I've been following Hudson Yards for a couple of years, got really interested after reading the book by the RealDeal called "The New Kings of New York" which gave a pretty good explanation/overview of the bidding and building of the area.
Just seems now that a lot of places there aren't being rented/bought and maybe the businesses there are struggling a little bit. How does everyone thing this area will ultimately end up in the upcoming future.
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Can opine since I work in one of the office buildings. Hudson Yards is such an enigma because it’s everything that is right and wrong with NY all in one.
What’s right - the economic opportunity, safety, cleanliness, and tax revenue it provides to the city. Hudson Yards is privately owned so it has its own cleaning staff for the sidewalks, public areas, etc. It’s also very safe. I have never seen/heard of any robberies, assaults, shootings, or arrests. HY is also the headquarters for major firms such as KKR, Wells Fargo, Point 72, Vista Equity, Warner Media, Related, etc. Therefore, it is an enclave for high-income, educated individuals. With that comes the need for ancillary services such as retail and hospitality that these individuals. Those ancillary services then hire local workers, which stimulates the economy. And with the high rents that tenants pay for office/retail, the city generates a lot of tax revenue.
What’s wrong - Hudson Yards had the opportunity to become a truly vibrant 24/7 live, work, and play district. It could have been the paradigm that other cities followed on how to build new neighborhoods. It was literally built from the ground so they had a clean slate on what they could have produced. I’m a capitalist so I understand financial incentives and economics but Related’s major failure was overestimating the demand for luxury rentals/condos. A plurality, if not majority, of the units are empty (whether it be unsold or just a second home for wealthy folks). I think they could did more to offer middle income housing (80% AMI-150% AMI) so that way you would actually have more inhabitants and it would actually feel like a community. After 7ish, area turns into a ghost town, especially outside of the touristy summer season.
Conclusion - Hudson Yards will be fine in the end. Pretty sure Related will meet their returns especially since they’ll probably win the casino license. I just think it was a major miss for them to not make the complex more inclusive to middle income individuals for the residential. But then again, maybe it was always their intention to make it an exclusive enclave for the rich/wealthy.
Just my two cents.
Would you rather have empty luxury housing or occupied middle income housing? It’s all about the money you actually collect. Not about about what the projections tell you.
And I understand that if they built a lot of low-income units then the numbers wouldn’t work unless the city kicked in a ton of subsidy but then you can make a case that’s an inefficient use of tax dollars. But that’s why I said 80%-150% AMI because at those levels, rents are still high. Plus, with the income generated from the office buildings and the impending casino, I think they could have still hit hefty returns even if they offered more middle income housing. Also remember that a lot of dev shops like Related don’t pay their employees a lot when compared to their banking/PE peers. So in essence, Related would have been offering housing that’s affordable to educated, moderate-income individuals such as the ones that work at their company (partially the reason why their company is so profitable because they underpay juniors).
I think too many developers get caught up with the fantasy rents that they think they can achieve but in reality, missing middle is in high demand and those tenants generally are more reliable in terms of tenant retention and there is no need to offer concessions & lavish amenities. Luxury buildings need to offer concessions and offer crazy amenities. And even then luxury buyers/renters still have many options because there’s so much supply in luxury market.
No way they're hitting underwritten returns - between typical huge project construction delays compounded by Covid, Neiman blowing out, condo inventory not moving despite 30% discounts from initial listing. Basically the only thing that has performed is the office, and that's going to face headwinds as leases starting hitting their first turnovers, given that every other developer in the city has delivered a new trophy tower right next door and WFH has shrunk every company's RE footprint. Beyond all those project specific issues, they're going to face the same problem the whole industry is facing when they try and create capital events - cap rates are fucked and refis are even more fucked.
It's not just the lack of middle income housing that's the problem, the whole thing is horrible urban planning. The reason why cities like New York are so dynamic and vibrant is because there is a good mix of uses, dense streetscapes, and activated sidewalks. Take any neighborhood that was made pre-1940 and you'll see a lot of small retail, commercial, residential, the occasional civic/government building, and small parks, this causes a lot of trips, people going to and from work, school, shops, bars, restaurants, parks, etc. It also gives people areas to rest and lounge around in parks, benches, outdoor food seating areas, etc. giving it a more live-in feel, there are people around.
Wide open plazas like the one at Hudson Yards don't do anything to activate the sidewalks or create any demand for people to hang out. They might have a lot of people walking around during the day when people are shuttling to and from work/home, but the retail only caters to a very rich clientele that would only need a fraction of the visits to make rent compared to your standard bodega. There are no other uses to encourage trips outside of the narrow hours of a commute, so after 7pm no one is walking around which makes it more uninviting. It's a classic urban planning blunder, one we've known about since Jane Jacob's published The Death and Life of Great American Cities in 1961, and which the research has only added onto in the subsequent years.
Hudson Yards might eventually lease all their office space, sell all their condos and do well financially, or crash and burn on all the empty real estate, but either way it's never going to be a dynamic neighborhood like Soho or the Village.
Lack of sluts just shows the development wasn't properly amenitized.
Seriously though, you nailed it. I've developed a couple artificial urban deals (not to the scale of Hudson Yards, but a similar concept) and fighting them turning out like Disneyworld is by far the most compilated part. You can fake the inauthentic nature well, and I like to think that I do, but nothing you do can make it "real" - only time does that. 20, 40, 60 years from now, Hudson Yards will be a real boy. Until then, it's still a wooden puppet.