New York State Urban Development Corp.’s $537 million financing for the Penn Station Moynihan Train Hall project received a BBB-minus grade from Fitch Ratings.
Fitch said key factors in assigning the lowest investment grade rating included uncertainties related to the tenant leases, occupancy rates and rental rates that will support the payments in lieu of taxes, or PILOT, revenue stream securing the Transportation Infrastructure Finance and Innovation Act loan.
The loan closed late last week, Metropolitan Transportation Authority finance director Patrick McCoy told members of the MTA board finance committee on Monday.
The MTA, one of the largest municipal issuers with roughly $38.3 billion of debt, is helping mitigate risk with payment support for 100% of TIFIA debt service through full and timely replenishment of TIFIA debt service reserve account from financial close until the MTA joint services agreement release date.
"Absent the MTA support, PILOT uncertainty at this stage of the project would preclude the TIFIA loan from achieving an investment-grade rating," Fitch said in a commentary.
The statement also mentioned the location of the project, adjacent to Penn Station, the country’s busiest transportation facility.
The project will include a public section for the main train hall servicing Amtrak, the Long Island Rail Road and the U.S. Post Office and a private section servicing retail stores on the concourse and offices on the upper floors. The private section will be redeveloped at the retailers' expense, while the public section will cost about $1.6 billion over four years.
New York State Urban Development, which operates as Empire State Development Corp., is the owner of the James A. Farley Post Office Building. It will enter into a long-term lease and PILOT agreement with Vornado Realty Trust for the redevelopment of the landmarked Farley building into a wing of Penn Station in Midtown Manhattan.
Skanska USA will lead the construction of this project under a fixed-price contract. Skanska’s parent companies will provide PILOT guarantees for all PILOT generating units and each unit’s guarantee is not expected to fall off until it reaches substantial completion.
Skanska is teaming with Vornado Realty Trust and Related Cos. on the project. Fitch cited the companies' "knowledge of operating expenses in the area."
This project is said to “deliver critical improvements” to Penn Station’s North East Corridor according to a statement released by the Build America Bureau.
Construction on the project has already begun, with completion expected by December 2020.