A Pier Deal Is Full of Developer Perks, but Is It Good for the City?

Developers hoping to snap up big city real estate often persuade local officials to shower them with taxpayer-funded incentives to seal the deal and prevent them from taking their business elsewhere.

But a new film studio set to go up on a Midtown Manhattan pier stands out as an especially sweet deal, at an especially difficult time for New York.

The administration of Mayor Eric Adams has said the project is a significant win for the future of the city and for taxpayers, but it involves subsidies that, to some residents and experts, seem unnecessarily generous.

The city will contribute tens of millions of dollars to fixing and maintaining the pier, something it does not automatically do in such projects, and it will exempt the development from any form of property taxes. It has also set a much lower rent for the location than tenants at neighboring piers pay.

Timothy J. Bartik, a senior economist at the W. E. Upjohn Institute for Employment Research, a research group in Michigan, said that New York City’s concessions for the project were “very high,” and on par with offers typically used to attract major employers like car- and battery-manufacturing plants.

The pier project revives an age-old debate in New York City and beyond about the pros and cons of offering hefty incentives to attract development and businesses; the opaque and often overstated projections of economic impact; and whether such concessions are necessary in the first place. The core question is whether such generosity is vital to keeping a city competitive or does more harm in the long term, straining budgets and essential services.

City officials said the studio project and another recent initiative that includes similar incentives, for a professional soccer stadium in a mixed-use development in Queens, are essential to New York as it emerges from the Covid-19 pandemic. The first project will provide jobs; the second will also produce affordable housing, which the city desperately needs.

At the pier, the incentives were also meant to ensure the project moved forward as quickly as possible, officials said, arguing that the new studio would help keep New York’s film industry competitive.

“We feel very good about these deals, you know,” Andrew Kimball, the president of the New York City Economic Development Corporation, said in an interview.

But, Mr. Bartik said, with the studio expected to create 400 jobs, the city’s concessions — including reduced rent and tax exemptions — work out to about $215,000 per worker over the first 15 years of a possible 99-year lease. Incentives of that size are common in economic-development deals nationwide, he added, but the median amount per worker is about $50,000.

“This is a very high bid that only seems justified if you think this project is absolutely critical to the future of the film industry in New York,” Mr. Bartik said.

The film-production industry, which receives major subsidies in New York, has grown rapidly in the city over the past decade, with new studios opening in the Bronx, Brooklyn and Queens, some involving major players like Netflix and Robert De Niro.

Yet, a group of local, state and federal officials, joined by community leaders, are questioning the studio deal, saying the location — Pier 94, near West 52nd Street in the Hell’s Kitchen neighborhood — is prime real estate that should not require concessions to be developed.

These critics pointed out that the same real estate group now developing the site promised previous city administrations it would build there years ago and never did. And they questioned the decision by the Adams administration to let the company, Vornado Realty Trust, develop an entirely new project in an arrangement that was not subject to competitive bidding.

“From an economic development standpoint, it’s a giveaway,” said Jeffrey LeFrancois, the chair of Manhattan Community Board 4, which covers a stretch of the West Side that includes the pier. “Given that Vornado has already had the ability to do this the past 13 years and done nothing, it’s outrageous that they are taking this pier from taxpayers for pennies on the dollar.”

Mr. LeFrancois said the terms were particularly friendly because Vornado, which primarily operates office buildings in New York City, has been eager to find new revenue sources as companies jettison physical offices. “Subsides are a part of doing business,” he said, “but the loss the city has decided to take here is beyond the standard, given the 99-year lease term.”

The two projects on city-owned property further cement the Adams administration’s alignment with the real estate industry: “I am real estate,” Mr. Adams, a small-time landlord, said during his run for mayor.

The relationship is mutually beneficial: Developers get to build on city land, and the mayor gets to point to new projects as evidence that he is leading New York out of the pandemic.

In Queens, the mayor has touted a plan to redevelop a swath of the borough that will include the new soccer stadium and what officials have described as the largest construction of entirely affordable housing since the Mitchell-Lama developments of the 1970s. Like other stadiums in the city, the new one will not pay property taxes, although the team that will play there, the New York City Football Club, will pay some rent.

That puts the deal a notch above previous stadium deals the city has made, said Sean Campion, the director of housing and economic development studies at the Citizens Budget Commission.

But economists who study stadium subsidies tend to agree that the costs of such deals typically exceed the benefits, and in January, the city’s Independent Budget Office said the cost of waiving property taxes on the soccer stadium would be at least $516 million in lost revenue over the team’s 49-year lease. (Mr. Kimball called the report “devoid of reality,” because it assumed another developer would have wanted or been able to build on the land.)

At the pier, the city pledged $73.5 million for repairing and maintaining the property until 2060 and set a starting rent of $4 per square foot, or about $900,000 a year. Annual rent would peak at $2.8 million in 86 years. Vornado, which would share some of the studio’s revenue with the city, would take over responsibility for the pier in 2060.

In comparison, tenants like Chelsea Piers and the Intrepid Sea, Air & Space Museum that occupy piers operated by the Hudson River Park Trust, which is controlled by the state and city governments, are required to maintain their piers themselves. The museum spends about $1 million a year on its location, Pier 86, and sometimes millions more if repairs are needed, a museum official said.

Chelsea Piers has spent $80 million since 2010 to maintain its piers, the company said, and it pays the trust about $9 million a year in rent — more than twice per square foot what Vornado’s base rent will be. Chelsea Piers’ annual rent is expected to reach about $31.4 million in 2065.

“Given its prime location on Manhattan’s West Side waterfront, it is unclear whether or not the cost per square foot is sufficient,” a group of elected officials, including Representative Jerrold Nadler and Mark Levine, the Manhattan borough president, wrote of the pier deal in a recent later to the city’s Economic Development Corporation.

Vornado is a publicly traded company whose stock has been battered since early 2020, and the project could ultimately involve Hudson Pacific Properties, which owns film studios on the West Coast and in England, and the private equity firm Blackstone as partners.

Vornado also holds the lease at the adjacent Pier 92, which, like Pier 94, extends into the Hudson. More than a decade ago, Vornado promised to double the size of an exhibition center already at the location.

The company never followed through, leading to tense arguments between officials in previous administrations and Vornado executives, according to two people familiar with the discussions who described them on condition of anonymity. Under the current deal, the studio would be built on Pier 94 and the city would take back Pier 92, which was deemed unsafe in 2019 because of structural problems.

Mr. Kimball said the rent paid by the studio would be comparable to what Steiner Studios, the largest studio in the United States outside Hollywood, pays for its recent expansion in the Sunset Park area of Brooklyn. The piles at Pier 94 are in immediate need of repair, making it necessary for the city to cover those costs to move the project forward, he said.

A Vornado spokesman said in a statement that the studio project would also create public amenities, including public restrooms and open spaces, and 1,300 construction jobs, and would “solidify New York City’s position as a leading market for content production and studio space.”

Mr. Kimball suggested it was unfair to compare the Vornado pier deal with deals at the Hudson River Park Trust’s piers. “In economic development, there’s no cookie cutter,” he said.