New York, NY
Hudson Yards is the largest development project in New York City since Rockefeller Center rose from the streets in the 1930’s. It has forever changed the New York City skyline and it is a shining example of what can be accomplished when public and private entities work together towards a common goal. It was also financed, in part, with municipal bonds.
A unique combination of tax revenue and air rights revenue secured billions of dollars in debt to initially get this mammoth project started. Before we get ahead of ourselves, let’s go back a bit in time.
Described by many as the last, true, undeveloped site in Manhattan, Hudson Yards was a massive swath of undeveloped air. (Only in New York do you need to describe it as undeveloped air and not land. The land on the site was, of course, developed, which contained a rail yard, but the air above it, was not). Since as early as the 1950’s, New York politicians had dreamt of developing the air rights over the West Side rail yard; a parking lot of sorts for commuter trains leaving New York’s Penn Station. Many different proposals had been considered over the years. However, all past ideas failed to be put into effect. That is, until 2005, when New York City passed the rezoning that created a new neighborhood, dubbed Hudson Yards. The city was finally moving forward and developing the 26 acre site to create a new neighborhood between 30th and 41th streets.
To get the project off the ground, the City of New York needed to do two things. First, they needed to extend the 7 train to reach the west side, which would provide efficient transportation for future inhabitants. Second, they needed to secure funding for the initial development, and to solve this problem, the Hudson Yards Infrastructure Corporation was created. The two main functions of the corporation were to collect residential taxes and commercial payment in lieu of taxes and to sell transferable air rights to developers. These funds were used to pay down the debt issued by the corporation.
Hudson Yards Infrastructure Corporation initially issued just under $100 million in bonds over a few maturities. In 2011, the corporation issued several hundred million dollars more. Most recently, in 2017, the corporation issued $2 billion in new debt, refunding older bonds and raising new funds as costs had run over budget (of course) and timelines for completion had been extended. This deal was oversubscribed many times, indicating that investor demand in the site was very high. One of the most actively traded cusips from the newest issue is the 4% coupon maturing in 2044.
The 26 acre site is going to be the home to 16 new skyscrapers, 12 million sq feet of office, residential and retail space. The site will create 5,000 new residences and 14 acres of public open space highlighted by an incredible vertical park called the Vessel.
As Hudson Yards comes to completion, it is going to be a vibrant business and residential neighborhood. Large corporations such as Blackrock, Point 72, Boston Consulting Group, VaynerMedia, SAP and L’Oréal have already agreed to take up residence there. Their employees, as well as others, will begin to fill the residential space too.
Municipal bonds have long been a tool to help communities grow and advance. Hudson Yards may just be the largest and grandest example. Sometimes, municipal bonds are issued to support a community; for example, build a school or upgrade a sewer system. In the example of Hudson Yards, municipal bonds were issued to create a new kind of neighborhood. One where many thought could not exist.