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MTA Finds Way Around Bonding

New York's Metropolitan Transportation Authority expects rental payments on the 26-acre Hudson Yards site to yield less than half of what it needs for a portion of its current capital plan. Rather than bond against the leases to raise the $700 million the plan counts on, the MTA hopes the developer will exercise options to purchase parcels within the development.

The MTA board yesterday approved the deal worth $1.05 billion with developer Related Cos. and investment bank Goldman, Sachs & Co. to develop the last large tract of undeveloped land in Manhattan at a special meeting. The companies plan approximately 12.5 million square feet of mixed-use development on platforms built over two rail yards.

The total development cost is expected to reach $15 billion, including $2 billion for platforms built over the rail yards. The development team has 164 days to complete the transaction with the MTA. An eastern rail yard has already been rezoned for residential and office development, but the western rail yard still has to be rezoned and the lease for that portion of the project is contingent on a rezoning. The area will be linked to the rest of the city by a $2.1 billion extension of the No. 7 subway train.

The MTA's 2005 to 2009 capital plan counts on $1 billion of asset sales. Those include the sale of transferable development rights over the rail yards to the city for $200 million and the $100 million sale of development rights at the Atlantic Yards site in Brooklyn. The remaining $700 million was expected to come from the sale of development rights or a lease at Hudson Yards, said MTA chief financial officer Gary Dellaverson.

The MTA expects that the Hudson Yards deal will generate $700 million within seven years of the end of the 2009 capital program, which Dellaverson characterized as an acceptable time frame for actual spending to occur on a capital commitment.

The authority does not plan to bond against the lease payments right away.

"It is in the MTA's interest to bond the lease, securitize the proceeds, only in the event that it's necessary to accomplish the task of filling that hole in the 2005 to 2009 capital plan, which at this instant we don't believe is necessary," Dellaverson said.

According to MTA documents, contract deposits and rents assumed to be collected will not be enough to reach $700 million within seven years by themselves. Full rental payments would be phased in over seven years, under a "default" payment scenario, and would total $50.9 million annually by 2015. Rents would be subject to future increases spelled out in the documents. Deposits and rent under the default scenario total $373.1 million from 2009 through 2016, far short of the $700 million.

This is where the sale of "severed parcel fees" comes in. After it builds platforms over the rail yards, the developer will have the option of buying individual parcels on the platforms for the net present value of the remaining lease payments on that parcel. Once purchased, the value of that land would be subtracted from the rental payments.

If those rents, deposits, and the sale of severed parcel fees does not reach $700 million in seven years, the MTA would sell bonds against the lease, Soffin said.

The leases are "a guaranteed revenue source and if they decided to purchase the parcels it just comes more quickly, but at net present value it works out the same whether the lease goes the full 99 years or its parcelized and purchased," Soffin said. "There's no scenario in which things moved ahead and we don't have money for the capital program."

At a finance committee meeting earlier yesterday, the MTA reported that for the fourth month in a row, dedicated real estate taxes came in below budgeted levels. It is a sign that real estate in the metropolitan area has not been immune to the national downturn. May receipts, which include transactions from the previous month, were $69.2 million, $37.8 million below budget. It was the worst variance so far this year, which has seen dedicated real estate taxes raise $461.9 million in the first five months, $80.8 million less than budgeted.

Dellaverson said the MTA's budget is still in balance, in part because toll and fare revenues have been coming in over budget.

 

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