The Port Authority, New York City and state officials struck a tax agreement to help finance the $2 billion replacement for the aging Midtown bus terminal that will use tax payments from three towers to be built over it to cover 20% of the costs.
The agreement counts on revenue from three commercial towers, two over the new terminal and a third on a site nearby owned by the Port Authority and private owners. The agreement announced Tuesday commits 40 years of tax revenue to the project and was agreed to by New York City and state officials.
What happens if the market for new office space isn’t there?
Two experts interviewed had differing opinions. A former Federal Transit Administration official said a problem with financing could shift costs to toll payers. A regional planning expert disagreed because the real estate market could go through several changes before the towers are built and the plans also could be changed.
The Present:
The authority plans to build a new terminal building, with construction of its first phase set to begin late this year. That would build a bus staging facility and ramps from the Lincoln Tunnel, which could start in late 2024 or early 2025 with completion in 2028, officials said in February.
That would be used as a temporary bus terminal while the existing terminal is demolished in 2029. A new terminal built on that site could have a 2032 completion date. Construction includes base structures for the future towers on Eighth Avenue.
Since 1972, the Port Authority has paid $350,000 annually to the city in lieu of taxes for acquiring private land that was on the tax rolls for past bus terminal expansion, said Tom Topousis, Port Authority senior program manager. Similar to other government entities, the authority doesn’t pay taxes on the rest of the terminal.
Development of the new towers isn’t expected to begin until the end of the terminal construction project or after the main terminal is completed, Topousis said. The payment in lieu of taxes is based on a maximum of 6 million square feet of development, he said.
How will financing work?
Port Authority officials plan on applying for a $1 billion low interest infrastructure loan from the Federal Transit Administration, which is in the process that officials announced in February. A draft Environmental Impact Study was published by the Federal Transit Administration for a 45-day comment period that ends on March 18.
The agreement announced between New York City and state Tuesday allows private developers to make payments in lieu taxes instead of regular property taxes, mortgage recording taxes and sales taxes at market rates, Topousis said.
The Port Authority would receive those payments for 40 years after construction of the towers and after that time, payments revert to the city, he said.
Is there a market for that office space?
Two experts interviewed had differing opinions.
“There is a glut of existing Manhattan office space,” said Larry Penner, former Federal Transit Administration Region 2 Office of Operations and Program Management director. “Many are subleasing unused space, downsizing when renewing leases or relocating many employees and functions to suburban back offices.”
New York Gov. Kathy Hochul was counting on similar private sector investments to help cover the cost of her new $8 billion Penn Station Vision project, Penner said. These competing projects for tenants are only blocks apart, he said. The Penn Station plan, which calls for building a series of super-tall buildings to provide funding for redeveloping Penn station, faces intense community opposition.
“If the air rights sale generates less than anticipated revenue, the shortfall will have to be made up elsewhere,” he said. “The Port Authority will turn to riders and motorists who will be paying higher fares, bridge, and tunnel tolls. This shortfall would add to the Port Authority’s long-term deficit and ongoing financial difficulties.”
Another expert disagreed with the Penn Station comparison, and said the real estate market could be very different when the bus terminal towers are built, said Tom Wright, Regional Plan Association executive director.
“This is apples and oranges, there are so many moving parts (with Penn Station) a private sector owner of Madison Square Garden and Amtrak owns the station,” Wright said. “The Port Authority owns the bus terminal and the community is supportive of the project.”
The real estate market is likely to be different when it’s time to build the towers, he said.
“Even in today’s market, Class A new office space is doing extraordinarily well,” Wright said, He cited the performance of the 73-story office tower at One Vanderbilt place at 42nd Street and Vanderbilt Avenue, which counts TD Bank and TD securities among it’s occupants.
“It’s the older buildings with subpar space with high vacancy rates,” he said. “We see new product is highly desirable and office buildings so close to transit, as these would be, gain a premium, so this is solid play.”
Since the towers are the second phase of the bus terminal project, market conditions could change several times, as could the plans for the buildings, Wright said.
“These won’t be in today’s market,” he said. “I’m pleased they reached this agreement…the Port Authority, city and both states are committed to modernization and expansion of the bus terminal.”
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Larry Higgs may be reached at [email protected]. Follow him on X @CommutingLarry
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