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Hudson Yards raises curtain, and the drama is just beginning

SNL ImageThe Vessel glimpsed from inside the shopping mall. Neiman Marcus anchors the Hudson Yards retail segment.
Source: S&P Global Market Intelligence

The largest private real estate development in U.S. history opened to the public March 15 on a cloudy, unseasonably warm day in New York.

Much of Hudson Yards — a 28-acre mixed-use new development over a storage yard for railroad trains on Midtown Manhattan's Far West Side — is still under construction, but the project's developers, Related Cos. and Oxford Properties LLC, wanted the city to get acquainted early with the project's public face: A glitzy, upscale shopping mall, alongside The Vessel, which could be described as a destination staircase resembling a wicker basket. (The Shed, a cultural and performing arts center, is to open soon). The real estate mega-project, the object of much critical and public praise, rancor and debate in recent years, has been decades in the making.

The scene at the March 15 opening was festive as the first crowds pushed past barriers into The Shops and Restaurants at Hudson Yards. There was loud music, press crews conducting interviews, and retail staff pouring champagne — in real glasses! — and cutting ribbons. But according to Richard Kestenbaum, partner of Triangle Capital and a longtime adviser in retail and merchandising, a nagging question remains: Will the crowds still come after the initial excitement has waned?

"Is it different enough from every other A mall in the country to get consumers to tell their friends they have to see it?" Kestenbaum said in an email. "It's hard to see how the stores that are there, so many of which are available to see in so many other places, will make consumers get on a subway and come over."

SNL ImageShoppers stroll The Shops and Restaurants at Hudson Yards on March 15.
Source: S&P Global Market Intelligence

In an interview, Douglas Woodward, a professor at Columbia University's school of architecture who took part in the design of the master plan, deemed the project a success to the extent that planners achieved their priority to ensure that Hudson Yards' layout flowed with the extant city grid rather than gird itself against it, as is the case with Lower Manhattan's Battery Park City, which draws little foot traffic.

"We wanted there to be a lot of public space, which there is," Woodward said. "We wanted there to be art and culture, and that worked out."

It is a peculiar twist of fate that such an ambitious new development its 18 million square feet, when both phases are complete, will surpass the size of some major downtown metros would finally materialize at a time of such upheaval in commercial real estate and retail. Both office and retail leaders are making hard strategic turns, undertaking major redevelopments to accommodate a downsizing legacy tenant base and attract new tenants that prefer different, more flexible and fun space arrangements. The city's luxury residential market, meanwhile, has been flooded with new supply.

SNL ImageThe Shed, a cultural and performing arts center, will open soon.
Source: S&P Global Market Intelligence

But Hudson Yards has been a success story in real estate so far. Lease-up has been swift, and rent rates have been higher than anticipated, as retail brands compete for footing and companies seek out shiny new riverside perches for their headquarters.

"The new product has really brought this new opportunity for tenants that the Manhattan market really hasn't seen in quite some time," Mike Slattery, research manager at CBRE, said in an interview.

Triangle Capital's Kestenbaum lauded the project's Batch concept, which will bring a revolving group of online retailers to the site an innovative touch that he thinks could give consumers a "compelling" reason to return.

Michael Hirschfeld, vice chairman at Jones Lang LaSalle, said Related learned important lessons about scale and store and restaurant curation from an earlier, similarly ambitious project, The Shops at Columbus Circle, at the Time Warner Center in Manhattan. Hirschfeld applauded the scale of Hudson Yards' retail offering in particular, which he said more closely approximates that of successful vertical urban retail developments in Europe and Asia. Historically, major new retail developments in New York have been too cramped, too constricting of movement.

"People have to give [Hudson Yards] a chance to become part of the fabric of the West Side, part of the fabric of Manhattan," he said. "In this day and age, patience is not a strong suit for people."

SNL ImagePeople line up to enter The Vessel, a centerpiece of the development, on its opening day.
Source: S&P Global Market Intelligence