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Old Posted Feb 3, 2009, 1:22 PM
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M.T.A. and Developer Agree to Delay $1 Billion Railyard Deal

February 2, 2009

Last year, the Metropolitan Transportation Authority struck a deal to sell the development rights for a 26-acre complex of office towers and apartment buildings on the West Side of Manhattan for $1 billion, much needed revenue for new trains, track repairs and the expansion of the public transit system.

But with a severely ailing economy and a lack of financing for real estate projects, the developer, the Related Companies, have reached an agreement with the transportation authority to delay closing on the project for a year. As a result, Related will not have to make a $43.5 million down payment immediately, although the company will have to pay a nonrefundable $10 million for the delay, according to two executives who have been briefed on the agreement.

Related is expected to sign a letter on Tuesday extending its designation as the developer for the site, which sits on both sides of 11th Avenue between 30th and 33rd Streets. The agreement needs the approval of the authority’s directors.

Stephen M. Ross, chairman of the Related Companies, said the new agreement was necessary because of the recession and the frozen state of the credit markets, which has brought construction projects in the city to a halt.

But, Mr. Ross said in an interview Monday evening, he remained committed to both the project and to New York.

“I’m excited about the future of New York,” Mr. Ross said. “I believe it’ll come back even stronger than before. But right now we’re going through a financial crisis.”

Gary Dellaverson, chief financial officer for the authority, confirmed that he had reached “an understanding” with Related, but declined to discuss the details until Related signed the agreement and his board approved it on Tuesday.

Under the new agreement, Related would sign the contracts in a year, instead of now, according to the two executives. The developer would not have to begin making the down payment until then, and it would be staggered over another year. The developer would still pay $1 billion over time, but the money would not get to the authority as quickly.

The authority selected the Related Companies for the project last May after another bidder, Tishman Speyer Properties, dropped out. Related agreed to pay $1 billion over 99 years for the right to build 5.5 million square feet of commercial space, 5,500 apartments and a park over the West Side railyards.

But the ambitious project requires Related to spend about $2 billion to erect platforms, columns and foundations over a working railyard before it can build the first tower.

Mr. Ross, who closed last month on his $1.1 billion purchase of the Miami Dolphins football team, was supposed to sign the contracts for the West Side project by Jan. 31 and make a $43.5 million down payment. He was to close within 120 days on the eastern half of the project and at the end of 2009 on the western half. In recent weeks, the developer asked the authority to delay the closings and payments.

Related has told city and state officials that it has spent about $30 million on architects, engineers and fees so far. It is seeking to rezone the western portion of the property, a public process costing about $7 million.

The transportation authority, which is under enormous financial stress, was not eager to forgo the payments. It is considering steep increases in fares and bridge tolls, as well as service cuts, to bridge a $1.2 billion shortfall in its operating budget. And it has pared more than $2 billion from its capital budget.

But transportation officials ultimately agreed, saying they would not have been able to replace Related given the current economic climate.

Goldman Sachs, Related’s original partner, declined to comment on whether it was still in the deal.
NEW YORK heals.

“Office buildings are our factories – whether for tech, creative or traditional industries we must continue to grow our modern factories to create new jobs,” said United States Senator Chuck Schumer.
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