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How the Pandemic Left the $25 Billion Hudson Yards Eerily Deserted

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When Hudson Yards opened as the largest private development in American history in 2019, the company aimed to transform Manhattan’s Far West Side with an elegant selection of ultra-luxury condominiums, office towers for powerhouse companies like Facebook, and a mall with coveted international brands and celebrity restaurants Cooks like José Andrés.

Everything was surrounded by a copper-colored sculpture that would lead to New York and the Eiffel Tower to Paris.

But the pandemic has devastated the New York City real estate market and its leading development of $ 25 billion and raised important questions about the future of Hudson Yards.

Hundreds of condos remain unsold and the mall is barren of customers. The anchor tenant Neiman Marcus declared bankruptcy and closed for good. At least four other shops as well as several restaurants have also closed their business.

The centerpiece of the development, the 150-foot-tall scalable structure known as the ship, closed to visitors in January after a third suicide in less than a year. The office buildings, the workers of which ran many shops and restaurants, had been largely empty since last spring.

Even more dangerous, the promised second phase of Hudson Yards – eight additional buildings, including a school, more luxury condominiums, and office space – is on hold indefinitely as the developer, affiliates, receive federal funding for an area of ​​nearly 10 acres Platform aspires to what it is built.

Related, which had announced that the entire project would be completed in 2024, no longer offers an estimated completion date.

The problems of the project are, in many ways, a microcosm of the wider challenges the city faces as it tries to recover.

Related said it expects wealthy shoppers to fill their condos and deep-pocketed customers packing the mall to make Hudson Yards financially viable.

But that was before the coronavirus hit New York.

Given the pandemic that is forcing employees to stay at home – and keep foreign buyers and tourists away – it’s not clear when or if demand for the huge supply of high-quality aircraft and office space that crowds the city’s skyline will pick up again .

“The challenges facing Hudson Yards are not unique,” said Danny Ismail, analyst and head of office reporting for real estate research firm Green Street Advisors. “All commercial real estate in New York City has been affected by Covid-19. However, I would argue that Hudson Yards and the surrounding area will be one of the better office markets in New York City after the pandemic. “

With the founding of Hudson Yards, the last large, undeveloped lot of land in Manhattan, an industrial area between Pennsylvania Station and the Hudson River, was planned for almost 30 years.

It’s New York’s largest public-private corporation and the largest development in the city since Rockefeller Center in the 1930s, backed by roughly $ 6 billion in tax breaks and other government support, including expanding the subway to the West Side. Even with the subway expansion, Hudson Yards is still relatively isolated from the rest of Manhattan, off the beaten path for tourists, shoppers, and workers.

Related admitted that it was facing the same financial troubles as the rest of town, but said that tenants were still moving into the project’s office buildings and that Hudson Yards would eventually recover.

Four Hudson Yards office buildings – including 50 Hudson Yards under construction – are 93 percent leased, a Related spokesperson said, though it’s unclear how much of that happened last year. Facebook signed a lease for around 1.5 million square meters at the end of 2019.

“Our strong office leasing, even during the pandemic, is why we are well positioned to lead the comeback of Covid in New York and why the adjacent neighborhoods and the entire West Side will recover faster,” the spokesman said Jon Weinstein.

Still, the problems Hudson Yards are facing has led Related to rethink its plans.

Under the direction of billionaire founder Stephen M. Ross, the company set out to build Hudson Yards in two phases. The first phase, which opened in 2019, includes four office towers, two residential buildings, a hotel and the shopping center.

The second part was to include 3,000 apartments in eight buildings near the Hudson River, as well as a 750-seat public school and hundreds of low-cost rental units. According to an agreement between City Hall and Related from 2009, at least 265 apartments should be “permanently affordable”.

In total, Hudson Yards would span 28 acres over existing train stations and cover 18 million square feet, roughly twice the size of downtown Phoenix.

The developer has considered a number of new options, including a casino, although that idea is no longer a priority, according to Weinstein.

Relatives cannot build the second half until they build a deck over the train station. The company, along with Amtrak, has held discussions with the Federal Department of Transportation about a low-interest loan to fund the platform and give priority to a new rail tunnel under the Hudson that Amtrak is planning.

Related has searched for more than $ 2 billion, according to two officials briefed on the proposal who were not allowed to discuss it publicly.

“Residential properties need to recover or they will switch to a different mix of products,” said Robert Alexander, chairman of the Tristate region for real estate agent CBRE, which markets space at Hudson Yards. “For me it is an important development location and there are very, very, very few large development locations in New York.”

Related is also under pressure from its investors to undertake a more comprehensive accounting of project finances. A group of 35 investors from China – part of the roughly 2,400 who donated $ 1.2 billion to Hudson Yards – sued the company last year, accusing it of refusing to open or speak about its books when it could repay their investment.

An arbitrator in the case recently denied the investors’ claims, ruling that Related was under no obligation to disclose detailed financial information.

The company’s lawyers said Hudson Yards “faced significant headwinds as a result of Covid-19” and that due to the economic downturn and lockdown restrictions it may not be able to make its investment in at least one property there, 35 Hudson Yards, to bring back. a mixed-use tower with a hotel, according to New York Times records.

Another group of Chinese investors, whose $ 500,000 per person contributions were part of a U.S. visa program that may give them an avenue for citizenship, are also considering filing a similar lawsuit against Related Who Was, according to someone familiar with the situation not authorized to speak publicly.

Related made it clear before the outbreak that it intended to make the majority of its money at Hudson Yards through its condos and mall, as Mr Ross said he rented office space at cost without taking a profit.

The pandemic has cleared the tough road. In 2020, 30 units were sold at Hudson Yards, compared to 157 the previous year. This was the result of an analysis by the rating firm Miller Samuel for The Times.

Several condos are under contract with Hudson Yards this year, a possible sign that the market is stabilizing, according to Related.

Still, Manhattan currently has a record number of condos for sale, especially luxury units like the one at Hudson Yards, and it could be years before sales really recover, according to Nancy Wu, an economist at StreetEasy.

“Hudson Yards was built for a buyer who is no longer there, and maybe in part for a tenant who is no longer there, and that was someone who wanted to live in Manhattan but not in town per se,” Richard said Florida, professor at The Rotman School of Management and the University of Toronto School of Cities refer to the homogeneity and somewhat isolated location of development.

The retail picture is also grim. The huge space occupied by the quirky Neiman Marcus store is no longer occupied by another retailer. Instead, Related will convert it into more offices.

Meanwhile, the company has intervened in Neiman Marcus’s bankruptcy case, claiming the department store owed $ 16 million for the termination of its lease and another $ 129,000 for the removal of its signage throughout the mall, including a giant sign saying the a glass atrium hung in a five-story building.

While the shopping center was closed by blocking orders from mid-March to early September, buyers are still largely missing.

Related has fought its other beleaguered retail tenants, even threatening stores with fines of $ 1,500 a day for not staying open after the mall reopened.

Several stores, including Forty Five Ten, a Dallas-based luxury clothing store that opened next to Neiman Marcus, have closed permanently. The mall opened with 79 stores and now has 89, Related said.

Related said the mall has added at least 11 stores since September, including Herman Miller, Levi’s and Sunglass Hut.

In the weeks leading up to Christmas, tourists and office workers were in short supply, and some shops were still closed while others like Rolex were only open by appointment. The mall staff outnumbered the shoppers in the cavernous building that seemed to be the thickest in Blue Bottle Coffee lines.

Weekday traffic at the Hudson Yards subway station, which is part of the city-paid extension of Line 7 to accommodate development, fell to an average of 6,500 riders in December, a sharp drop from the daily average of 20,000 im Year 2019 to the Metropolitan Transportation Authority, which operates the subway.

The mall’s lack of buyers has cut Related’s revenue as the company structured some retail leases so that stores pay rent based on a percentage of their monthly sales. Additionally, a number of leases were specifically tied to the fate of Neiman Marcus – if it were closed, smaller businesses would not have to pay rent or could terminate their leases with no penalty.

Related would not comment on terms with tenants, including whether or not to withhold rental payments.

Mr. Weinstein, the company spokesman, said retail is “always a key part of our new neighborhood”.

Despite the uncertainty, Hudson Yards has already helped make the neighborhood a major business district and part of a section of Manhattan along the West Side that is becoming a major technology corridor.

The development has attracted a who’s who of companies including HBO, CNN, L’Oréal USA, BlackRock and Tapestry, Coach’s parent company, Kate Spade New York and Stuart Weitzman.

“I think New York City will be fine and Hudson Yards will be fine,” said Mr Florida. “Will Hudson Yards be the same as they imagined? That is the open question. “

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Robert Dunfee