The Work

May 26, 2010 6:23 PM

Four Firms Advise on Revised $15 Billion NYC Development Deal

Posted by Brian Baxter

A long-awaited $15 billion development deal for a 26-acre tract of land on New York City's West Side was finally completed on Wednesday, as a major investor in the project announced it had taken on a new general partner and a binding contract with the city was signed.

The Ontario Municipal Employees Retirement System, a Canadian pension fund, stepped in to replace Goldman Sachs as lead partner to developer The Related Companies, according to sibling publication OMERS will provide up to $475 million in equity for a joint venture taking a 99-year lease from New York's Metropolitan Transportation Authority. (The Wall Street Journal first reported news of the revised deal.)

As with most real estate deals, Wednesday's development was a contract signing, not a closing. The joint venture created by Related and Oxford Properties Group, the real estate investment arm of OMERS, has put down $21.75 million in escrow. The involvement of OMERS was critical, given that Goldman abandoned its general partner role in the project in January, though the financial services company will retain a smaller interest in the proposed mixed-use development.

"[OMERS] was an important piece, both in terms of confidence for Related and MTA, just to understand that there was a deep pocket interested in backing the next stage of this deal," says Meredith Kane, a real estate partner at Paul, Weiss, Rifkind, Wharton & Garrison who advised the MTA on the deal.

Kane was on hand two years ago when the MTA initially announced that Related had been declared the winning bidder to develop the site, as previously reported by The Am Law Daily. But the deal stalled amid the recession and ensuing downturn in the commercial real estate market. Nonetheless, she's hopeful about the future.

"I take this [deal] as a sign of confidence in the market," Kane says. "This is a large-scale complex that will be ready to begin in a couple of years, so we're really keying up for the next wave of these types of developments."

Kane and Paul Weiss have a long relationship providing litigation and real estate counsel to the MTA, the nation's largest public transportation system. The firm advised the government-owned body on its acquisition of Grand Central Terminal in the late seventies, the Atlantic Yards project, and the recent acquisition of several properties around the agency's midtown Manhattan headquarters.

Kane was assisted by Paul Weiss associates Michael Roberts, Salvatore Gogliormella, Julia Milne, and Emily Carey on the West Side deal. Stephen Kass, codirector of the environmental practice group at New York's Carter Ledyard & Milburn, advised the MTA on environmental issues along with associate Ethan Strell.

MTA general counsel James Henly, deputy GC Jerome Page, director of real estate Jeffrey Rosen, and in-house lawyer Gordon Johnson also advised on the deal along with Long Island Rail Road GC Catherine Rinaldi and deputy GC Roberta Pederson. (The LIRR, which operates the rail yards on the West Side, is an MTA subsidiary.)

Kane says that the name frequently used for the area set for development, Hudson Yards, is a generic description for the entire rezoned district on the West Side of Manhattan running from 9th Avenue to the Hudson River, and 30th Street up to 42nd Street. The 12 million square feet of land being leased in the current deal is a section of Hudson Yards that runs from 30th to 33rd Streets and from 10th Avenue to the Hudson River.

In the two years since Related took the lead on the proposed West Side project, the company has shuffled its outside counsel in negotiations with the MTA. Greenberg Traurig and firm real estate chair Robert Ivanhoe initially advised Related on transactional aspects of the deal, but was replaced last year by Fried, Frank, Harris, Shriver & Jacobson.

Fried Frank had been handling land use work for Related, whom it has advised on several major Manhattan real estate projects, including a proposed joint venture between Related and Vornado Realty Trust to build a new Madison Square Garden on land adjacent to the West Side rail yards.

Fried Frank real estate partners Stephen Lefkowitz and Melanie Meyers, real estate special counsel David Badain, and associates Molly Dunham, Tal Golomb, and Zachary Bernstein represented Related in negotiations with the MTA.

Schulte Roth & Zabel business transactions partner Stuart Freedman--who rejoined the firm in February--real estate partner Andrew Dady, real estate special counsel Fonda Duvanel, and associates Margaret Butler and David Klein advised OMERS on the deal. OMERS was not involved in negotiations with the MTA, but did enter into a separate agreement with Related, which the Schulte lawyers worked on.

Paul Weiss's Kane says that the deal's closing is to take place when certain economic benchmarks are reached. Those benchmarks essentially establish the market conditions--office vacancy rates, residential condominium pricing, and the architectural billings index--that can support the development as envisioned, Kane says.

When all of the benchmarks are reached, Kane says, Related and OMERS are obligated to close on the deal. Related can move forward with a commercial tenant and a building sooner, so long as the developer gives 90-days notice to the MTA. Kane says that the contract with the MTA is structured as a "single-lease that splits itself up into a series of leases and options to purchase."

After developers complete each building planned for the project, Kane says they will have the option to purchase the title to that building's site. The MTA does retain a termination option in the event that the overall economy doesn't recover and the agency believes it can get a better deal by reselling the property to someone who will develop it sooner, Kane says, noting that any deposit would be split between the joint venture and the MTA.

Eastern Rail Yard LLC is the tentative name of the joint venture created by Related and OMERS, but that name will likely change in future years.

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