Property giants Oxford and Brookfield look to transform industrial pocket of NYC with landmark projects a block apart
(Photo supplied by oxford properties group inc.)
NEW YORK — In a city where people have pretty much seen it all, no one’s seen anything quite like this before, unless they were walking the streets back in 1913.
That’s when forward-thinking engineers found a way to create a platform over what had been filthy, polluting railway tracks in what’s now the bustling heart of Manhattan, Midtown.
Out of that monstrous engineering feat came Grand Central Station and atop its tracks would spring up some of the most desirable real estate in the world along an exclusive boulevard, Park Avenue.
A new generation of engineers is at it again, only this time on behalf of two of Canada’s biggest real estate developers — Oxford Properties and Brookfield Office Properties.
On separate sites a mere block apart, these Canadian property giants are about to platform over more than 30 acres of unsightly railway yards on the westerly edge of Midtown to make room for new neighbourhoods — and new life — on what’s been moribund industrial land.
“This is the largest development this city has seen in decades,” says long-time New Yorker Leon Manoff, a vice chairman at commercial brokerage Colliers International.
“In some respects it’s a significant risk because they are pioneering in an area that has not been viewed as an attractive place to be.”
Oxford’s $15 billion Hudson Yards project, named for the unsightly pit of 28 tracks that feed into nearby Pennsylvania Station, will be twice the size of the Rockefeller Center.
When completed over the next decade, the 26-acre project will transform Manhattan’s westerly skyline with a collection of some 14 edgy, energy-efficient office and residential towers unlike almost anything else seen in a city that’s been so built-out for decades, its average office building is more than 60 years old.
A new subway line, a two-block retail complex and a major new entertainment venue, the Culture Shed, are also slated for the area around the blackened rail yards where Oxford is now in the process of acquiring three additional acres.
Oxford, the real estate investment arm of the Ontario Municipal Employees Retirement System, has partnered with U.S. residential developer Related Companies on Hudson Yards which could eventually be home to 5,000 residents.
“We’re creating a city within a city in one of the most interesting emerging markets in Manhattan,” says Toronto-based Oxford CEO Blake Hutcheson.
“Rarely in a place as developed as Manhattan do you have an opportunity to start with a blank canvas.”
New York-based Dean Shapiro, the senior vice president overseeing the two-phase project for Oxford, calls Hudson Yards “building for the 21st century.
“It’s a mind-boggling opportunity and a big responsibility, too, because this is a legacy project that will do very good things for New York on the world stage and we need to get it right.”
Brookfield’s nearby $4.5 billion West Manhattan project is considerably smaller, but no less an engineering marvel.
The five-acre site is dominated by 16 railway tracks. Work began last October to create the platform, a series of bridges that will be slid into place over the next year from a “launcher” now anchored to one end of the site.
When completed, the platform will take up more than half the site. On top of it will sit some 1.5 acres of public space and a new pedestrian walkway between Penn Station, the High Line and the Hudson River.
Three 60-storey towers will be built on bedrock to the north and south of the platform, including two LEED Gold office towers and an 850-unit rental apartment building. A smaller tower, which could house a hotel or retail complex, is also being considered.
Brookfield sees such high demand for rental apartments — in a city where just 30 per cent of people own — they plan to start the residential tower next year. The only thing holding back commercial construction is finding anchor tenants.
Mayor Michael Bloomberg has called this westerly area of Midtown — some 360 acres of former industrial land rezoned by the city for mixed use in 2005 — Manhattan’s “last frontier” if it hopes to keep up with the employment and housing needs of its residents and maintain its presence on the world stage.
In many ways the ambitious undertaking is reminiscent of the rebirth of Toronto’s massive Railway Lands and ongoing development of South Core, a vibrant neighbourhood of residential and office towers that, when more shops and restaurants arrive over the next few years, will finally connect the core to the waterfront on what had been wasteland.
A 52-storey office tower is already rising from Hudson Yards bedrock, at the end of New York’s popular elevated greenway, the High Line Park, and will become the new international headquarters of luxury leather-goods maker Coach.
Time Warner is believed to be close to a deal that would see it consolidate its operations in a new Hudson Yards tower as well.
Engineers will start driving caissons between the mess of railway tracks and erecting the giant platform in January. It will become the foundation for some 14 acres of parks and open space and the easterly first phase of Hudson Yards, which runs from 30th to 33rd Streets between 10th and 12th Avenue.
On Tuesday, Oxford/Related won approval for a $328-million (U.S.) tax exemption from New York City as a way to stimulate creation of the platform and construction of a second tower and the shopping complex. That’s on top of an earlier $106 million tax break.
The incentives go back to 2006, when the city realized Hudson Yards would be so massive, and risky, that any private developer would need the upfront financial help to stimulate development of the site, said Jonathan Gouveia, senior vice president of strategic investments for New York City’s Economic Development Dept. in a telephone interview Tuesday.
In return, the project is expected to generate some $1.1 billion over the next 25 years, in tax and other revenues, noted Gouveia, as well as create 8,400 jobs and a whole new business district in Manhattan.
Oxford’s Hutcheson acknowledges there have been lots of naysayers.
“Bringing people to the site and getting them to understand the vision is the difficult part. Once they get there, nobody is looking back. The momentum is extraordinary.
“The site is getting more interest right now than probably any other development site in the world and the wind is at our backs. It’s an exciting time.”
The old build-it-and-they-will-come approach to commercial development is now dead in New York: Neither Oxford, nor Brookfield, plan to start digging for commercial towers unless they have long-term anchor tenants in place first.
“The vacancy rate in New York isn’t great — we’re not loving it — but it’s dropping. We’re seeing companies that are looking to consolidate their businesses and move out of older buildings that are less efficient,” says Philip Wharton, senior vice president of U.S. development for Brookfield.
The vacancy rate for Class A commercial space in Manhattan shot up, and rents spiralled down, as the country’s financial giants collapsed and companies downsized in the wake of the financial crisis.
It still hovers at about 10 per cent and rents in all but the rejuvenated Midtown South office market — which has become a high-priced Mecca for the tech sector in the wake of Google’s move to the area — remain depressed.
But cranes have been creeping back to life on projects such as Brookfield’s Manhattan West, that had been set to launch pre-2008 but went into hibernation as the U.S. economy tanked.
Some 5.5 million square feet of new office space is expected to come on stream next year in Manhattan, says Peter Kozel, chief economist for commercial brokerage Colliers. Upwards of 8 million square feet is slated to be built over the next five years.
That includes the World Trade Center site in lower Manhattan where the first of five towers, the stunning One World Trade Center — folks here still call it the Freedom Tower — will start welcoming tenants next year.
That may seem like a lot given the still-tenuous state of the U.S. economy, but not when you consider that Manhattan has some 450 million square feet of commercial development and less than 10 per cent of it has been replaced in the last two decades, says Colliers’ Kozel.
Even the towers underway won’t replace the combined 25 million square feet of commercial space destroyed in the September 11 terrorist attacks and the conversion of obsolete office towers to residential buildings since the 1990s, he adds — a social movement that is turning the old 9-to-5 financial area into a 24/7 neighbourhood.
Today’s Gen X and Gen Y employees are looking for natural sunlight, for open, collaborative spaces in cool, energy efficient offices. And, as a result, employers are now willing to pay higher rents in newer buildings, if necessary, to draw ambitious young employees keen to work close to where they live.
Brookfield, which bought the Manhattan West site in 1985 from fellow Canadian developers Olympia & York, remains optimistic it will find anchor tenants and begin constructing its commercial towers, despite the fact it’s overshadowed by Oxford/Related’s much higher profile Hudson Yards.
“Related does a lot more pr and they are very good at it. And we thank them for that because they are promoting the whole area and we’re drafting off of them,” says Wharton.
“Canadians have a long history of seeing value in New York. It’s had its ups and downs but always bounces back.
“And if we end up being the next Park Avenue,” he says hearkening back to the last time railway tracks were platformed in this city, “I’d be very happy.”