A New Path Forward For Penn Station District As Hochul, Vornado Formally Split
New York state will go it alone in its renovation of Pennsylvania Station, with plans to help fund the overhaul with office development now officially on ice.
At a press conference with the head of the Metropolitan Transportation Authority and elected officials Monday, Gov. Kathy Hochul announced the plans to remake the nation's busiest train station and the redevelopment of its surrounding area as officially "decoupling."
The announcement ended months of speculation about plans to overhaul the station, which initially was going to be partially paid for with tax revenue from nearby development by Vornado, which controls most of the sites around the station. The publicly traded real estate firm had planned to build about 18M SF across as many as 10 new mixed-use buildings in the area.
But in February, Vornado executives said those plans could be delayed for at least two to three years because of tough economic conditions, uncertainty around office and rising interest rates. Last month, Vornado CEO Steven Roth said during a company earnings call the firm would “take a breath” on the project, and that the first building would likely be an apartment building, rather than an office.
The company is already building 5M SF in the area, an achievement Roth described as “heroic.”
Hochul had already said that the redevelopment of the station could move forward without the developer's involvement, despite the role it was playing in the finances. The state was projecting to bring in $3.75B in payments in lieu of taxes from Vornado. The buildings were to remain off New York City’s tax rolls for 80 years, or until the agreed-upon contributions were met, per the financing deal unveiled by Hochul and Mayor Eric Adams last year.
It remains unclear how the state plans to fund the project going forward, although Hochul said it would seek to tap federal funding.
While Amtrak owns the station, the MTA is taking the lead on the redesign. The design phase is now officially open, with Hochul saying she would “entertain all concepts” on how to fix it.
A subsidiary of the Italian firm ASTM Group has presented a proposal to redevelop the station as well as the Theater at Madison Square Garden, a plan that has curried the favor of some state and local leaders, though it has not been given the tick of approval from MTA CEO Janno Lieber, The New York Times reported.
A representative from ASTM told Crain’s New York Business that it believes the firm’s plan, of which details and costs are due to be released Wednesday, fit with Hochul’s vision.
For its part, Vornado is continuing to look for an anchor tenant for its Penn 2 office development, which spans 1.8M SF and already has seven floors leased to Madison Square Garden’s corporate headquarters. Penn 1 has leased 700K SF, at rents of $100 per SF, The Wall Street Journal reported this week.
The REIT is spending $1.2B combined renovating the two buildings, betting that Penn Station proximity, and the convenient commute it portends, will be a differentiator amid a dwindling pool of office demand. It has funded those projects with the profits of its sales at luxury condo tower 220 Central Park South.
“We have no debt,” Roth told the WSJ. “We have no time limit.”
