Investor confidence in the Hudson Yards Infrastructure Corp.’s $2 billion debut bond offering last week sprang from their comfort with the city’s fiscal structures and belief in New York City’s future, city budget director Mark Page said yesterday during his keynote address at The Bond Buyer’s 4th Annual Metro Finance Conference.
The 40-year HYIC bonds, which were six times oversubscribed, are backed by a combination of payments in lieu of taxes and fees, and will finance the $2.1 billion construction of a subway extension and $1 billion of infrastructure improvements in a 45-block area on the far West Side of Manhattan. The HYIC plans to sell up to $1.5 billion of bonds in 2009.The bonds won’t be self-supporting in the early years as they are dependent on future development, so the city will pick up the tab initially for interest payments.
“Given this city’s absolute dependence on market access, the distinction between city debt and appropriation debt — although it’s clearly there — is probably not a huge difference because of the consequences of overall market access of defaulting on a piece of city credit obligation,” Page said to the 125-plus crowd gathered at the World Financial Center Marriott.
Financing the projects through revenue derived from incremental development was a more suitable match for the project than traditional general obligation debt, according to Page.
“This particular debt structure, ultimately looking to incremental development to pay back infrastructure costs in the area, the extension of the No. 7 subway line, seemed to be a way of balancing the long-term benefit against a separate long-term structure that made sense as a package rather than setting this up in direct and immediate competition with a normal city capital project,” he said.
Citing the unique combination of need for office space, proximity to transportation hubs and midtown offices, public investment in infrastructure, and the decline of manufacturing in the area, Page said he was skeptical that the Hudson Yards financing plan could become a model to be replicated elsewhere in the city.
“I think that there’s a moment here where there’s an acute need for large footprint development sites in New York City, which basically means in Manhattan, for the kinds of office development that people are looking for,” Page said. “If Hudson Yards turns out to have been an absolute ringing success looking back at it after 10 or 20 years, that might make a big difference on whether you could do it somewhere else, too.”
Questioned as to why the city should give tax discounts to developers if the area was likely to be developed anyway, Page said developers in New York were accustomed to receiving tax breaks and felt entitled to them. The tax concessions in the area are average compared to incentives in other parts of the city and are designed to favor earlier developers and those who build farther from transportation, he said.
