Hudson Yards project needs $96 million more as costs spike, says N.Y. IBO
Hudson Yards Infrastructure Corp. requires an additional $96 million to cover higher-than-expected costs related to developing the neighborhood on Manhattan’s Far West Side, according to a report by the watchdog New York City Independent Budget Office.
The city, said IBO, may have to bear some or all of the $96 million.
The funding gap, IBO said Thursday, comes even after the city provided $128 million from its own capital budget to cover project costs from fiscal 2005 through 2016 and has another $138 million budgeted over the next five years.
City capital costs are in addition to the nearly $360 million the city has spent to subsidize interest costs on the $3 billion in bonds the infrastructure corporation issued to pay for the project.
Hudson Yards Infrastructure Corp., a local development corporation former Mayor Michael Bloomberg’s administration created in 2005 under a so-called value-capture initiative, issued $2 billion in debt in 2007 and $1 billion in 2012 to finance the extension of the Metropolitan Transportation Authority’s No. 7 subway line and to make other infrastructure improvements necessary for related commercial and residential development surrounding 45 blocks.
Goldman Sachs on May 23 priced $2.1 billion of the corporation’s fiscal 2017 Series A bonds after a two-day retail period to refund a portion of its $3 billion in outstanding debt.
Moody's Investors Service rated the deal Aa3 while S&P Global Ratings and Fitch Ratings assigned A-plus ratings. All three assigned stable outlooks.
Proceeds from those bonds will refund all $2 billion of HYIC’s 2007 bonds and $391 million of the 2012 bonds. The refunded bonds have lower interest costs than the original issuance.
Unlike the original bond deals, they have a scheduled principal amortization, which sets a plan for principal repayment in addition to interest costs. All $3 billion of HYIC’s original bonds were interest only — meaning HYIC has not yet repaid any of the principal on its 2007 and 2012 issuances.
According to IBO, the refunding -- unrelated to the increased funding need -- will reduce the corporation’s interest payments and begin principal repayment on some, but not all, of the corporation’s current debt in 2018.
Absent the refunding, the corporation would have had to make a principal payment in 2017 under prior bond agreements —marking the first repayment of principal — although subsequent payments would have depended on yearly revenues.
IBO cited project cost details within the refinancing official statement.
Of the additional funding needed, it said, $32 million is attributable to greater-than-anticipated costs for the subway extension and related expenses, and $64 million is associated with the construction of the Hudson Park & Boulevard, a four-acre system of tree-lined parks and open space to run between 10th and 11th avenues from West 33rd to West 39th streets.
IBO officials warned the City Council in 2006 of a high likelihood of cost overruns.
The bond documents outline three potential options for financing the $96 million. The excess costs could be funded directly through the city’s capital program, in which case the city would assume all the costs.
Supported completion bonds, similar to the 2007 and 2012 issuances, pose another option. Then, the city agreed to subsidize the corporation’s interest payments if project revenue could not fully support the costs.
“Lastly, HYIC could also issue unsupported completion bonds, which would have no associated city cost,” said IBO.
A message seeking comment was left with the Mayor’s Office of Management and Budget. IBO said in its report that OMB representatives declined to comment on financing options.
By 2021, the city expects to have committed $266 million of its own capital funds for related work. This includes $55 million for part of the 7-line extension, $102 million to reconstruct West 33rd Street, and $76 million to construct The Shed, a multidisciplinary art hub, among other projects.