The Political Economy of Value Capture: How the Financialization of Hudson Yards Created a Private Rail Line for the Rich Danielle L. Petretta Submitted in partial fulfillment of the requirements for the Degree of Doctor of Philosophy under the Executive Committee Of the Graduate School of Arts and Sciences COLUMBIA UNIVERSITY 2020 © 2020 Danielle L. Petretta All Rights Reserved The Political Economy of Value Capture: How the Financialization of Hudson Yards Created a Private Rail Line for the Rich Abstract: The theory of value capture is simple to understand and easy to sell, promising self-fulfilling virtuous cycles of value generation, capture, and redistribution. Countless studies document value creation attributable to public interventions, providing guidance on the type and extent of potential benefits. Scholars too have set forth parameters for optimal value capture conditions and caution against common pitfalls to keep in mind when designing value capture plans. But even when utilizing the best advice, equitable redistribution of benefits rarely occurs in neoliberal economies, leaving municipalities struggling to meet the myriad of social needs and provide basic services for all their inhabitants. Invariably, capitalistic real estate states seek to financialize public assets for private gain. Nowhere is this more apparent in New York City today than in the outcomes thus far of one of the largest public-private developments in New York history at Hudson Yards. This dissertation documents the failure of the value capture scheme put in place at Hudson Yards which neither captured fair market value for the public, nor extracted much public benefit. The scheme aimed to leverage vast tracts of publicly-owned land above operational rail yards at the Far West Side of Manhattan. Instead, public action under the guise of public purpose catalyzed the private financialization of a finite public asset, through the seemingly benign but inherently complex public policy tool of value capture finance. In particular, this dissertation tells the detailed development story of Hudson Yards, where developers reap huge rewards for their risks while the public still waits for what was promised — an all too familiar story. Table of Contents List of Tables and Figures ........................................................................................................................ iv CHAPTER 1 – VALUE CAPTURE AND THE LOSS OF VISION ............................................................................ 1 Research Methodology ............................................................................................................................. 4 Defining Value Capture and Use .............................................................................................................. 6 Unrestrained Actions and Loss of Vision ................................................................................................. 9 CHAPTER 2 - VALUE CAPTURE LITERATURE REVIEW .................................................................................. 11 Empirical Studies on Transit’s Added Value .......................................................................................... 12 Value Capture Theory - Assumptions and Concerns: ............................................................................. 14 NYC Transit Premiums ........................................................................................................................... 16 Debunking an Erroneous $6 Billion ........................................................................................................ 21 CHAPTER 3 - EVOLUTION OF THE FAR WEST SIDE ...................................................................................... 24 The Early Railroad Years ........................................................................................................................ 25 Plans for the Far West ............................................................................................................................. 27 CHAPTER 4 - THE FAR WEST SIDE IN THE 21ST CENTURY ............................................................................ 33 Office Demand and the Group of 35 ....................................................................................................... 33 NYC2012 and a West Side Stadium ....................................................................................................... 37 Final Stadium Hurdle .............................................................................................................................. 43 CHAPTER 5 - HUDSON YARDS REDEVELOPMENT PLAN MOVES AHEAD ..................................................... 45 2001 Framework for the Far West .......................................................................................................... 45 Existing Conditions ................................................................................................................................. 46 Hell’s Kitchen South ............................................................................................................................... 47 2003 Preferred Direction ......................................................................................................................... 48 Hudson Yards Redevelopment Plan: 2005 and 2009 Rezonings ............................................................ 49 Crafting the Hudson Yards Value Capture Scheme ................................................................................ 52 MTA’s Second Round at Caemmerer Yards .......................................................................................... 54 The 7-line Extension Lynchpin ............................................................................................................... 56 Plans for Open Space - Hudson Park and Boulevard .............................................................................. 59 CHAPTER 6 –TODAY’S HUDSON YARDS ...................................................................................................... 60 Residential Market and Affordable Housing .......................................................................................... 61 Manhattan Office Market and Markets for Air ....................................................................................... 68 Hotel Trends and Airbnb ........................................................................................................................ 76 Related’s Hudson Yards ......................................................................................................................... 81 i Branding Pre-packaged, Semi-gated Luxury Living .............................................................................. 81 Related’s Development Plan ................................................................................................................... 82 $19B? Related’s Estimated Economic Impact ........................................................................................ 85 Steve Ross and Financing Related’s Hudson Yards ............................................................................... 86 EB-5 Investment at Related’s Hudson Yards ......................................................................................... 87 Tax Incentives and Related ..................................................................................................................... 89 Phase 2 .................................................................................................................................................... 90 Platforms ................................................................................................................................................. 91 Selected Critiques of Related’s Hudson Yards ....................................................................................... 92 CHAPTER 7 - A HUDSON YARDS AUDIT ....................................................................................................... 94 REVENUE: Raising Capital ................................................................................................................... 94 Constructing the Hudson Yards Value Capture Plan .............................................................................. 99 EXPENDITURES: Debt Service ......................................................................................................... 107 Discussion ............................................................................................................................................. 108 CHAPTER 8 – Evaluating Outcomes: Transfers, Trade-Offs and Lost Opportunities ................................ 110 Manhattan Community Board 4 and Broken Promises......................................................................... 111 Office Markets – Net Growth or Just Transfers? .................................................................................. 119 MTA’s Missed Opportunity .................................................................................................................. 121 Transit Trade-offs - What else could $3B buy? .................................................................................... 122 Park Trade-Offs and Where is the Waterfront Access? ........................................................................ 123 Extra Services for the Well-off/Some Community Building ...............................................................