The Edge — the highest sky deck in the Western Hemisphere and the latest crown jewel in Manhattan’s sprawling Hudson Yards project — opened to the public on March 11.
The observation deck, which cantilevers about 80 feet out from the 100th floor of 30 Hudson Yards, offers helicopter views, as well as a knee-wobbling gaze through a triangular glass floor down to the streets of the Far West Side.
It was an experience that lasted for only two days, as the coronavirus shut down the deck and all other venues where New Yorkers and tourists might gather.
The Edge embodied the can-you-top-this dynamism of Hudson Yards — a $25 billion project the size of Ellis Island and the largest mixed-use private development in American history. But now, with its offices virtually empty; its shops, high-profile restaurants and the Vessel — another big magnet for tourists — all closed or severely restricted in their operations; and future construction plans delayed, Hudson Yards is facing a crucible without precedent.
Hudson Yards’ success — or failure — in adapting to a post-COVID world will be a bellwether for New York’s real estate industry, but even beyond that, for the city’s overall economic health, as it embodies prime engines that help keep New York City running: high-end retail, luxury housing and Class A office space.
“Around the country, people look at Hudson Yards as a huge success and say, ‘Look at what they managed to do in terms of the sheer scale of it,’ “ said Eliot L. Spitzer, the former New York governor, who is now a real estate developer and working on a project in Hudson Yards. “People will debate the aesthetics, but there is always a wow factor.”
Now, though, Mr. Spitzer said, “nobody knows what will happen. We don’t know how it’s going to end up. As an optimist, I never bet against New York City. We’ve been through this before — recessions, 9/11. But anybody would necessarily have some doubts — does the pandemic change the emotional desire of people to be in the city? Will we begin to see anchor tenants or employers move away?”
Preliminary citywide data capture the hollowing impact of the pandemic. In March, New York City collected $118 million in real estate property transfer taxes, according to the New York City Independent Budget Office. That figure plummeted to $43 million in April, and then to $35.5 million in May.
Taxable real estate sales are projected to drop by more than one-third to $65 billion in 2020, and are not expected to approach pre-pandemic levels until 2024.
“In the wake of this crisis, the long-term attractiveness of New York City as a place to live and do business is very much an open question,” the report said. “At a minimum, prices of both commercial and residential property are likely to remain below the record-breaking levels of recent years for a considerable period.”
Still, most of the two dozen people interviewed for this article, ranging from real estate professionals to city officials and academics, said that even if Neiman Marcus and other retailers go under, and condo sales for the unbuilt towers over the unbuilt platform stagnate, Hudson Yards is essentially too big to fail.
Owned and managed by the Related Companies, one of the biggest private real estate developers in the world, Hudson Yards is also working with one of its marquee tenants, the Mount Sinai health system, to adopt safety and cleaning guidelines protecting employees, residents and visitors.
“Hudson Yards has inherent advantages because it was conceived as an integrated, sustainable, state-of-the-art live-work-play environment where people can get everything they want and need right in their own neighborhood,” Stephen M. Ross, chairman of the Related Companies, said in a statement. “The benefits of this kind of future forward thinking are more apparent and relevant than ever right now.”
Originally spurred by the city’s bid for the 2012 Olympics, the project promised to transform a derelict industrial zone and offer an exclamation point to the High Line, said James Whelan, president of the Real Estate Board of New York, and a former executive director of the Hudson Yards Coalition, a business group which pushed for West Side redevelopment.
Sweetened by generous tax breaks, the project sold a packaged, stratospheric lifestyle to international tourists, millennial workers and part-time residents in a new frontier accessed by the extension of No. 7 subway line.
“Hudson Yards is in some ways disconnected from the city — it’s a city within a city, and it’s operating at a global scale,” said Kael Goodman, president and chief executive of Marketproof, a real estate data analysis firm. “It’s more like what might be happening in Hong Kong and other Tier 1 cities.”
The project’s first phase, running from 10th to 11th Avenues between 30th and 34th Streets, features four office towers, two condominiums, one mall, the Vessel and the Shed arts center. It officially opened to the public in March 2019, exactly a year before coronavirus hit the city. The second phase, which will run from 11th to 12th Avenues, will be dominated by residential towers.
Hudson Yards’s footprint of 28 square acres, half of which will be open space, is projected to accommodate 125,000 people who will live, work, study, shop and visit the area daily. There will be 18 million square feet of commercial and residential space, and 4,000 new apartments, more than 10 percent of which will be subsidized housing.
Or that was the plan before the pause button of the coronavirus.
“The best thing to say about Hudson Yards is the jury is still out,” said Pierre E. Debbas, managing partner of Romer Debbas, a real estate law firm.
While Neiman Marcus’s bankruptcy has attracted inordinate attention, other retailers are struggling, too, with roughly 40 percent paying rent in April and May. Some retailers may have flexibility in their leases to renegotiate their rents if Neiman is no longer able to operate.
Still, Harrison Abramowitz, a managing director at Newmark Knight Frank, a commercial real estate firm, said that if Neiman Marcus were to depart, other businesses would likely take over the space, whether as a whole, or in pieces, or even as office space.
“I think the project is much bigger than just Neiman,” he said. “Having that brand name many years ago before this was a hole in the ground had cachet, but the world has changed.”
When Hudson Yards was built, the assumption was that the red-hot luxury condominium market would power the project. Against that backdrop, Equinox, the luxury fitness brand, branched into the hotel business as the anchor of 35 Hudson Yards.
“You could probably draw a 20 block radius and you wouldn’t find many luxury hotels,” said Daniel Peek, president of the hotel group at Hodges Ward Elliott, a brokerage firm.
But the luxury condominium market was already softening before the pandemic, Mr. Peek noted. And though Related recently notched a milestone by selling more than 15 percent of its condominium units at 35 Hudson Yards, paving the way to begin closing sales, many prospective buyers are waiting until they can visit the area before signing contracts.
Only 25 contracts valued at over $4 million were signed in the nine-week period prior to May 24, versus 207 over the same period last year, said Michael J. Franco, a real estate broker for Compass, who represented a buyer of a Hudson Yards penthouse.
And citing “extremely challenging conditions” in the condominium market, Related recently stopped contributing optional payments to the federal EB-5 program, which has granted permanent residency to foreign investors who have helped bankroll luxury real estate projects.
“I still believe in Hudson Yards as a neighborhood, as a development, but we’re at a standstill all over New York City with real estate,” Mr. Franco said.
By contrast, Related says 93 percent of the commercial space that has been built, or is under construction, has been leased. All commercial tenants paid rent in April, and nearly all in May.
So-called healthy buildings which stress wellness, nontoxic materials and state-of-the-art filtration and other systems — such as the ones at Hudson Yards — are likely to become more attractive in a post-COVID world, according to a new report from DBRS Morningstar.
But even as New York gradually reopens, many companies plan to restrict visitors and adhere to social-distancing guidelines, according to a recent report from CBRE, a commercial real estate firm. Companies are reconsidering office space in Manhattan, while commercial rents are collapsing. Facebook, which has pledged to lease 1.5 million square feet at 55 Hudson Yards, will allow many employees to work from home permanently.
Still, KKR and Company, the private equity firm, recently agreed to take over 22,000 square feet at 10 Hudson Yards to supplement an anticipated 343,000 square feet in its future corporate headquarters at 30 Hudson Yards.
“Our commitment to move to the west side is unchanged,” Henry Kravis, the firm’s co-founder and co-chief executive, said in a statement. “Adding even more turnkey square footage right next to our future home was both a practical step and a unique opportunity.”
But if Hudson Yards struggles, the ripple effects could be significant.
For the last five years, New York City has not had to make interest support payments on the bonds that financed Hudson Yards, and Hudson Yards is expected to send $350 million into the city’s coffers by the end of the fiscal year in June.
But property tax delinquencies could become an issue. And with Hudson Yards set to start paying principal on those bonds in 2021, “you have to worry again,” said Elizabeth Brown, senior tax expenditure policy analyst at the city’s Independent Budget Office.
Even retired teachers in Ohio have an interest, since their pension fund owns a 20 percent share of 10 Hudson Yards.
“The world has topsy-turvied, so we would expect the trustees on the board to be mindful of the overall performance of real estate in the portfolio,” said Mark Hill, secretary-treasurer of the Ohio Education Association, and a former trustee of the State Teachers Retirement System of Ohio.
James F. Wenk, vice chairman of Jones Lang LaSalle, a commercial real estate company, predicted that New York City real estate would be in a “temporary pause period” until the fourth quarter of the year.
But he remains bullish.
“At the end of the day we’re all human beings, and we like to be in a physical space, sharing ideas, sharing emotions,” he said. “As it relates to the success of the Yards, this is still a game about attracting the best talent. The best talent wants to be in the most technologically advanced buildings, and Hudson Yards in general has those technological advantages.”
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How Will Hudson Yards Survive the Pandemic? - The New York Times
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