Facing a year-end deadline, the developers of a long-planned expansion of Pennsylvania Station into the neighboring Farley Post Office are telling government officials that they're straining to make the terms of their five-year-old deal work, according to people familiar with the matter.
A venture of developers Related Cos. and Vornado Realty Trust originally agreed in 2006 to pay the state more than $310 million for rights to develop retail in the rear of the building, among other benefits. But lately, they've told government officials they believe the agreement struck earlier won't work with those uses alone, the people said.
Seeking other options, in recent months the developers have tried to get the City University of New York interested in a land swap plan with the Tribeca-based Borough of Manhattan Community College, the people said.
The developers would have built it a new campus in the back of the post office, and in turn, the developers would have been able to build apartments with unobstructed Hudson River views on the school's valuable land of the five-block campus along the West Side Highway. But those talks appear to have fizzled recently, as CUNY officials showed little interest, people familiar with the discussions said.
The developers have also shown the site to Nordstrom Inc. and Target Corp., people familiar with the matter said. Neither retailer has committed to the building. According to a timetable that was set last year, Related and Vornado are supposed to set the final terms of their financial agreement with the state by the end of 2011.
The cracks that are beginning to show in the deal raise new questions about the future of the ambitious plan to create a new home for Amtrak in the eastern portion of the Corinthian column-lined post office. This plan has proved elusive for more than two decades due to funding shortfalls, clashes between government agencies, and economic downturns.
Overall it's slated to cost more than $1 billion and other sources of funding, besides Related and Vornado's piece, also have to be identified before the new station can be built. The transportation and real estate project has long been a dream of planning groups, preservationists and economic-development officials.
After the original Penn Station was demolished in 1963 to make room for Madison Square Garden and an office tower, many have wanted to recreate a grand entrance to the city. The expansion project also is viewed as a way to spark new development in the dreary area currently surrounding the station. The new station would be named after Sen. Daniel Patrick Moynihan who championed it until his death in 2003. The project also has been supported by three mayors and five successive governors, but none have been able to gain traction.
It received its first tangible boost last year, when the state moved to begin construction on a first infrastructure-heavy phase of the project that involves an expansion of an underground concourse. It will be financed partly by federal stimulus funds.
The commercial deal with Related and Vornado is a key part of the project. While they agreed on the outlines of a plan five years ago, it never closed. The agreement in 2006 got sidetracked when the developers pushed a $14 billion plan to move Madison Square Garden to the rear of the Farley building and expand and remake the existing Penn Station. That plan, which would have unlocked about 5 million square feet of development rights tied to a redo of the station, fell apart in 2008 when the Garden decided to stay in place.
Vornado and Related are among the biggest commercial property developers in the country, but their pairing in this deal has been viewed as unusual. They are both run by forceful personalities—Vornado by Steven Roth and Related by Stephen Ross—and they both have competing projects nearby. Government officials refer to them as "the two Steves."
Retail has long been assumed to be the default use for the western half of the building, which runs between 31st and 33rd Streets and borders Ninth Avenue. Under the 2006 agreement, the developers would get rights to build that space as well as a boutique hotel for a total of 750,000 square feet. Also under the deal, they would get 1 million square feet of development rights to build a mixed use tower on a site owned by Vornado nearby. "It's such a valuable proposition," says Bob Yaro, president of the Regional Plan Association, which has urged progress on the project. "Obviously the brass ring there is the development rights that are going to be transferred off the site."
Instead of retail, Mr. Yaro's group has pushed to convert the back of the Farley building to convention space, although he acknowledged the state likely does not have the money to fund that right now. "We would much prefer to find a better use," he said.
By Eliot Brown / The Wall Street Journal
Published: July 25, 2011
