Penn Station Development in Disarray

Vornado retreats from the project as Hochul hints at other sources of financing

| 04 Nov 2022 | 08:32

The state’s plan to rebuild the neighborhood around Penn Station fell into a disarray reminiscent of the station itself after the biggest property owner in the area retreated from the project.

With interest rates soaring and New Yorkers still staying away from their offices in droves, the property owner, Vornado Realty Trust, said that now was not the time to pour scarce cash into building the new office towers enabled by the plan. The CEO, Steven Roth, who in the past has called the Penn Station redevelopment his companies “promised land,” said Vornado was focused right now on stabilizing its balance sheet through tight times.

Governor Kathy Hochul, who had predicted $4 billion in revenue from the Vornado office towers to help pay for the renovation of the station, vowed to press on. “I’m leaning into it,” the governor said in a TV appearance in the final days of her campaign for reelection. “We’ll get it done.”

Commuters, many of them from vote-rich Long Island, have “waited too long” for a more presentable station, she said.

But while her professed determination was clear, her actual plan to go forward was anything but clear.

“We have other sources of financing for Penn Station,” she said, without identifying them or explaining why, if such sources existed, she had tied the financing of the Penn Station renovation to a massive redevelopment that has drawn increasingly stiff community resistance and a lawsuit alleging that the whole thing is a giveaway to Vornado and Roth, a major campaign contributor.

“Skid Row”

In vowing to press forward, Hochul deepened her conflict with the neighborhood. “I am committed to this because that neighborhood needs to be lifted up. It should not be looking like a skid row neighborhood,” she said. “This is a neighborhood that has value we have to protect it. And enhance it.”

“Governor Kathy Hochul needs a serious reality check if she thinks the Penn Neighborhood is a skid row,” said a leading opponent of her plan, Samuel Turvey, Chair of ReThinkNYC, which recently sued the state, along with others, alleging the Penn station redevelopment had been improperly cooked up in conjunction with and for the benefit of Vornado.

Far from being skid row, he said, the neighborhood is full of seniors in rent regulated apartments and historic architecture, from the Gimbel’s Sky bridge to the Church of St John the Baptist. Hochul and the planners at the state’s Empire State Development Corporation want to replace this with “Class A” office towers much like the ones that have already gone up to the west, Turvey said.

“These folks simply do not understand cities or what makes them great. This is very dangerous,” said Turvey.

Under the law, the state’s Empire State Development Corporation can, as it plans to do around Penn Station, override local zoning if it declares that the project is to improve “blighted” neighborhoods.

But Turvey said the only blight is the station itself and an ill considered redevelopment, not the neighborhood around it.

“When you get past all the construction and Steven Roth’s consciously allowing the Hotel Pennsylvania to fall into disrepair as a tactic, you will find buildings by a pantheon of America’s greatest architects including Daniel Burnham, Shreve and Lamb, Mckim, Mead and White, Napoleon LeBrun and many others.”

Community Board 5, which also opposes Hochul’s plan, announced last month that it was starting its own process to create an alternative plan.

Demand for Housing

One point of contention has been the demand for more residential housing, including housing for lower income New Yorkers, in a development currently dominated by new office space in a city with high office vacancy.

Hochul reiterated that this was a long term plan and that office demand would return, especially around Penn Station, the busiest transit hub in the country. But she also appeared to be open to negotiating, “If there’s going to be an adjustment in how much is housing versus commercial.”

At Vornado, Roth said that changes to the redevelopment plan were “not something we are going to get into now.”

Vornado’s decision to slow-walk the project was announced on an investors call by Roth, who appeared to be battening down the financial hatches. Roth said Vornado’s leasing activity in New York City was off in the third quarter. “I must say that the headwinds in the current environment are not at all conducive to ground-up development,” Roth said.

Another critic, Alexandros Washburn, former chief urban designer of New York City, put it more bluntly:

“The buildings aren’t financeable. Put yourself in a lender’s shoes. These office buildings have little to no demand and the flimsiest of approvals.”

Washburn noted that the state’s Public Authority Control Board had approved the overall idea of a redevelopment, but said it would need to approve each of the ten proposed towers individually.

“Every building would be reviewed by PACB one by one,” he said. “What could possibly go wrong? Even the biggest developers need financing. It’s time to take a breath. State the problem correctly. How do we get the best Penn Station?”

Moving MSG?

The delay thus moves to center stage another major question that Governor Hochul had tried to keep separate: Whether to move Madison Square Garden.

The Garden operates under a special permit from the city which expires next year.

Most critics of Hochul’s plan, and even some supporters, agree that the best way to fix Penn Station is to remove the Garden from on top of it. But Hochul had not wanted to delay the renovation to work that out.

Now, with the Vornado delay, it is certain that the deadline for decision-making around the Garden will come before a shovel of dirt is turned for any of the office towers nearby.