Mixed-use developers seem to be caught in a rainstorm. In late March and early April, several high-profile mixed-use projects were either delayed or altered because of the weak economic conditions and difficulty in securing financing.
The string of bad news began on March 21 with Brooklyn-based Forest City Ratner Cos. revealing that it will delay the office and residential components of its 8-million-square-foot Atlantic Yards development in Brooklyn. One week later, New York City-based Related Cos. said it would postpone construction on the 2.5-million-square-foot phase II of its CityNorth project in Phoenix for a year. The same day as CityNorth was postponed, Madison Square Garden, the proposed anchor tenant for the Moynihan Station project in Manhattan, announced that it was opting to renovate its existing arena rather than move.
The proposed 1.2-million-square-foot Moynihan Station redevelopment was slated to grow as large as 7 million square feet because of 4.5 million square feet of developable air rights above the existing arena. Now, with Madison Square Garden waffling, Vornado Realty Trust and Related may have to pull the plug on the project, especially since the joint venture was already $1.2 billion short on financing the $3 billion project.
As the credit crisis continues to wreak havoc on the financial services industry, large national and international banks — the primary source of funding for mixed-use mega-developments like CityNorth and Moynihan Station — have all but closed shop, says Scott R. Lynn, director and principal with Metropolitan Capital Advisors, Ltd., a Dallas-based real estate investment banking firm. And when they do agree to lend, their requirements for pre-sales and pre-leasing levels are so high that even the most experienced developers have trouble making the grade.
“I think that everybody has been amazed at the speed and the severity of the credit crunch, and what we see is that the banking community is definitely getting very conservative,” says Lynn. “We are seeing a severe pullback in the larger loan arena because the big national lenders have really put on the brakes.”
Similar problems plague both the Atlantic Yards and Moynihan Station. Atlantic Yards, for example, calls for 336,000 square feet of office space, 247,000 square feet of retail space and 6.4 million square feet of residential space, in addition to the 850,000-square-foot sports and entertainment arena. Construction on the arena started moving ahead in February 2007. But Forest City Ratner has yet to secure an office tenant for its Miss Brooklyn office tower. Add to that the fact that Forest City was planning to fund the project with bonds issued by Goldman Sachs rather than a traditional line of credit. So the firm is postponing construction on the office and residential sections for an unspecified period of time.
Still, with the initial phases of CityNorth and Atlantic Yards already in construction, these projects are more likely to proceed than Moynihan Station, which has just lost its only committed tenant.