Hudson Yards Redevelopment Economic Overview and Demand Forecast

Presented by:

Economics Research Associates and Cushman & Wakefield

Spring 2003

1 Objective

„ To create a strategy to unlock the value of the Hudson Yards and help secure New York’s economic future

„ To create a vibrant new mixed-use commercial and residential district

„ To create a realistic plan to fund the infrastructure improvements that will spur private investment in the area

A D V I S O R Y G R O U P 2 Hudson Yards Today

42nd Street

PA Terminal

Javits 8th Ave

35th St

Madison Sq Garden

MTA Yards 7th Ave 7th

28th Street

10th Ave

24th Street

A D V I S O R Y G R O U P 1 The Challenge and Opportunity

„ Midtown and Downtown are steadily losing office space market share

„ Unless we take action now to expand available land for office development, Manhattan’s competitiveness may continue to erode

„ Hudson Yards is the largest area proximate to Midtown that can accommodate the commercial development necessary to capture New York’s share of projected regional growth

“Without taking action to create more space, New York City will miss out on hundreds of thousands of new jobs and increased economic activity in the next 20 years.” -Group of 35, Preparing for the Future, 2001

A D V I S O R Y G R O U P 4 Assets...... and Challenges

„ Proximity to Midtown „ Outdated zoning

„ Access to the „ Lack of transit access waterfront „ Declining employment and „ Major public facilities tax assessments

„ Developable land „ Lack of public open space

„ Ability to connect to „ Dominated by surface car, existing truck and bus parking transportation infrastructure „ Javits Convention Center is not realizing its full potential

A D V I S O R Y G R O U P 5 Demand Forecasts

„ Office

„ Residential

„ Hotel

„ Retail

A D V I S O R Y G R O U P 6 Office Development

„ Expansion of prime Midtown Office core

„ Necessary to meet projected office demand

„ Highest incremental property value

A D V I S O R Y G R O U P 7 Midtown Office Market

„ Comprises 294.5 million square feet, or 44% of NY region

„ Combined with Downtown, totals 387 msf, or 59% of NY region’s office inventory

„ Premier and largest office market in the nation

„ Manhattan’s primary location for Services and FIRE sector employment

„ Together with Downtown, Midtown is the NY region’s Economic Engine

„ Losing share of occupied office space within NY region

A D V I S O R Y G R O U P 8 New York Region Occupied Office Space by Market Historic 1986 – 2001

600 10.0% 500 10.0% 4.3% 3.7% 400 23.9% 22.7% 300 16.9% 18.1%

Millions of square feet 200

100 45.5% 45.1%

0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Midtown Downtown New Jersey Long Island Fairfield/ Westchester

Source: Cushman & Wakefield Analytics A D V I S O R Y G R O U P 9 New York Region Average Annual Net Absorption by Market Historic 1987 – 2000*

Midtown Downtown Manhattan 3.2 0.8

New Jersey 2.5

Long Island 0.4

Fairfield/Westchester 0.7

0.0 1.0 2.0 3.0 4.0 5.0 Net Absorption (millions of square feet)

* Only through 2000 due to events of 9/11/2001 which adversely impacted both total inventory and occupied space.

Source: Cushman & Wakefield Analytics A D V I S O R Y G R O U P 10 New York Region Net Absorption (1987 – 2000) versus Occupied Space 2000*

Occupied Space 2000 Net Absorption 1987 - 2000

41.8% Midtown 45.1%

Downtown 32.5% New Jersey 23.9%

Frfld/Wstchster

Long Island

0% 10% 20% 30% 40% 50% * Only through 2000 due to events of 9/11/2001 which adversely impacted both total inventory and occupied space.

Source: Cushman & Wakefield Analytics A D V I S O R Y G R O U P 11 New York Region Net Absorption (1987 – 2000*) versus Projected Net Absorption (2005 – 2025)

Midtown 41.8% 40.7%

Downtown

New Jersey 32.5% 35.2%

Frfld/Wstchster 1987 - 2000 2005 - 2025 Long Island

0% 10% 20% 30% 40% 50%

* Only through 2000 due to events of 9/11/2001 which adversely impacted both total inventory and occupied space.

Source: Cushman & Wakefield Analytics A D V I S O R Y G R O U P 12 Manhattan Office25 Construction 1950 - 2001 235.8 MSF or 4.5 MSF Annual Average 20

1982-1990 15 61.1 MSF 6.8 MSF Yr/Avg

10 1998-2001 8.3 MSF 2.1 MSF Yr/Avg

Square Feet (Millions) 5

0

50 53 56 59 62 Source: Cushman & Wakefield65 Analytics 68 71 74 77 80 83 A D V I S O R Y G R O U P 86 13 89 92 95 98 01 Manhattan Selection of Potential Development Sites

Midtown = 20+ msf Downtown = 13-15 msf Site MSF Site MSF

„ Con Edison 2.5 „ World Trade Center 10.0

„ One Bryant Park 2.1 „ Site 26/BPC 1.8

„ 20 Times Square 1.3 „ 55 Water St 0.8

„ Hotel Pennsylvania 1.1 „ 15 William St 0.5

„ Roosevelt Hotel 1.0

Source: Cushman & Wakefield Analytics

A D V I S O R Y G R O U P 14 Midtown Office Construction 1900 - 2002

East Midtown West Midtown 6th Ave 10,000,000

9,000,000

8,000,000 3rd Ave Park Ave 7,000,000 5th Ave, Madison Ave, Rockefeller Center, 6,000,000 Garment District 7th Ave, 5,000,000 Broadway

4,000,000 Square Feet

3,000,000

2,000,000

1,000,000

0

1900 1906 1912 1918 1924 1930 1936 1942 1948 1954 1960 1966 1972 1978 1984 1990 1996 2002

Source:, Cushman & Wakefield Analytics A D V I S O R Y G R O U P 15 New York Region Office-using Employment by Year 1986 – 2025

3,000 Historic Forecast 2,800

2,600

2,400

2,200 2005-2025 Regional Office-using 2,000 Employment Growth = 443,450 1,800

1,600

1,400 Office-using Employees (000s) 1,200

1,000 1990 1995 2000 2005 2010 2015 2020 2025

Source: Economy.com, NYC Planning, NYC Office of Management and Budget, Cushman & Wakefield Analytics

A D V I S O R Y G R O U P 16 New York Region Occupied Office Space per Office-using Employee Historic 1986 – 2001

350

300

250

200

150

100 Square Feet per Employee 50

0 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Sources: Economy.com, Cushman & Wakefield Analytics

A D V I S O R Y G R O U P 17 New York Region Office-Using Employment and Office Demand Projected 2005 – 2025

Total Change in Office-Using Employment = 443,450

Square Feet Total Demand Scenario Per Employee (Square Feet)

Low 200 88,690,000

Base 250 110,862,250

High 300 133,035,000

Source: Economy.com, NYC Office of Management and Budget, NYC Planning, Cushman & Wakefield Analytics A D V I S O R Y G R O U P 18 New York Region Change in Occupied Space by Market Projected 2005 – 2025

Forecasted Net Absorption (MSF)

Capture Rate* Low Base High

Midtown 40.7% 36.1 45.1 54.1 Downtown 8.7% 7.7 9.6 11.6

New Jersey 35.2% 31.2 39.0 46.8 Fairfield/ 9.2% 8.2 10.2 12.2 Westchester Long Island 6.2% 5.5 6.9 8.2

Total 100.0% 88.7 110.9 133.0

*Capture Rate based on recent trends

Source: Cushman & Wakefield Analytics A D V I S O R Y G R O U P 19 Midtown Office Market 2005 - 2025 Demand Forecast Assumptions

„ Regional office-using employment growth of 443,450 results in demand for 89 msf, 111 msf or 133 msf

„ Midtown absorption represents 40.7% of regional demand

„ Even with declining market share, Midtown’s office demand will be 36 msf, 45 msf or 54 msf through 2025

„ Potential Midtown development sites are insufficient to meet future demand (current estimate of 20 msf)

„ Hudson Yards is forecast to capture 35% to 40% of Midtown’s demand based upon recent Class A development activity

A D V I S O R Y G R O U P 20 Hudson Yards Capture Rate of Midtown’s Office Demand Projected Total 2005 – 2025

Forecasted Net Absorption (MSF) Capture Low Base High Rate 40% 14.4 18.0 21.7

35% 12.6 15.8 19.0

Source: Cushman & Wakefield Analytics

A D V I S O R Y G R O U P 21 Residential

A D V I S O R Y G R O U P 22 Residential Development

„ New York City is largest housing market in the nation – Manhattan comprises 727,000 occupied units – Manhattan is one of the nation’s tightest housing markets with an estimated vacancy rate of 3.2%

„ Hudson Yards residential development – Natural extension of West Side residential neighborhoods – Complements Office expansion – Enhances 24 hour-7 day use

A D V I S O R Y G R O U P 23 Manhattan Total Occupied Units Rental Occupied Units vs. Vacancy Rate 1993, 1996, 1999 1,000 10.0%

800 708 704 727 8.0%

600 6.0%

400 4.0% Thousands of Units

200 2.0%

0 0.0% 1993 1996 1999

Renter Occupied Owner Occupied Rental Vacancy Rate

Source: Cushman & Wakefield Analytics, Housing and Vacancy Survey (1993, 1996, 1999) A D V I S O R Y G R O U P 24 Manhattan Household Growth vs. Residential Construction 1987 – 2004 10 P r o j e c t e d

5

0 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 Thousands

-5 Households New Residential Units

-10

Source: Cushman & Wakefield Analytics, Economy.com, Corcoran Group, NYC Planning

A D V I S O R Y G R O U P 25 Manhattan Estimated Absorption of New Units Historic 1986 – 2001*

10 Estimated Units Vacant

8 Estimated New Units Absorbed

6

Thousands 4

2

0 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 * Applied average vacancy rate of 3.2 percent to number of total new residential units.

Source: Cushman & Wakefield Analytics, NYC Housing and Vacancy Survey A D V I S O R Y G R O U P 26 Large-Scale Housing Development on the West Side

Battery Park City

„ 6,509 units completed between 1982 and 2001

„ Average of 361 units per year - roughly one building

„ An additional 2,931 units are planned Trump’s Riverside South

„ 1,919 units completed between 1997 and 2001

„ Average of 384 units per year - roughly one building

„ An additional 3,781 units are planned

A D V I S O R Y G R O U P 27 Manhattan Total New Units vs Hudson Yards Share 1998-2001 8 6,742 5,593 5,712 921 6 418 596 2,987 4 249 Thousands of Units 2

0 1998 1999 2000 2001

Rest of Manhattan Hudson Yards

Source: Cushman & Wakefield Analytics, NYC Planning A D V I S O R Y G R O U P 28 Manhattan Hudson Yards Share of Total Manhattan New Units 1998-2001

21,034 Total Units

Rest of Manhattan 89.6%

Hudson Yards 10.4%

0 5 10 15 20 Units (Thousands)

Source: Cushman & Wakefield Analytics, NYC Planning

A D V I S O R Y G R O U P 29 Manhattan Residential Market 2005 - 2025 Demand Forecast Assumptions

„ Projected new households total 40,480 or 2,024 annually

„ Replacement housing typically represents 0.5% of existing inventory (727,000 units), or 3,000 to 5,000 units annually

„ Annual new demand ranges from 5,024 to 7,024 units

„ Capture rate for Hudson Yards is based on recent strong absorption of 10.4%

A D V I S O R Y G R O U P 30 Hudson Yards Capture Rate of Manhattan’s Housing Demand Projected 2005 – 2025

10.4% Total * Total Annual Share of Annual Total MSF Scenario New Units Units Square Feet (2005-2025)

Low 5,024 522 522,000 10.4

Base 6,024 626 626,000 12.5

High 7,024 730 730,000 14.6

* Average unit equals 1,000 square feet

Source: NYC Housing and Vacancy Survey, NYC Planning, Cushman & Wakefield Analytics

A D V I S O R Y G R O U P 31 Hotel

A D V I S O R Y G R O U P 32 Hotel Development

„ Important amenity to support commercial and convention center activity

„ Provides for large convention type hotels proximate to Jacob Javits Convention Center

„ Complements 24 hour-7day use of Hudson Yards

A D V I S O R Y G R O U P 33 Hotel Market

„ Comprises 56,000 hotel rooms in Manhattan

„ Approximately 23,000 are convention style hotel rooms in Midtown

„ Midtown is the prime hotel location in Manhattan

„ New development in Hudson Yards will generate demand for hotels within the area

A D V I S O R Y G R O U P 34 Hotel Room Demand

Hotel Room Demand and Segmentation

Year 2025 Supportable Year 2025 Rooms Segmentation Hudson Yards Corporate 638 22% Other Midtown Corporate 643 22% Javits Convention Center 936 32% Non-Javits Group 257 9% Leisure 477 16% Total 2952 100%

Source: Economics Research Associates

„ Capture rate of Javits room demand and corporate demand from within Hudson Yards remains constant - with roomnights increasing as demand generators grow

„ Capture of non-Javits group, leisure, and corporate demand from beyond Hudson Yards slowly increases over time A D V I S O R Y G R O U P 35 Hotel Room Demand Projected Room Demand and Inventory 2005-2025

3,000 Room Demand Room Inventory

2,500

2,000

1,500

1,000

500

- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: Economics Research Associates A D V I S O R Y G R O U P 36 Retail

A D V I S O R Y G R O U P 37 Retail Development

Retail is a key component to a vital urban neighborhood

„ Provides extended use and activity both during the day, at night and on weekends

„ Necessary to support Residential development, as well as Office and Hotel uses

A D V I S O R Y G R O U P 38 Retail Market

„ Retail exists on the West Side along key corridors like West 34th and West 42nd Streets

„ New employees, residents and visitors will need convenient stores, restaurants and services

A D V I S O R Y G R O U P 39 Hudson Yards Supportable Retail Square Feet

Supportable Square Feet by Demand Source

Supportable Percent of Square Feet Total Office Workers 284,000 56% Local Residents 116,000 23% Hotel Guests 68,000 13% Inflow/Visitors 40,000 8% 508,000 100%

Source: Economics Research Associates

A D V I S O R Y G R O U P 40 Hudson Yards Supportable Retail Square Feet Projected 2005-2025

600,000

500,000

400,000

300,000

Cumulative Square Feet Cumulative Square 200,000

100,000

0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: Economics Research ssociates A D V I S O R Y G R O U P 41 The Time Frame of the Market Forecast and the Revenue Projection

„ Real estate development is highly cyclical

„ Market forecasts reflect 20-year employment outlook

„ Potential financing approaches likely to require a longer-term revenue projection of 30 - 40 years

„ For this analysis, we have assumed continued demand growth at same pace from 2025 - 2035

A D V I S O R Y G R O U P 42 Hudson Yards Base Case Scenario Development Forecast

„ Housing and Hotel development reaches the planning target--and is “built out”--earlier than other uses

2005 - 2025 2005 - 2035 Demand Forecast Financial Forecast Model Property Type MSF Property Type MSF

„ Office 18.0 „ Office 28.0

„ Residential 12.5 „ Residential 12.5

„ Hotel 1.0 „ Hotel 1.5

„ Retail 0.5 „ Retail 0.7

Source: Cushman & Wakefield Analytics, Economic Research Associates A D V I S O R Y G R O U P 43 Hudson Yards Demand Forecast Summary “Without taking action to create more space, New York City will miss out on hundreds of thousands of new jobs and increased economic activity in the next 20 years.” -Group of 35, Preparing for the Future, 2001

„ Hudson Yards Redevelopment area is the natural extension of Midtown

„ The only large land area in Midtown that is underutilized

„ Proven demand for office, housing, hotel and retail uses

„ Public policy initiatives are necessary now to enable the long term growth of this strategic Manhattan location

A D V I S O R Y G R O U P 44