Uphill Climb at Rail Yards May Have Proved Too Much for Speyers

Did Jerry and Rob Speyer dive into a project too big for the real estate giants to handle?

When Tishman Speyer Properties was announced winner of the West Side rail yards development rights in late March, the scene was a cheery one, with the governor and mayor on hand at the yards to hail the Speyers as victors. Now, with the deal apparently dead, the mood has changed substantially [background on the deal collapse here].

In the weeks since the March announcement, Tishman Speyer appeared to grow unexpectedly wary. What was ultimately the sticking point in negotiations—the firm wanted to wait an extra year or so before closing on the eastern rail yard, until the western rail yard was rezoned—was a point that Tishman accepted a few weeks back when it was selected.

The official line from Tishman to the M.T.A. was that the needed rezoning posed too much of a risk, as the community or City Council could force the firm to alter its plans.

But perhaps the huge real estate firm was just unsure about the project, as it wanted more time to ponder and more time to walk away without penalty. After all, it faced the major challenge of having no tenant lined up; it needed to find financing for a platform and then the buildings; and the completion of the No. 7 subway line is uncertain as the city and state have not yet reached an agreement on the overruns.

Had Tishman been successful in delaying the signing of the long-term lease for the eastern rail yards, it would have had many extra months to walk away without having to go into default. Under the terms the M.T.A. was pushing, Tishman would have been in default if it abandoned the project before the western yards were rezoned, owing well over $100 million to the M.T.A., according to M.T.A. documents.

It is unclear whether Tishman is entirely out of the picture. CEO Jerry Speyer met with Mayor Bloomberg in London today, and the firm is meeting with the M.T.A. on Monday to try to salvage a deal.

Should the deal be fully scrapped, the M.T.A. still can go back to the other three bidders, only one of which, a joint venture of the Durst Organization and Vornado Realty Trust, had a tenant, Conde Nast, lined up. However, it seems highly unlikely that the price offered by Durst-Vornado—just short of $1 billion after raising it to compete with Tishman's—would remain the same should the Tishman deal fully collapse.

As for the crucial task of finding a tenant, the Times today noted that Tishman was searching, though failed in its attempt to woo numerous firms to the site.

Given the rough economy, real estate executives note that it’s not an ideal time to be looking for a major tenant as the large companies are preoccupied with the financial crisis and are putting off decisions about expansion or moving into a new building.

“For the most part, everybody has made growth their secondary issue right now,” said Barry Gosin, CEO of real estate brokerage Newmark Knight Frank. “People for the moment are busy trying to figure out what’s happening in these uncharted waters.”