[NYguy]

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http://www.crainsnewyork.com/article...rly-impossible

Why developing in Midtown remains a Herculean task
Obstacles are daunting with or without rezoning


Greg David By Greg David
June 18, 2017

The City Council will—finally—soon approve a rezoning of Midtown East designed to do nothing less than save the city’s most crucial business district and the most prodigious payer of property tax.

Let’s hope it works.

The Park Avenue office neighborhood is home to more Fortune 500 companies than anywhere else in the country and—because it receives no tax breaks—represents 10% of the property tax base. But it has been losing its allure to the Hudson Yards area—and to a lesser extent the new construction at the World Trade Center—because Midtown East’s buildings are more than 70 years old, on average. One can see the impact in relocations, especially that of BlackRock, the world’s largest money manager, to the Far West Side.

Reviving the corridor will be difficult because nowhere are the hurdles to building more daunting, as SL Green CEO Marc Holliday enumerated last week at a Crain’s real estate conference.

Sites are challenging and expensive to assemble, buying out existing tenants is time-consuming and filled with drama, navigating land use and landmarks issues with the city is risky and construction costs are the highest in the nation. Without more density and height than allowed by current zoning, projects are simply not economical.

Holliday’s signature 1 Vanderbilt tower across from Grand Central took 11 years to assemble, required a special rezoning of the Vanderbilt corridor, necessitated a deal with the city for $220 million in improvements to the transit hub and adjacent areas and will cost more than $1 billion to build. He will need rents well north of $150 a square foot to make any profit.

Holliday noted that despite the record job growth in the city and the robust economy, only four new office projects are underway in Midtown. No wonder, given the risks. He ticked off all the ways he violated the rules of real estate with 1 Vanderbilt, notably by building on spec (without tenants in hand) and not using as-of-right zoning.

Even getting this far in the Midtown East rezoning has taken almost five years and some tough-minded government officials. A fair amount of credit goes to Robert Steel, deputy mayor during the Bloomberg administration, whose long if losing battle for new zoning did effectively make the case for change. De Blasio planning chief Carl Weisbrod made the proposal that made it politically possible.

The administration predicts that the zoning could spur as many as 16 new office towers. That seems optimistic. Reaching anywhere near that number will require brave developers, receptive real estate financing markets and a city economy that continues to prosper.

After the City Council acts, the future of Midtown East will be up to the private sector. The stakes for the city are enormous.