As the Hudson Yard Infrastructure Corp. today makes its first $48.75 million interest payment of the fiscal year, it does so having generated revenues over the past three years that far exceed the most optimistic projections.
The increased revenue has been the result of higher than expected collections of district improvement fund bonus payments, or DIBs. Developers make the payments in order to be able to build to a greater floor area ratio than permitted under zoning regulations within the Hudson Yards Financing district.
The district is an irregularly shaped area roughly south of 42d Street, north of 31st Street, and west of 8th Avenue in Manhattan.
Uncertainty over development on the Hudson Rail yards, which is within the district, has been resolved with the Related Cos. planning to develop approximately 12.5 million square feet of mixed-use development on the site of the rail yards themselves.
According to projections in a Cushman & Wakefield study included with the official statement, projected revenue from the DIBs was to total $13.9 million in fiscal 2007 and fiscal 2008. In fact, from fiscal 2006 through fiscal 2008, DIB revenue, fueled by residential development, came to $85.9 million.
"It was a burst of enthusiasm, which is good, and we're still getting a lot of inquiries," said HYIC president Alan Anders.
DIB revenue fell sharply in the last fiscal year from $67.9 million in fiscal 2007 to $6.9 million in fiscal 2008. But a large drop was projected, and last year's DIBs exceeded projections by more than double.
"We're not viewing it as a fall-off, we're viewing it in the aggregate," Anders said.
The HYIC sold $2 billion of bonds in 2006 to finance a $2.1 billion extension of the No. 7 subway line and other improvements in the area. HYIC plans to sell $1 billion of additional bonds in 2011. The bonds are backed by several recurring and non-recurring revenue streams in the district. Those streams include tax equivalency payments on new residential and commercial property, payments in lieu of taxes on new office developments as well as DIBs, the sale of development rights, and payments in lieu of mortgage recording taxes.
The city is on the hook for debt service if HYIC revenue comes up short. Last year's budget included a $29 million appropriation for debt service but it was not needed.
Anders said that a $27 million appropriation in this year's budget is not needed for today's interest payment, mostly because of investment income from the bond proceeds. However, investment revenue could diminish as spending on the construction of the subway line picks up speed.
Also, not all projected revenue streams have materialized. The study assumed that between $4.4 million and $10.4 million of payments in lieu of mortgage recording taxes would be collected in fiscal 2009. Anders said that they have not budgeted for the PILOT this year.
"Cushman thought we'd begin in fiscal 2009, we still think that's still likely," Anders said. "It's logical some would happen in [fiscal] 2009 but more likely in [fiscal] 2010. "
The Cushman study also projected that the sale of transferable development rights from the district's Eastern Rail Yard site would bring in $13.4 million in fiscal 2009. The development rights will be sold for commercial buildings north of the rail yard.
"We're getting inquiries from developers," Anders said. "It's going to be phased in to happen sort of simultaneous with the completion of the No. 7, and that's in 2013."
Tax equivalency payments in fiscal 2008 came in right on target at $6.8 million.