National Post (National Edition)
Deal for Amazon pales against aid to Hudson Yards
At Hudson Yards, the expansive real estate development that is about to open in Manhattan, seven floors of retail are occupied by Fendi, Dior, Neiman Marcus and other high-end shops. Major corporations, including Warnermedia and L’oreal USA, will have their headquarters there. In the luxury residential buildings, one-bedroom apartments will rent for at least US$5,200 a month — or you can buy a two-floor penthouse condo for US$32 million.
All thanks to the help of taxpayers.
New York was riveted for weeks by a debate over whether Amazon should receive US$3 billion in tax breaks and other incentives in return for setting up a headquarters in Queens and creating 25,000 jobs. But with far less public attention, the city government has for more than a decade been funnelling even more aid to Hudson Yards, a 28-acre complex of gleaming office buildings and luxury residential towers that is one of the nation’s biggest real estate projects in recent years.
In all, the tax breaks and other government assistance for Hudson Yards have reached nearly US$6 billion, according to public records and a recent analysis by the New School.
The city spent about US$2.4 billion to extend the No. 7 subway line to Hudson Yards and set aside US$1.2 billion for about 4 acres of parks and open spaces called Hudson Park and Boulevard. The City Council stepped up to pay US$359 million in interest payments on bonds when revenue from the development, which was supposed to cover the tab, fell short of projections.
As a result, Hudson Yards is perhaps an even more resonant symbol of the role of government in giving tax breaks and other incentives to spur development. In this case, two of the world’s largest real estate developers, Related Cos. and Oxford Properties Group, which together built Hudson Yards, have significantly benefited.
Supporters of the Hudson Yards project say the government incentives will pay vast dividends by creating an entirely new business district, generating thousands of new jobs and retaining many thousands more. They point out that the No. 7 subway extension, the parks and other improvements that the city financed will help make the Far West Side an overall better neighbourhood.
But the project’s detractors voice the kind of criticism that reverberated during the Amazon deal: Wealthy businesses, no matter their promises of jobs, should pay their own way and not demand government incentives to undertake projects. (Stung by the backlash over the incentives that it would receive, Amazon last month abandoned its plans for its campus in Long Island City.)
The opponents are focused in particular on a lengthy and lucrative property tax break for developers within the broader Hudson Yards area. So far, the cost of that tax break has surpassed US$1 billion, according to the recent analysis by Bridget Fisher and Flávia Leite at the New School.
Future properties in Hudson Yards can also take advantage of the tax break, which can be as much as a 40 per cent discount and last about 20 years. The opponents said such incentives inevitably end up widening income inequality in a city like New York.
“We are still giving tax breaks to a development that enriches billionaire developers and highrise commercial and residential development that is not benefiting ordinary people in New York,” said James Parrott, director of economic and fiscal policies at the Center for New York City Affairs at the New School.
There are other incentives as well.
Blackrock, the world’s largest money manager, which ended 2018 with US$5.98 trillion under management, can obtain US$25 million in state tax credits if it adds 700 jobs at Hudson Yards. L’oreal USA is in line for US$5.5 million for the same discretionary tax credit, while Warnermedia can get US$14 million.
Even Mayor Bill de Blasio, a supporter of the Hud- son Yards project, is now expressing some misgivings about the property tax breaks. De Blasio had been a backer of the Amazon deal, but since the company pulled out, he has abruptly shifted tone, just as he has been seeking to solidify his credentials with progressives.
De Blasio said in a statement that the subway and park spending had broad benefits, but added: “We’ve moved away from providing discretionary incentives like the prior administration. I believe state and local economic development programs need to be re-evaluated and updated.”
Hudson Yards sprouted during a moment of postSept. 11 pride and economic uncertainty, with the mayor at the time, Michael Bloomberg, vowing to reclaim a neighbourhood that included a stubby collection of brick warehouses, factories and tenements built when the Hudson River docks were busy. In the middle was an unsightly rail yard.
On Friday, when Hudson Yards officially opens, a city within a city will rise as the centrepiece of an area bounded by Eighth and 12th avenues from 30th to 42nd streets. The main site, developed by Related Cos. and Oxford Properties, was built over the rail yard, and it is by some estimates the largest real estate project in New York since Rockefeller Center in the 1930s.
The US$25 billion neighbourhood has 13 buildings, including a school and parks, that will bring more than 55,000 employees to new offices there. There will also be a major dining com- plex with restaurants run by celebrity chefs like Thomas Keller and David Chang.
“Without a doubt, we now have millions of square feet of office space and housing we did not have,” said Alexander Garvin, a former commissioner on the New York City Planning Commission, who became involved with Hudson Yards in the mid1990s. “We have that many more jobs, that many more places for people to live, and that much more property taxes that come into the city.”
(The Related Cos. chairman, Stephen M. Ross, 78, a billionaire who is one of the world’s richest people, is moving into a penthouse in the 72-storey tower, which is known as 35 Hudson Yards.)
L. Jay Cross, president of Related Hudson Yards, which oversees the development of the site, said in an interview the redevelopment would not have gotten off the ground without the subway extension and tax breaks that allowed for new office space to be offered at rates comparable to Midtown’s.
Cross said it was vital that the city throw its support behind major development projects to ensure that it remained attractive to businesses in an increasingly globalized economy.
“With all those old buildings we have in aging Midtown, we have to find a way to build modern buildings to compete with London, Singapore and Tokyo,” he said.
Cross said that as Hudson Yards grows, the city would take in more in property taxes that it could use to pay off the bonds that financed the subway extension.
The groundwork for Hudson Yards was set in motion in the 1980s. When the Metropolitan Transportation Authority created a yard for commuter trains on the West Side, its chairman at the time, Richard Ravitch, knew the site could be valuable one day. He had the tracks spaced far enough apart that columns could be installed to support a deck.
A decade later, the property became the centrepiece for an ambitious plan by a young investor named Daniel L. Doctoroff to attract the 2012 Summer Olympics to New York. The rail yard could be covered and support an Olympics stadium, which could also be the new home for the New York Jets.
While the city debated the merits of hosting the Olympics and the economic impact of a stadium, Doctoroff, who became a deputy mayor under Bloomberg, and other city planners moved ahead with the broader redevelopment of the West Side.
The area was rezoned, making room for towering buildings, and Bloomberg committed to the city to expanding the subway when the MTA said it would not.
“There wasn’t any genuine opposition to Hudson Yards at all,” said Peter J. Kiernan, a lawyer who helped write a 2007 study on the city’s finance plan for the subway extension.
By the time New York lost the Olympics bid to London in 2005, the Far West Side was well along into becoming Hudson Yards. New apartment buildings were going up, and subway construction was about to start. In 2008, Ross swooped in to pay US$1 billion to the MTA to develop a project over the rail yards, salvaging a deal after the first-place bidder backed out.
Hudson Yards would not exist in its current form without significant government assistance, especially the expansion of the 7 line, said Ravitch, who was initially skeptical of the city’s plan to pay for the subway expansion.
“The MTA didn’t have the money, and it wasn’t a priority,” Ravitch said last week. “Thank God it turned out to be a great success. It was worth what the city did for it.”
Still, the fallout from the Amazon deal may be having an impact on how the city approaches megaprojects in the future.
Councilman Brad Lander, D-brooklyn, who is a founder of the Council’s Progressive Caucus, said it was smart to expand the No. 7 subway and create parks on the West Side.
But tax breaks for specific companies are a different story, said Lander, who was an opponent of the Amazon deal.
“We’re giving away tax breaks without paying close attention to what’s a good deal or not a good deal,” he said.
WE ARE STILL GIVING TAX BREAKS TO A DEVELOPMENT THAT ENRICHES BILLIONAIRE DEVELOPERS AND HIGHRISE COMMERCIAL AND RESIDENTIAL DEVELOPMENT THAT IS NOT BENEFITING ORDINARY PEOPLE IN NEW YORK. — JAMES PARROTT, NEW SCHOOL