State Board OKs Skyline-Changing Real Estate Plan for Blocks Around Penn Station
A key vote paves the way for megadevelopment in Midtown. Gov. Hochul hopes it will lead to money for a Penn revamp but critics have their doubts.
A redevelopment plan set to dramatically alter the area around Penn Station has been given the green light by a state authority.
On Thursday, directors of the Empire State Development Corporation approved Gov. Kathy Hochul’s plan to allow major new development on eight sites that ring the Midtown Manhattan transit hub, paving the way for more than 18 million square feet of new space.
While most of that would be office space, it also calls for 1,800 new apartments — 540 of which would be rented below market price to households earning specific incomes.
Hochul has said the project will raise money to fund future restoration of the notorious station. The plan would give developers a break on city property taxes in exchange for fees to the state that would go directly toward future transit improvements.
The plan, officially known as the Pennsylvania Station Area Civic Land Use Improvement Project, has been subject to intense criticism from local stakeholders who want to see it scrapped or paused, and from legislators and good government groups who have called on the Hochul administration to share more details of the plan.
ESD’s approval is a key milestone for a project that has been floated for years, first by former Gov. Andrew Cuomo. If it actually revamps the much-reviled Penn Station — the busiest rail hub in the country — Hochul will have succeeded where many governors have failed.
The governor did not reply to a request for a comment on the vote Thursday.
The MTA, which will manage the train station’s future restoration, has said Penn Station will be transformed into a 250,000-square-foot, light-filled single-level train hall. The transit hub will see an increase to 20 entrances from its current 12, and get 18 new escalators and 11 elevators. The promise of a new underground connection to the 34th St-Herald Square subway station is in its plan, too.
To allow the real estate development and possible transit improvements, the state will override current land rules rules to allow developers to build beyond what city zoning allows. It does that by using the Urban Development Corporation Act of 1968, which gives the state broad authority to circumvent existing zoning rules if it deems an area “blighted.”
The next vote on the real estate plan comes at a July 27 vote by the Public Authorities Control Board, which approves financial transactions for state authorities. If the PACB gives its OK for the project, ESD directors would decide on development agreements for the sites.
Approval from the obscure control board is not assured, however. As previously reported by THE CITY, some state lawmakers are trying to restore powers of the board that would give them more leverage and independence from the governor. Cuomo and the legislature weakened those powers in 2020 after the board used them to help bring down a deal that would have brought an Amazon headquarters to Long Island City.
A bill to give the PACB members more latitude passed in the legislature, and must be signed by the governor before it takes effect. Hochul has not yet said whether she would support it.
A Big Win for Developer
Thursday’s ESD director vote revealed more details about how the Penn area real estate plan will benefit a major property owner in the area: Vornado Realty Trust
The company owns or manages five of the eight development sites around the transit hub, and its chairman, Steven Roth, has advocated for the project for years. He’s also been a major donor to the political campaigns of Cuomo and Hochul over the years.
The state’s plan uses a financial scheme called PILOTs, or payments in lieu of taxes, which means developers get a tax break in exchange for a fee paid to the state. ESD officials have not yet said how much the fee will be, but gave a benchmark for the tax breaks: not more than what Hudson Yards got, according to Gabriella Amabile Green, vice president of real estate at ESD.
“ESD agreed that no property would receive a tax abatement greater than that in the Hudson Yards Financing District at the time that each development agreement is executed,” she said at Thursday’s hearing.
The highest abatement in the Hudson Yard district is 20%, she said, meaning that owners get 20% off their total tax bill for the value of their land and property.
Fiscal watchdogs who have raised questions about the project’s math — for Vornado and the state — were unimpressed by the lack of details from ESD ahead of Thursday’s vote.
Reinvent Albany, a good government group, said in a statement it is “deeply disappointed by the cynicism and disregard for basic transparency shown by ESD and the Hochul administration’s management of the Penn Station redevelopment deal.”
The group released a report last week that found Vornado woud save $1.2 billion in the Penn plan if the PILOTs are framed like the ones for Hudson Yards. The analysis estimates the state would end up between $3.4 billion and $5.9 billion short overall.
Ahead of Thursday’s vote, Hochul and Mayor Eric Adams on Monday announced that the state and city had struck a financial framework deal.
In the agreement, the city will be paid money equal to what it’s currently generating in taxes at the development site with a 3% yearly increase. The city Independent Budget Office in May found that the state had generated $60 million in taxes in fiscal year 2022 from the 55 lots that make up the eight future development sites.
The agreement would have PILOT dollars fund up to 12.5% of the costs for the reconstruction and potential expansion of the station, and half of the improvements of transit infrastructure including underground concourses and subway entrances in the neighborhood, while also paying for 100% of the improvements to the streets, sidewalks and public spaces in the surrounding area.
The PILOT dollars going toward the reconstruction of Penn Station are not meant to cover the full cost of the project, ESD staffers argued during the meeting, saying it puts them on a path for more federal funding for the project, which will also rely on New Jersey dollars. The state legislature and governor there has already approved $1.3 billion for the project.
“This [PILOT money] is one source, but it is not the only source, and we believe that there’s a very viable plan that we’ve been working on for multiple years to create in the billions of dollars out of the real estate revenue,” Holly Leicht, executive vice president of real estate development and planning at ESD, said during the meeting.