Hudson Yard\'s Rezoning Efforts

NYC Hudson Yards Rezoning Project

Introduction and Project Overview

The main reason that the NYC Hudson Yards Rezoning Project is taking place is that the location is a prime one for everything the planners want to do. The Hudson River makes up one of the boundaries of the area, with the other boundaries consisting of 8th Avenue, 43rd Street, and 30th Street.

Right now, there is restricted and antiquated zoning in that area, along with no access to mass transit. The streetscape is not a hospitable one, and there are no open spaces for the public. Basically, the entire area is not one that can be used easily, but yet it is in a great place for a number of multiuse buildings.

The amount of underdeveloped land in the area is plentiful, making it a prime location for further development that could have economic value to the city and the people who live there.

Originally, the entire area was dominated by huge blocks of publicly owned space and various types of transportation usage, but that could all be changed with some redesigning. Even though a Master Plan was proposed some time ago, very little has been done in the way of actually getting the project off the ground -- at least until more recently.

More is being done to ensure that the Hudson Yards project actually takes shape, and the rezoning is completed in order to give the builders and planners more of an opportunity to create what they have envisioned as being very important for the city and its future development and advancement.

Discussed here will be the real estate aspects of Hudson Yards, from an overview of what is there now through what will be done in the future and how it will ultimately end up, based on the current design and approved plans. This will provide insight into not only what is being done but why it is being done and how much value will be offered to the city because of the changes.

Public Sector Strategy and Rezoning

The original plan proposed a mixed-use development, and occurred in 1988.

The block located to the south of the Javits Convention Center and the MTA Rail Yards were a part of that plan.

The report that was done into the issue determined that a rezoning of the area was necessary to allow the proper floor area ratio (12) to support the plan that had been created for the space.

The success of the plan also had a contingency, in that the extension of rapid transit access to the area would be required for the project to have the desired value. In 1990, a convention center district was created in order to have the proper zoning to establish a mixed-use development that would be located adjacent to the Javits Convention Center.

The FAR was permitted up to 10 for everything on the sites that surrounded Javits Plaza.

That included office space, community areas, residential locations, and hotel space.

Despite the creation of that district and the FAR permitting, there was no actual development of any of the area that took place at that time.

In 1993, the City Planning Commission provided its study of the Hudson Yards Area.

It concluded that existing CBDs had to be expanded in order to accommodate the long-term growth potential that would become a part of that area. Without that expansion, the project would not live up to its potential, and there was some concern as to whether it should even go forward if the CBD expansion was not part of it. Hudson Yards was seen as being part of the Midtown CBD for purposes of the Planning Commission's report. The conclusion of that report was that the city had to ensure the proper zoning in order to accommodate not only the proposed expansion but the future office needs that would be generated in the future because of that expansion.

The mass transit issue was addressed, as well, but the suggestion of extending the No. 7 line on the subway through Hudson Yards and continuing it all the way into New Jersey in order to ensure proper access to and travel through the area.

That led to a study as to whether the subway extension would be the right choice, and that was completed in 1999.

It linked the expansion of mass transit in the Hudson Yards area to both future development and the viability of land use. The existing conditions in Hudson Yards were analyzed, based on the proposed transportation infrastructure and services, the land use, and the tax base. If the street network could not support the additional development, the project would not be able to go forward. The subway extension was determined to need a "self-financing" model. In other words, there was no money to be used to extend the subway, and a way would have to be found for the extension to pay for itself in order for it to succeed. Nothing else was presented regarding going forward with the Hudson Yards project until 2001, when the Midtown CBD was brought into the picture and the need for a transit-based, mixed-use extension of that district was discussed.

Three essential components were identified in that report, and without those components it was believed that the Hudson Yards project would be a failure. Those three components for success were:

The construction of the extension on the No. 7 subway line,

A rezoning that would literally provide millions of square feet that could be accessed for mixed-use development, and Creation of a number of open-space amenities that would be used to attract residents, visitors, and businesses.

In short, everything had to be rezoned to build what was needed, and then what was needed had to be both desirable and accessible. That made sense, but there were still many obstacles that had to be faced. The size and scope of the project was a daunting one, and not something that could be easily handled or addressed in a short period of time. However, because of the potential revenue, value, and viability of the project, those who were committed to seeing it come to pass pressed on. In 2002, an official Master Plan was created by an urban design team with multi-disciplinary origins and abilities, in order to get the highest quality and most thoughtful plan that could be created. The plan was requested as a joint effect of the NYCEDC and the DCP.

That same year, a demand study was also undertaken. The City of New York hired two different consultants: Cushman & Wakefield and Economics Research Associates.

The goal of the study was to create a forecast for the long-term growth and employment of the office space at Hudson Yards. Having Class A office space in Midtown could be highly lucrative, but only if it was done right and truly desired by enough individuals and companies in the long-term to make it worthwhile. If the office space was going to sit empty, it could be a serious financial blow to the city. While some vacancies were to be expected with any office space, the consultants were to give their professional and studied opinions as to the percentage of office space that would likely be vacant, and whether the future would see an increase or a decrease in the vacancy rates of that office space. The lower the vacancy rate, the more money for the city, which would provide it with a larger incentive to rezone the area and allow the Hudson Yards project to move forward.

In 2003, the preferred direction plan was released by the DCP.

It was confirmed that the three essential components to the project mentioned previously were indeed essential, and if they were not able to be addressed than the viability of the project did not provide a risk level that was acceptable. At that point, it was necessary to start organizing the public sector in order to allow the project to go ahead. All of the studies had been completed, and the only way the project would become successful is if the work that was needed to make it happen was actually undertaken. No other information was necessary to determine if the project was a good fit "on paper." It was time to make the Hudson Yards Rezoning Project a reality.

In order to move ahead with the Hudson Yards project, the city created both the Hudson Yards Infrastructure Corporation (in 2004), and the Hudson Yards Development Corporation (in 2005). The first corporation was designed to oversee cost containment and project financing, while the second corporation was responsibility for the implementation program that was designed by the city for the Hudson Yards project.

The rezoning that took place in 2005 provided the following:

One million square feet of space that would be used for retail shops.

Two million square feet of space that would be exclusively for hotels.

13,600 total allowed housing units.

24 million square feet of Class A office space.

Proper development of the MTA rail yards.

More than 10 acres of public open spaces and new parks.

That level of rezoning would take time to adjust to, and had to also be planned around making sure people could get access to the various areas that had been rezoned. Without proper mass transit access, the project could become a colossal and highly expensive failure. Fortunately, the city also had a plan for the No. 7 subway line, so people could get to the newly developed area when it was completed.

The value of that was significant to the overall value of the entire project, and something without which the project would not be able to go forward successfully.

Improvement of Mass Transit Access

With the various sections that were being designed for specific needs, and the massive undertaking that was the overall rezoning of the Hudson Yards area, the No. 7 subway came into play, as well. The MTA selected S3 II Tunnel Constructors, which was a joint venture of Shea, Skanska, and Schiavone, for the first contract, which was offered in 2007 for $1.1 billion.

That contract was designed to be completed in 2010, and included tunnels that would be run from 25th Street all the way to Times Square, an excavation of the 34th Street station cavern from 33rd to 37th Streets, and an underpinning of the subway station at 8th Avenue and 41st Street.

The tracks at Times Square also needed modification. In 2009, the tunnel boring machine arrived and was assembled in the starter tunnels that had been created to give it space to work.

Each week, the machine ground its way through 5,000 cubic yards of rock and permanent concrete linings were placed into the tunnel.

These linings had been precast, so they would be available as the machine made access for them.

The second contract was bid out in 2010 for ancillary buildings and finishes, with the plan to have the No. 7 extension operational before the end of 2014.

When Hudson Yards is fully developed, the 34th Street station will accommodate up to 30,000 riders during peak hours.

The providing of mass transit access, as a vital part of the Hudson Yards project, needs to remain on budget and on schedule in order to help ensure that the city made the correct decision in going forward with the entire project. Without a way to get large numbers of people to the new area, there will not be enough businesses, residents, and visitors to provide economic viability. The ability to get people there and the rezoning to allow a number of businesses will make the area one to consider for nearly everything a person needs. In addition to businesses and transit, open space was also an important part of the plan.

Providing Open Space

Between 10th and 11th Avenues, and running all the way from W. 33rd to 42nd Streets, will be the Hudson Park and Boulevard.

There will be 800-foot-long blocks that will be divided into development sites that are planned out as to be properly suited for numerous types of mixed-use development ideas.

The open space is an essential part of the amenities being offered with the Hudson Yards project, and is part of the way future residents will be served and Class A office space will be advertised.

World class design teams were selected through a competition in 2008.

The city selected Michael Van Valkenburgh Associates as the firm for the landscape architecture, and the construction of Phase I was completed in 2013.

The Impact of the Rezoning

Governmental acquisition of property was required in order to gain enough space to create new municipal facilities as well as underground parking, open space, parks, and the area where the No. 7 subway line would be extended through. While there was less commercial and residential displacement than many of the other recent projects that have taken place in NYC, the impact of the rezoning and the displacement it caused was still an important issue that affected a number of people. Sixteen acres of MetroTech were affected, including 200 businesses and 50 residences.

In downtown Brooklyn, where 115 acres were needed for the rezoning, 100 businesses and 130 residences were affected.

The NY Times Bldg. was part of the rezoning, too, with 47 businesses and 50 residences displaced.

Of course, the biggest change was to the Hudson Yards area itself, where 360 acres were claimed for the rezoning.

Ninety-three businesses and between 39 and 50 residences were displaced through that acquisition.

While up to 50 residences were acquired by the government in the Hudson Yards area, it is believed that the project will create many more residences within its borders than it was required to displace in order to move forward with the project.

There could be up to 13,500 residential units in the Hudson Yards area when it is completed, and 4,000 of them would be affordable housing units.

The businesses that were forced to vacate due to the rezoning and expansion will also have something to which they can look forward, as there will be a number of commercial spaces within the Hudson Yards project. There could be more than 218,000 indirect and direct temporary jobs because of the construction, and 234,000 direct and indirect permanent jobs created based on the activity that will be ongoing in Hudson Yards.

For those who were forced to leave their homes and businesses, though, this can be small consolation at the moment. Eminent domain is generally not something that makes residents and business owners happy, but it is often a necessary part of doing business for a government that determines that an area should be expanded, rezoned, or used for another purpose that will be more beneficial to the entire city and the majority of its residents in the future.

Financing Structure

Among the largest issues with a project of the magnitude of the Hudson Yards rezoning is the financing. The money has to come from somewhere, and even cities with rather lucrative budgets generally do not have billions of dollars lying around for expansion and rezoning activities. The money for the Hudson Yards project came from a number of different sources. Property taxes, IDA PILOT payments, bondholders, and other sources provided a collaborative collection of revenue that could be used by the city in order to get the project off the ground and start moving toward its eventual completion.

The property tax (personal) and PILOT (business) payments were a major source of revenue, as were the one time development related revenues that were collected by the city. By offering a density bonus for companies wanting to move into the Hudson Yards area in exchange for supporting the project, the city was able to collect a high level of revenue.

Both commercial and residential properties could qualify for the bonus, which allowed developers of those properties to pay the city in exchange for being able to add more floors or more units so that more people can live and work in the buildings they were creating.

This took the base development height in stories for these buildings and added to it based on the amount the company wanted to pay. The more money that was given to support the Hudson Yards project, the more height the building could have. That was a winning situation for the city, and also for the companies who were developing the buildings. Having more space and height meant more tenants for them, both commercial and residential. Over time, they could easily make back the amount of money they paid toward the development of the Hudson Yards project, providing them with a higher revenue stream for both the short-term and long-term future. Recurring revenue for the entire project also has a high rate of projected growth, providing a lucrative plan for everyone involved.

Development of the Private Sector

The development that takes place in the private sector is going to be very important for the future viability of the Hudson Yards rezoning.

There were rezoning in 2005 and again in 2009. When those are taken together, Hudson Yards now has and ability to offer and accommodate:

Three million square feet of hotels,

Two million square feet of retail,

20,000 units of housing, and 25 million square feet of office space.

An analysis by Cushman & Wakefield that was provided in 2011 indicates that the demand for properties in the Hudson Yards area will continue to increase, resulting in a complete build-out of the rezoned area by the year 2041.

Since the first rezoning in 2005, builders have already spent nearly $6.3 billion for the creation of more than nine million square feet of residential, hotel, and office development in Hudson Yards.