Since the original Penn Station was torn down in 1963 to create space for Madison Square Garden, the area surrounding the new Penn Station, built directly under the old structure, has struggled to find its identity. In the decades since the original structure was torn down, the city and state have grappled with how to revitalize the drab state of the current station and how to clean up the neighborhood encircling it. In July 2022, Governor Hochul, with the support of freshman mayor Eric Adams, unveiled a plan to remake the station and reconceptualize the 12-block area around it. Hochul’s plan, which mirrors a less ambitious proposal that Governor Cuomo had for the station and area, would involve three major components.[1]

  1. A single-level modern train hall with a main concourse on each side, and a 460-foot atrium. This would double the height of the current station and create a large open space that would equal the combined area of Grand Central Station and Moynihan Train Hall.
  2. The most controversial part of the proposed project would be the addition of ten new buildings on eight development sites.[2] Eight of the ten new buildings would be office towers in a city where the office vacancy rate has jumped to 15% recently from around 8% in Q1 2019.[3] The office availability rate in some submarkets is as high as 29%.
  3. Eight acres of pedestrian dedicated public space would be built, restricting automobile traffic between 6th and 9th Avenues on 33rd Street.

The basic idea surrounding the project is that tax dollars generated from the eight new office and two new residential towers would help to pay for the new station. While all could agree that a new station is desperately needed, the plan may be a tough sell in a city where office occupancy as defined by the amount of workers physically going into the office is hovering around 50% and Penn Station is operating at 60% of its normal capacity. The city also needs an estimated 560,000 new units of housing by 2030 to make up for the deficit in housing construction from the past decade and to keep up with expected population growth.[4]

No one is disagreeing that the busiest transit hub in North America needs a monumental facelift.[5] New and imaginative construction combined with an increase in dedicated public space in the currently threadbare surrounding area would provide a catalyst for new businesses wanting to move into the area and create a much needed greater sense of public safety. The pitfall with this proposal is not the final vision, but the route for getting there.   

It would be foolish to rely on projected tax revenue coming from building eight new office towers a few blocks to the east of the largest commercial development in North America, Hudson Yards, to fund Penn Station’s redevelopment.

The plan relies on the ESDC (Empire State Development Corporation) using its power to condemn and seize the sites needed for the redevelopment, and then to allow privately controlled developers to build on the sites under long-term leases. Vornado, the likely private-sector developer that the state will lease the sites to via long-term ground leases, will not pay property taxes to the city, but rather will provide PILOT (payments in lieu of taxes) payments to the state.

This comes at a time when New York City cannot afford to lose anymore real estate tax revenue as the city faces a potential $10 Billion budget shortfall in 2026.[6] A more pragmatic solution may be something similar to what Nicole Gelinas proposed in July. Instead of the city losing out on much needed tax revenue and ceding political control of the Penn Station area to the state for the next 80 years, the city could borrow against future property tax revenues and fill any fiscal shortfall for the project with state and federal infrastructure grants. This would allow the city to retain any future real estate tax dollars generated from the area along with the political authority that comes with that.

While daily office traffic is coming back, it still remains far below pre-pandemic levels.[7] Vacancy rates are continuing to spike, especially in older buildings. We also do not know how employers would handle any excess office space they occupy if they start to feel pressed by a slowing economy. Reducing a company’s office footprint is an easy way to reduce operating expenses. Particularly as remote workers have proven to be just as, if not more productive, than they were working in an office before the pandemic.[8]

While Penn Station and its surrounding area need to be re-energized, it’s not clear that building eight publicly subsidized office towers in the hybrid work era is the most sensible course of action going forward.

[1] https://www.bloomberg.com/news/articles/2022-08-18/what-penn-station-s-6-billion-makeover-means-for-nyc-quicktake

[2] https://nypost.com/2022/07/25/penn-station-plan-is-the-worst-deal-since-manhattan-was-sold-for-24/

[3] https://www.bloomberg.com/graphics/2022-remote-work-is-killing-manhattan-commercial-real-estate-market/

[4] https://www.thecity.nyc/2022/9/27/23373855/affordable-housing-crisis-city-council-eric-adams-throgs-neck#:~:text=New%20York%20needs%20560%2C000%20new,Estate%20Board%20of%20New%20York.

[5] https://www.railway-technology.com/analysis/featureworlds-busiest-train-stations/

[6] https://www.nytimes.com/2022/09/19/nyregion/budget-crisis-economy-nyc.html

[7] https://www.bloomberg.com/opinion/articles/2022-09-27/office-markets-are-the-real-estate-crash-we-need-to-worry-about

[8] https://www.forbes.com/sites/bryanrobinson/2022/02/04/3-new-studies-end-debate-over-effectiveness-of-hybrid-and-remote-work/?sh=dbc35a059b2e