesn’t happen because the Manhattan economy has undergone a seismic shift, those subway debt payments could run out of funding.“The city’s investment in Hudson Yards has always been designed so that the debt for the train was most reliant on the commercial tax payments,” says Fisher. So if mall receipts tank and offices remain vacant, that’s bad news not just for the project’s private developer, The Related Companies, but also for the city’s finances.The most immediate worry is that Related could attempt to default on its PILOTs—or, more likely, renegotiate its tax bill—if its bottom line takes too big a hit. If Manhattan’s economic woes linger, though, there could be more long-lasting effects. PILOT payments are pegged to the normal city property tax rate—after discounts of —and property tax valuations tend to be reset only slowly, based on the last several years of economic activity. So if rents fall, so should tax assessments, and with them revenues for paying off the city’s Hudson Yards debt.“I don’t think there’s a world in which that doesn’t happen—rents are going to come down more than they have,” says Steven Soutendijk, executive managing director of retail services for the commercial real estate behemoth Cushman and Wakefield. “You’re going to have tenants that if they couldn’t cut a deal with their landlord, there’s probably a willing landlord right across the street that would open them with open arms.”That’s potentially great news for any businesses looking for cheap space to expand into. “A lot of people will be able to start new businesses,” says Soutendijk, who notes that WeWork and many fast casual restaurant chains sprung up in the wake of vacancies caused by the 2008-09 recession. “I thought I was going to have to live in Columbus, Ohio, because I can only pay $1,200 a month in rent —well, good news, that two-bedroom in the East Village that used to be four grand is now $2,600.” (Note: just yet, and even those apartments where prices have fallen that low are advertising “effective rents,” with that’s offset by a few months of free rent up front.)But lower rents, both residential and commercial, also mean lower revenues for landlords—which means lower property valuations, and thus less revenue for the city. And some property may not end up existing at all: Related for its Phase 2 residential towers last winter, and isn’t likely to speed things up if the hottest part of the Manhattan real estate market has now .Asked about the impact of the pandemic on its properties, a spokesperson for Related provided this statement to Gothamist: “Fortunately for Hudson Yards, our office buildings are fully leased”—actually 93% of currently built office space, according to Related—“and many of those companies are now bringing back their workers which helps lift the entire neighborhood. Hudson Yards has inherent advantages because it was created as a live-work-play neighborhood where people benefit from unified health protocols, state-of-the-art cleaning and air filtration and safety measures.”If state-of-the-art cleaning isn’t enough to restore Hudson Yards’ shine in a post-COVID Manhattan, how much it will cost the city when the music stops is anyone’s guess. Fisher notes that the Hudson Yards Infrastructure Corporation’s , approved in May 2020, doesn’t include any accounting for the economic effects of the pandemic that was then in full swing. A person who answered the HYIC phone line but declined to give their name told Gothamist, “The last time we did the budget was probably a few months ago, and there’s really been no change.”In the grand scheme of things, if Hudson Yards tanks along with a weakening demand for Midtown space, the city will have bigger problems on its hands. City tax losses from falling tax payments across the entire five boroughs could be $14 billion over the years 2020 through 2022, according to . And though most of that is due to lower income- and sales-tax receipts during the time when no one is working or spending money, not property taxes, falling property valuations could be the longest-lasting effect.But even if Hudson Yards losses only add to a deepening sea of red ink for the city, critics of the project say that’s all the more reason to question the logic of spending $3 billion on a bet that what New York City most needed was a new Midtown annex with its own upscale mall.“The main point here is that the city took on enormous risks in how they decided to structure their Hudson Yards investment, with taxpayers ultimately footing the bill if and when anything goes wrong,” says Fisher. “When the economy was booming, the city came in and paid an additional $2.2 billion to open the project. Now when the economy is in crisis, it’s likely we’re going to have to do so again.”To sign up for this partner’s newsletter and have stories sent directly to your inbox,&nbsp;.

Open in Our AppGet the best experience and stay connected to your community with our Spectrum News app.SHAREIf pandemic Manhattan is a ghost town, Hudson Yards is its ghost capital.The million-square-foot mall built into the base of 20 Hudson Yards is open but eerily empty, its assemblage of single-named highest-end stores—Dior, Fendi, Cartier, Rolex—entirely devoid of anyone except the occasional shop staff. The Neiman Marcus outlet that took up the top three of the mall’s seven stories , in the wake of the company’s bankruptcy. The in the basement is cordoned off, the Shake Shack upstairs...

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Neil deMause

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Pandemic May Make Hudson Yards A Bigger Taxpayer Money Pit

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