Stephen Ross confronts a wildly different world than when his Related Companies was designated as the winning bidder for the 26-acre West Side rail yards last May, earning the opportunity to transform the far West Side with $15 billion in office and residential development.
Mr. Ross now faces his first major test on the project since the economy imploded last September, as the end of this month brings a key deadline with the Metropolitan Transportation Authority, the yards’ owner. Related is supposed to enter into a contract with the agency, plunking down about $50 million in an initial deposit and fees, and officially starting the clock for plenty more payments to come (the entire deal involves paying about $1 billion to the M.T.A.).
Related, for its part, has said it is committed to the project and clearly views it as a long-term investment. But as the deadline for the contract approaches, there are signs of trouble amid the global financing drought, suggesting the deal between the M.T.A. and the developer might not work out quite as swimmingly as imagined, or perhaps not in the initial time frame envisioned.
Related has recently expressed worries about financing to numerous real estate executives and others familiar with the project, saying that the company has had trouble raising new money, according to those people.
Although such credit problems are hardly unique, Related, not known for doing much on a shoestring budget, has also cut back its payments to contractors. The firm stopped paying its architects, according to people familiar with the developer. And just as the public review is beginning for zoning changes integral to the project, Related has cut by half the amount it is paying its lobbying firm Capalino + Company, according to lobbying records. The lobbying firm specializes in guiding projects through the public review process.
Statements from the two parties were hardly brimming with optimism.
“Discussions with Related are at a sensitive point, so we will not be commenting substantively on them,” said M.T.A. spokesman Jeremy Soffin.
A Related spokeswoman, Joanna Rose, said that the project “continues to move forward.”
“We remain focused on the various governmental and required reviews that continue to progress,” she said.
Based on the terms of the deal struck in the less inclement climate of May 2008, Related would seem to benefit from putting off any contract execution, as it would acquire more time to observe the economy’s effects on office rents and apartment prices. The developer is also better positioned to negotiate concessions now than it was back in May, when other bidders were vying as well; and the agency would presumably be reticent to just break off the deal with Related if the developer wants any changes, as it did when the initial winner, Tishman Speyer, tried to change the terms of its initially victorious bid last spring.
Related must start paying rent three years after it closes on the deal—M.T.A. documents issued to bidders last year set the timing of the deal’s closure at three months after the contract is signed—though it could push those payments off for an extra two years based on the terms of the initial agreement with the M.T.A., as construction could easily be put off due to a dearth of commercial tenants desiring new office buildings.