[NYguy]

http://online.wsj.com/article/SB1000...googlenews_wsj

Pension Fund Bets Big on Hudson Yards

By NICK TIMIRAOS
May 26, 2010

The developer of an ambitious $15 billion development planned for the Hudson Yards on the west side of Manhattan has secured a Canadian pension fund as an equity partner in a sign of investors' renewed interest in New York City property.

Separately, the site's developer, Related Cos., on Wednesday will enter into a contract to lease the 26-acre rail yards from the Metropolitan Transportation Authority, putting a $21.7 million payment into escrow.

The fund, the Ontario Municipal Employees Retirement System, will provide up to $475 million in equity and replaces Goldman Sachs Group Inc. as Related's lead partner. Goldman, which owns a minority stake in Related and retains an interest in the project, delivered a setback when it unexpectedly limited its investment in January.

Oxford Properties Group, the pension fund's $18 billion real-estate arm, has turned its eye in recent months on U.S. expansion, particularly the Northeast. "This project is one of the best opportunities in America, in one of the last remaining great real-estate parcels" in Manhattan, said E.M. Blake Hutcheson, Oxford's chief executive, in an interview.

The deal with Oxford marks the latest sign that foreign investors are keen on New York. Last month, S.L. Green Realty Corp. sold a $576 million stake in the McGraw-Hill building on Sixth Avenue to Toronto-based Canada Pension Plan Investment Board.

The deal comes two years after Related, after a competition, agreed to a $1 billion deal for a 99-year lease that secured the rights to build 12 million square feet of office, apartment, hotel, and retail space over working rail yards.

Over the past year, Related has received zoning approvals and begun plans to build the deck that must cover the rail yards before construction can move ahead. But the economic downturn had delayed the signing of a formal contract for the project.

With equity in hand, Related and Oxford can turn to raising funds from other partners and signing up tenants for the commercial space. Under an "ideal case" scenario, Related said it would secure a tenant by the end of the year. Building construction would start 18 months later with 2015 as the earliest move-in date for corporate tenants. The total development of the site could take 10 years.

A decade ago, Related shepherded the Time Warner Center development, also on former MTA property, in the face of an uncertain economic environment and the Sept. 11, 2001, attacks.

Jay Cross, who oversees the project for Related, said he was increasingly optimistic that they would sign a tenant this year. "Even though tenants are making due with less space in the new paradigm, they still want state-of-the-art space," he said. "If you're a big tenant, you don't have that many opportunities" in the current Manhattan market.

The signature redevelopment project has long been a priority of Mayor Michael Bloomberg. The city is on-time and on-budget in its extension of the No. 7 subway line to 34th Street and Tenth Avenue, near the northeast end of Hudson Yards.

Under a revised deal with the MTA, Related doesn't have to close on the lease until building construction begins or certain economic triggers are reached. Mr. Cross said the partnership with Oxford and "hearing and seeing" signs of improvement in property markets "would suggest to us we will be under way before the triggers are hit."