It took decades for the New York Coliseum to be torn down and replaced by the Related Companies’ Time Warner Center. While most of that time it was a different developer trying to build the damn thing, the fact remains, Related’s president Jeff Blau has his work cut out for him. “At Hudson Yards, we’re looking at about 2.5-times the Time Warner in that first phase, and the key to getting financing will be getting the office space leased,” Mr. Blau said yesterday at the Masters of Real Estate panel hosted by The Observer.
Until he can find tenants for at least a portion of the 4.5 million square feet of office space planned at the megaproject, it will be all but impossible for Mr. Blau to start building. That had been a challenge ever since the economy collapsed in late 2008, not long after Related won the bid to redevelop the rail yards—O.K., so that deal wasn’t finalized until 16 months ago, but whose counting—but Mr. Blau said the firm had seen a surge in interest in the past six months, and there are now nine companies actively looking at relocating into offices at Hudson Yards, and they are all looking at leases over a million square feet.
“The response has been, we’ve got X, Y, Z company, they are across three, four, five buildings in New York City, they’ve got a million or two million square feet, they’re divisions are separate,” Mr. Blau said. “They look at Hudson Yards, they say, ‘My lease is due to expire. I do have to make some decisions. I could consolidate, combine my five buildings into one, bring all of my divisions together, have state of the art new buildings, green, high-tech, and I could probably take 80 percent of the square footage I have today and wind up paying as much or less than I am today.”
Challenges remain. A theme throughout the conference was how economic turmoil in the past few weeks has led to an almost overnight evaporation of commercial real estate lending—as well as lending of any other type, really—which could well send firms back to the same place they were a few months ago, looking to extend leases short-term, even if it meant paying a premium, a reality that had frustrated Related for some time.
And even if the company should manage to find a tenant or three, it does not necessarily mean things are improving citywide. “If you look at Hudson Yards and the optimism we have from our corporate tenants, I think the deals will get done, but from a macro-perspective, if you look at these potential transactions, they are mostly the result of consolidations not expansions,” Mr. Blau said. “They are looking to move from a B-Class building to an A-Class building, and decreasing square-footage. While that might be good for us individually, because of the asset we own, I doesn’t speak well for the economy. Until we can create jobs, we will not see a strong recovery.”