[NYguy]

http://www.crainsnewyork.com/article...TATE/310069976

Hudson Yards' lucky No. 7
Developers eye gains in tenants and infrastructure following the No. 7 subway extension.

By Daniel Geiger
October 6, 2013

Sometime in the next 12 weeks, Michael Bloomberg is expected to go where no mayor has gone before: to the new terminus of the No. 7 train just west of 10th Avenue near West 34th Street.

A few months after that ribbon-cutting ride, perhaps as soon as the summer of 2014, the station will have its official opening. An entire new neighborhood-to-be will, at last, be on the subway map for as many as 27,000 riders a day, according to Metropolitan Transportation Authority projections.

For far West Side landlords and developers, it will be the moment they have been anticipating for years—for decades, in some cases. It presages not only the arrival of the train, but a whole new stretch of cityscape.

"When we talked to tenants years ago about coming to the Hudson Yards and explained all the infrastructure that would be here and how the No. 7 train would make it convenient, they would look at you like you were crazy," said Jared Della Valle, an executive at Alloy Development, which owns a commercial development site west of 10th Avenue between West 35th and 36th streets. "They couldn't see it. Now that has changed."

With the long-talked-about transit link almost ready, the area's real estate interests are betting vast sums that more tenants will follow in the footsteps of the major companies that have already booked huge blocks of space, including Coach, Time Warner and L'Oréal. Indeed, as Crain's first reported last week, Citigroup is considering relocating its global corporate headquarters from Park Avenue to Hudson Yards.

In response to those bullish signals from tenants, developers are snapping up major development sites at a prodigious pace, making the area the most active in the city this year for such deals, according to real estate experts. The 7 train's looming arrival has only hastened that frenzy. Bob Knakal, chairman of sales brokerage Massey Knakal, said small fortunes are being created, as the activity has pushed up land prices by double or more.

"A lot of the development sites that only a short time ago were considered speculative are now tangible," Mr. Knakal said. "You'll see a lot more happen in the neighborhood coming up. There are at least four very significant sites that I know of that will be in play within the next month or two right smack in the Hudson Yards."

The Related Cos., already in the process of developing the 26-acre, $15 billion Hudson Yards complex, has been the most voracious buyer of adjacent sites in a doubling down of its holdings in the area. The company has entered into a contract to acquire a parcel between West 35th and 36th streets—for $75 million or more—that will border a new "Hudson Boulevard" being constructed by the city to run between 10th and 11th avenues. Related has approached Alloy Development to acquire its site, too, in a bid to substantially boost the size of that parcel, though it's unclear whether Alloy will decide to sell. Most of Related's acquisitions have been for locations closest to the new subway link.

Here come the tenants

"We anticipate that as much as 70% of tenants will be coming to the area via the No. 7," said Jay Cross, an executive at Related who is president of the Hudson Yards venture. "As the subway comes closer to completion, tenants have been more willing to take space in the Hudson Yards."

Related is also in talks, sources say, to purchase the site of a -McDonald's on the corner of West 33rd Street and 10th Avenue, allowing it to amass another jumbo parcel. That property sits east of another lot that Related bought for an undisclosed price from developer Gary Barnett during the summer. The land there can accommodate a 1.7 million-square-foot, 57-story commercial tower.

In January, Related plans to break ground on a roughly $750 million platform over the western half of the Hudson rail yards to create the foundation for the millions of square feet of office, retail and public space it is planning to build.

"If there were no No. 7 subway, I'm not sure we would be starting the platform then," Mr. Cross said. "But knowing that it is going to be there means we have to get going and that we will also have enough tenant interest for the space there."

According to data from the Department of City Planning, the sale of city-owned air rights has also picked up this year—another sign that developers are planning to get shovels in the ground in anticipation of the subway. More than 70,000 square feet of air rights (created eight years ago by the city to raise money to pay for the subway extension and other neighborhood improvements) have been sold so far this year, the most since 2010.

Several buyers are believed to be in the process of acquiring more air rights, including Joe Chetrit, who earlier this year purchased midtown's Sony Building for $1.1 billion. He is said by sources to be adding up to 200,000 square feet to a hotel development site he owns between West 37th and 38th streets. Mr. Chetrit, who declined to comment, could add some of that extra space by buying air rights from the city in a purchase that would likely push the total rights sold this year to its highest level since 2008, before the recession took hold.

David Marx, another developer in the neighborhood, said he will buy air rights from the city to increase the size of a hotel he plans to build on the northeast corner of West 34th Street and 10th Avenue.

"We were waiting for the No. 7 train and also the Javits Center," Mr. Marx said, referring to a $400 million renovation of the convention facility that will be finished next year. "It's all coming to fruition now."

Prices for land have dramatically appreciated because of the investment activity. In September, former Los Angeles Dodgers owner Frank McCourt and other investors purchased a 750,000-square-foot development parcel on West 31st Street for $167 million, more than three times what previous owner Sherwood Equities paid just two years ago.

'Ridiculous' prices

"It's high—it's ridiculous," marveled Jeff Katz, chief executive of Sherwood, which owns the full block between West 35th and 36th streets on 10th Avenue, a development site that rivals Related's biggest Hudson Yards parcels. "There was a double hammering in this neighborhood—it was both on the periphery of the city and the recession also hit—and it knocked prices way down. Now both of those factors have changed."

For Sherwood, the rewards have been especially sweet. The company began investing in the far West Side in 1992, when values there were a fraction of what they are now. After investing early in Times Square, and profiting from that area's transformation in little more than a decade, Mr. Katz saw some of the same potential in the rail yards.

"There are some parallels between Times Square and the Hudson Yards," Mr. Katz said. "A large piece of land, adjacent to prime central business districts in Manhattan ... It has to happen."

Several owners said it is more than the subway that's drawing buyers and tenants to the far West Side. In addition to the renovated Javits Center, the new street, Hudson Boulevard, is set to be completed next year. The third and final leg of the High Line, which will snake around the rail yards, is also slated to open in 2014.

"It's the train, but it's also the parks," said Ann Weisbrod, president of the city's Hudson Yards Development Corp. She's widely credited with overseeing the No. 7 extension's on-time and on-budget delivery.

"The High Line and Hudson Boulevard connect into one another, creating this beautiful green necklace up the West Side," Ms. Weisbrod explained. "People will take the train to get here, but it's amenities like these that will give them the reason to come in the first place."