Monday, January 31, 2005

Stadium Land Could Cost Jets $300 Million

Subject: Times: Stadium Land Could Cost Jets $300 Million
Date: 1/30/2005 9:29:55 P.M. Eastern Standard Time
Sent from the Internet (Details)

January 31, 2005
Stadium Land Could Cost Jets $300 Million
NY Times

The Metropolitan Transportation Authority wants the Jets to pay nearly $300
million, or nearly three times what the team has offered, for the rights to
build a 75,000-seat stadium over the railyard on the Far West Side of
Manhattan, according to executives who have been briefed on the negotiations.

The gap between the two numbers, which are based on each side's land
appraisals, sets up a showdown on the value of the property, which
represents one of the last hurdles in the Jets' quest for a new home in
Manhattan. It is also a final step in Mayor Michael R. Bloomberg's campaign
for a stadium that could be used for the 2012 Olympics if the city's bid
for the games is successful.

For months, both sides have been debating the value of the Long Island Rail
Road yard, a roughly 13-acre site between 11th and 12th Avenues, from 30th
to 34th Street. Stadium proponents have staked out a position that the land
is worthless, while transportation advocates and stadium opponents have
demanded that the team pay top dollar for the property, in hopes that a
high price will either kill the deal or produce a windfall for the authority.

Already, the project has gotten increasingly expensive for the Jets. The
team initially agreed to invest $800 million in the stadium, the largest
sum ever contributed by a professional team, and to cover all cost
overruns. The city and the state agreed to put in $600 million. Since then,
the Jets have agreed to pay for several other stadium-related costs,
including two pedestrian bridges over the West Side Highway, which are
expected to cost about $75 million. In addition, Jets executives say that
new construction estimates put their cost at closer to $1 billion - an
amount that does not include any costs for the development rights.

Peter S. Kalikow, the chairman of the M.T.A., and Katherine N. Lapp, its
executive director, are expected to give the appraisals from both the
authority and the Jets to the 23-member authority board today or tomorrow.
Mr. Kalikow and the Jets have tentatively agreed that if the two sides
reach an impasse they will call on former United States Senator George
Mitchell to arbitrate the dispute.

Because the M.T.A. has so far refused to make its appraisal public,
Assemblyman Richard L. Brodsky, a Democrat of Westchester and chairman of
the Assembly Committee on Corporations, Authorities and Commissions, issued
a subpoena for the document last week and called for a public hearing on
Thursday. It now appears that Mr. Kalikow will appear at the hearing and
provide the appraisal.

The Empire State Development Corporation, the state's economic development
arm, is expected to reaffirm its support for the project at a meeting this
month, despite opposition from some local residents, West Side politicians
and some Broadway theater owners. The stadium still needs approval by
legislative leaders in Albany in the coming months and it faces two
lawsuits that challenge the project on environmental grounds.

The only other remaining issue is the negotiation over the railroad yards.

Mr. Brodsky, along with transit advocates and stadium opponents, has argued
that it would be unconscionable for the M.T.A. to give the land away to the
Jets at a low price, at a time when the authority is desperately in need of
cash just to keep its vast network in proper working order.

The Bloomberg administration, the Jets and some members of the Pataki
administration have argued that the railyard is essentially worthless,
because nothing can be built there without an expensive platform that will
be paid for by the city and the state.

The Jets have complained in the past that Gov. George E. Pataki has not
pushed Mr. Kalikow to move more quickly. According to several people who
know him, Mr. Kalikow has been reluctant to make a "sweetheart" deal with
the Jets to sell the development rights for a low price when the
transportation authority is facing a fare increase and multibillion-dollar
deficits in its capital budget.

But land appraisals are more art than science, especially in Manhattan. The
parcel is well west of highly sought neighborhoods. Also, the city recently
rezoned much of the Far West Side for high-rise buildings, making
development sites suddenly plentiful. Construction of the platform over an
active train yard would take 30 months, according to the team's estimates.

The property would, however, provide potentially valuable views of the
Hudson River in a city that seems to have an unquenchable thirst for housing.

The M.T.A. puts the value of the entire 560,000-square-foot parcel at
nearly $900 million, while the Jets' appraisal puts it at $365 million to
$390 million, according to the executives. Because the stadium would
account for about one-third of the parcel's 6.5 million square feet of
development rights, each side is beginning the negotiation at an amount
equal to about one-third of the full appraisal. The M.T.A. anticipates that
it could sell the remaining rights to other development projects at almost
$135 a square foot.

The Jets' appraisal puts the value of the development rights at a much
lower figure, anticipating that no developer would be able to build as much
as the M.T.A. suggests. The team's appraisal also discounts the price
because of potential environmental risks and the premium for building over
an active railyard.


Subject: Notes on Air Rights and the NYT article
Date: 1/30/2005 10:57:55 P.M. Eastern Standard Time
Sent from the Internet (Details)

Here's some of my notes on the Bagli Times article:

If the MTA demands $300M for the value of Air Rights (AKA development
rights) over the Western portion of the West Side Rail Yards, it could be
the deal-breaker. If I were Dan Doctoroff, I would be plenty nervous
without having a back-up plan in place in Queens. The Jets lease in New
Jersey is up in 2008, so what are the team's options?

According to the article, with cost overruns, extra items such as
pedestrian bridges, reassessments of building costs and now the cost of
land, just the Jets part itself could approach $1.4 million. That would
make the total cost, with the platform and retractable roof, approach $2

The City and Jets want to deduct the cost of the platform, arguing that the
land is worthless without it. But that's not so. If something else were
constructed there, there would be no platform per se. Look at what happened
over the Grand Central rail yards. Every building, in essence, created its
own platform and sunk its own pilings and columns depending on the
engineering requirements of the specific structure(s).

There was no overall platform constructed over the Grand Central rail yards
with buildings placed on top as is being proposed here. For Grand Central,
the City's role was limited to streets between the buildings (in
conformance with the Manhattan grid) and the Park Avenue wide viaduct. For
every building, each developer designed and constructed the necessary
superstructure to support the specific projects. For alternative proposals,
that would be a likely scenario on the West Side Rail Yards except for
streets and parks.

Without having to build a broad platform over the entire rail yards, there
would be no need to subtract its cost from a price for the Jets or any
alternative. In short, each developer would pay for the structure over its
own footprint.

In valuing the air rights themselves, Bagli is correct that it's an art.
While the NY Times paid $57 per SF for its new HQ on 8th/41st, the City has
incorporated a set price of $100/SF into the Hudson Yards plan ... not
reflecting the vagaries of the market.

While the rail yards are several blocks away from midtown, that could
change if demand picks up (although demand itself on the West Side is
debatable), that would lower a market price for the AR, however, being on
the river could raise the value at the Westernmost edge.

Also consider there will be a glut of AR from the Western rail yards,
Eastern rail yards, the new Penn Station, etc. A glut will depress the price.

In sum, no one knows what a market value could be.

Generally AR can be valued by the SF size of the land (560,000 SF for the
stadium) X (the FAR that is used) X (the market value). If the land is
rated 15 FAR and the stadium only uses 4 FAR, then there's 11 FAR that
could be sold elsewhere ... helping the glut and lowering the value.

But here's the flip side. With lower value, the city or state will be less
able to sell the AR for a high price, generating less revenue to pay off
the No. 7 subway. If there's less revenue coming in for the HY
infrastructure, that puts pressure on the city's general fund and TFA. Not
much of a win there.

Also consider that a low price for the AR on the West Side would lead Bruce
Ratner to demand a similar low price for the Atlantic Yards in Brooklyn.

One last thing to consider, in most previous reports on the value of the
rail yards AR (including some that I put out), the value of $1.2 billion
(my estimate), $1.5 billion (from another web site), and for a brief period
$3 billion (from Richard Ravitch), have all focused on the aggregate value
of Air Rights over the entire rail yards, west and east.

But here we're only looking at a portion of the Western rail yards, the
part that the physical stadium would occupy, which could explain why the
MTA's figure is about only $300 million. The stadium would likely not
occupy the entire Western Rail Yards and of the part it did occupy, would
probably only use a portion of the available FAR.

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