New York City Says 'Oh, Canada!'

An artist's view of how the Hudson Yards project on Manhattan's West Side will look when completed.

Image: Related Properties

The Canadians are coming to the West Side of Manhattan, joining private real estate group Related Companies in one of the most transformative projects in New York City history. Canadian Retirement investment fund Oxford Properties will partner with Related to develop the 26-acre site, the largest remaining undeveloped piece of property in Manhattan.

In 2008, Related had won development rights for what's been called the Hudson Yards project from the Metropolitan Transportation Authority then completed necessary land-use approvals this past December. Today, Related executed its binding contract with the MTA to lease the site for 99 years.

Money from north of the border, via Oxford—the real estate investment and development unit of OMERS (or the Ontario Municipal Employees Retirement System)—allowed the new partnership to put up an additional $21.75 million in deposits on the mixed-use community that includes 12 million square feet of commercial and residential development. OMERS will provide up to $475 million in equity and replaces Goldman Sachs Group, Inc. as Related's lead partner.

The master plan, which includes 5,000 residences in nine residential buildings, sites for three corporate headquarters, a retail complex, a 300-room five-star luxury hotel, a 1,000-room convention hotel, cultural facilities, and a 750-seat public school, all planned around 12 acres of public open space, could see its first buildings delivered by 2015, according to a Related spokesperson.

The West Side Yards partnership is one of several examples of foreign money helping New York City’s credit-starved commercial real estate market begin to see some sense of vibrancy, even in the face of an uncertain economic climate.

Just this year, the 18th annual Foreign Investment Survey of the Association of Foreign Investors in Real Estate (AFIRE) reported that 51 percent of participants identified the United States as the market offering the best opportunity for long-term capital appreciation. Among the cities offering the safest bets was New York City.

"I would venture to say, that almost every large project that’s going up in New York right now has some element of foreign investment," said Neal Sroka, president and COO at DE Worldwide Consulting, an arm of Prudential Douglas Elliman in New York.

Sroka, who says he just spent the past six weeks with Chinese investors "looking at all sorts of properties in Manhattan," which included potential residential development sites and commercial buildings, said foreign investment at the West Side project is part of a "tremendous influx of foreign money" into Manhattan.

He says international investors still regard New York City real estate as a safe haven. And, he says, pension funds like OMERS, with its Oxford Properties Group unit, have what’s called “patient money.” That’s money that’s not looking for quick returns, but instead recognizes the slower, safer appreciation of value that comes with commercial real estate.

Meanwhile, Related revealed that its talks about the West Side partnership, which is also known as Hudson Yards, with the Canadian pension fund started back in January. Related’s Joanna Rose added that Related Hudson Yards president Jay Cross had a long-standing relationship with members of the executive team at OMERS and Oxford.

“The partnership was a perfect fit, as Oxford was seeking opportunities in the United States for marquee development sites,” she said.

Blake Hutchenson, president and COO of Oxford Properties Group, said in an interview that he saw Hudson Yards as a "terrific investment."

"If you believe in the U.S. and the financial sector, we think New York real estate is a great bet," he said, adding that every development project carries risks, "but we think this is measured risk."