There was little surprise when New York was selected on May 18 as one of five finalist cities in the competition to host the 2012 Summer Olympics. “Two hurdles down and one to go!” beamed Mayor Michael Bloomberg immediately after the announcement. The Mayor joined Governor George Pataki at an NYC 2012 celebration breakfast outside Bryant Park Grill, where officials broke out the champagne and raspberry danishes to celebrate the announcement.
Conspicuously absent from the celebration was Peter Kalikow, chairman of the Metropolitan Transportation Authority. The M.T.A. happens to own the rail yards where the city wants to build a stadium that is the linchpin of its Olympics bid. Mr. Kalikow has long insisted that his agency expects to be paid fair-market value for ceding development and air rights on the property, which is located between 11th and 12th avenues and 30th and 33rd streets. He also expects the agency to be compensated for another set of rail yards one block east of the stadium site, where the city wants to build a park, high-rise towers and cultural buildings.
Mr. Kalikow has declined to say publicly what he considers to be fair-market value. But The Observer has learned that in several recent private conversations, Mr. Kalikow, a real-estate developer, has estimated that those rights could fetch more than $1.2 billion on the open market.
“Kalikow has in fact used that number in some private conversations he had with certain individuals,” said Tom Kelly, an M.T.A. spokesman, “but he has not given the M.T.A. staff working on the projects any non-negotiable figures that the agency would be seeking.”
That figure has the potential to wreak havoc with Deputy Mayor Dan Doctoroff’s financing proposal for the stadium. Mr. Doctoroff has long contended that the rail yards are essentially worthless until the city builds platforms above them. The platforms would support the new stadium, which also would be used by the New York Jets.
Mr. Kalikow, who is under tremendous pressure by M.T.A. bondholders to extract as much money as possible from the rail yards, apparently disagrees with Mr. Doctoroff’s assessment. And if he stands firm on his compensation demands, someone will have to pony up the cash. It’s not likely to be the Jets, who have agreed to contribute $800 million toward construction costs. The team will pay some yet-to-be-determined fee to the M.T.A., but nothing in the neighborhood of what Mr. Kalikow considers fair-market value.
That leaves the city and the state, which have already pledged a $600 million subsidy to pay for the platform and a retractable roof to allow the stadium to function as a convention center. Neither will relish the prospect of lavishing even more public funds on an already controversial project.
“This is the main weakness of the West Side plan, and it always has been,” said a prominent stadium supporter who spoke on the condition of anonymity. “There’s lots of other stuff you can waffle on, but the M.T.A.’s cut for its air rights? There’s not much wiggle room.”
The stadium project faces several obstacles. Local groups appear to be preparing to sue the city to prevent the project from breaking ground. Meanwhile, the State Legislature in Albany could vote against Mr. Doctoroff’s complex financing plan for the stadium and other West Side development.
Meanwhile, cost estimates for hosting the Olympics continue to climb higher. According to a report in the New York Post , the clean-up bill for many potential Olympic venues has climbed from $70 million to $100 million. NYC 2012 now estimates the total cost of the Games at around $3.7 billion, although that figure doesn’t include expensive projects like the stadium or the Olympic Village, which are not included because they are designed to be used long after the Games’ closing ceremonies.
But when the big-ticket items are factored in, the price tag for the Games becomes truly Olympian-$12 billion, according to a tally by Brian Hatch, a former Salt Lake City deputy mayor who runs the Web site newyorkgames.org. Salt Lake City held the Winter Olympics in 2002.
The larger figure means that financing for mammoth sums of money needs to be in order very soon. To make the recent cut, cities only had to satisfy certain logistical requirements: existing transportation infrastructure, hotel rooms and a basic financing plan. Havana, Istanbul, Rio de Janeiro and Leipzig, Germany, failed to make the second, and next-to-last, cut.
But in the next and final stage of the competition, the International Olympic Committee will be considering impressive bids by early favorites London and Paris, in addition to long-shots Madrid and Moscow. The I.O.C. will announce its decision in July 2005.
With New York in the final five, the Mayor and Mr. Doctoroff will have to move forward with a package of Olympics-related building projects. Mr. Doctoroff, who initiated and helped finance the city’s Olympics bid, skipped the victory breakfast in New York on May 18 to attend the I.O.C.’s official announcement in Lausanne, Switzerland. At Bryant Park, NYC 2012 president Jay Kriegel couldn’t help but make a joke about how Mr. Doctoroff’s micro-management of the Olympics bid could be felt across the Atlantic.
“While Dan Doctoroff may not be here physically, I can tell you he is here in spirit,” Mr. Kriegel said. “The angry e-mails came at 5 o’clock this morning that we weren’t doing enough today for the event. So now you can all send him an e-mail in Lausanne saying we have done enough today here.”
Mr. Doctoroff’s next challenge will be to bring Mr. Kalikow and the M.T.A. on board. Mr. Kalikow has come under tremendous pressure recently to ensure that his cash-strapped agency reaps a relative windfall from its rail yards, which are among the agency’s most potentially valuable assets.
The city has floated the idea of compensating the M.T.A. by paying for the construction of the extension of the No. 7 line-which now ends at Times Square-into the heart of the so-called Hudson Yards district, and letting the M.T.A. share in the benefits. Mr. Kalikow, however, apparently has shot down that idea, because extending the No. 7 line is not one of the agency’s top priorities.
“It’s not time for the M.T.A. to give away its assets by barter. It’s time for them to think about cold, hard cash,” said former M.T.A. chairman Richard Ravitch.
A Vision Comes True
In the late 1970′s, Mr. Ravitch oversaw a development project that put supporting columns in the rail yards, which would enable engineers of the future to build a platform without having to first rip up the tracks. Although the area surrounding both rail yards was a wasteland of auto-body shops and empty lots when he initiated the project, Mr. Ravitch reasoned that the yards’ air rights would eventually be extremely valuable. That vision was borne out in Mr. Doctoroff’s master plan for the Hudson Yards district, which includes a rezoning of the 59-square-block area to support high-rise developments, the extension of the No. 7 line, and the construction of public open spaces and parks.
A source close to Mr. Kalikow said that the M.T.A. chairman realizes that the fair-market value of the rail yards will end up being diminished because the city and state will have to pay for the platforms. Nevertheless, the source said that Mr. Kalikow still valued each yard at around $400 million to $500 million each.
While it’s possible that Governor Pataki could end up helping to compensate the M.T.A, which he controls, it seems more likely that the city will end up having to foot the bill, in one way or another. For one thing, it is an open secret Mr. Pataki believes that his legacy will hinge upon the fate of Ground Zero, as opposed to the West Side of Manhattan. For another, the state just lost a court showdown with the city over the city’s refinancing of its 1970′s-era debt payments. The State Court of Appeals, in a 6-0 decision, ruled that legislation transferring repayment from the city to the state was constitutional.
“That complicates a lot of things,” said the prominent stadium supporter, “but it makes Albany … less interested in helping the city financially.”
Outside Bryant Park at the Olympics celebration, Mayor Bloomberg downplayed any ruptures between the city and the M.T.A. over the compensation issue.
“The city and the M.T.A. are coming along,” he said. “I don’t think that’s a problem. There are a lot of details to be worked out, but the Governor and the M.T.A. are 100 percent supportive.”