What to Know About Penn Station’s $7 Billion Redevelopment Plan

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New York State officials on Thursday approved a sweeping redevelopment of Midtown Manhattan that would transform Pennsylvania Station, the busiest transportation hub in North America, from a run-down transit center into a city centerpiece. The eight-member board of Empire State Development, the state’s economic development agency and the group steering the project, unanimously voted in favor. The plan calls for constructing 10 towers around Penn Station and providing an estimated $1.2 billion in tax breaks to developers.

The redevelopment would be among the largest real estate projects in United States history: roughly 18 million square feet of mostly office space, up to 1,800 residential units, retail space and a hotel. At the center would be a renovated Penn Station, which sits below Madison Square Garden and served 650,000 riders each weekday before the pandemic.

The board’s approval clears the way for an application for federal funding to help pay for upgrading the station, which is expected to cost about $7 billion. New York expects about half of that sum to come from Washington.

The new Penn Station would not add new tracks or additional rail lines but would fix the most common complaints of passengers: the facility is cramped and dreary. It would have taller ceilings to bring in more natural light, 18 new entrances and larger underground passageways to navigate between subway platforms and rail lines.

Outside the station, a new 0.7-acre plaza would have wider sidewalks, bicycle lanes and landscaped areas with seating.

Overhauling the 54-year-old station was supposed to be a final phase of the sprawling project to add train tunnels under the Hudson River, known as Gateway. But Gov. Kathy Hochul pushed for the renovation of the station to happen sooner. In June, the Metropolitan Transportation Authority solicited proposals from architectural design firms to draw up a way to “relieve overcrowding and improve passenger flow” in the station.

Ms. Hochul said the rebuilt station would be a “single-level unified station with soaring ceilings that welcome natural light.” Amtrak owns the station, but the Long Island Rail Road and New Jersey Transit are its biggest users. It is connected to the new Moynihan Train Hall, which is used by Amtrak and L.I.R.R. The state has not yet selected the builder of the new station.

The renovation, by itself, will not solve the station’s traffic problems. Before the pandemic, Penn Station was overwhelmed at rush hour with packed commuter trains arriving from Long Island and New Jersey clogging the tracks beneath Midtown. The station would have to be expanded, with more tracks, to handle the additional trains that new Hudson tunnels could deliver.

Separate from the overhaul of Penn Station, state officials have also endorsed a plan to build a new train hall south of the site that would increase rail and passenger capacity, with new lines and platforms. That project could cost $13 billion and would require federal approval.

Former Gov. Andrew M. Cuomo first proposed the project. Ms. Hochul, however, has embraced the plan, calling Penn Station a “hellhole.” State officials have linked the upgraded Penn Station with the construction of the 10 towers, arguing that the larger development is required to help pay for the transit renovations.

The project oversteps local New York City control to allow developers to build bigger buildings than otherwise allowed. Mayor Eric Adams has backed the plan.

Many other elected officials and community members have objected to the scale of the redevelopment, the tax breaks and its complex financing structure. Opponents fear that taxpayers would be on the hook if the project fails to generate the revenue supporters expect.

The more noticeable changes in the area could be the larger real estate project surrounding Penn Station.

The new towers would be among the tallest in New York City, exceeding 1,000 feet in height, though the final dimensions would be decided later. The project requires the demolition of many existing buildings, potentially including a 150-year-old Roman Catholic church, and would reshape the skyline of Manhattan between the Hudson Yards neighborhood to the west and the Empire State Building to the east.

Some of the largest buildings would rise on the block south of the existing Penn Station, which spans West 30th Street between Seventh and Eighth Avenues, and would exceed the size of nearly every commercial building in New York City. Today, that block includes the church, St. John the Baptist Roman Catholic Church, and parking garages. A monastery previously on that street was already demolished. The final building would be completed in 2044.

The state’s plan does not address what would happen, if anything, with Madison Square Garden, whose operating permit at the site expires in 2023.

Most of the new towers would rise on sites owned by Vornado Realty Trust, the publicly traded company that is one of the largest developers of office space in Manhattan. It owns about 20 million square feet of office space in the city, about half of which is near Penn Station.

Its chief executive, Steven Roth, has called the redevelopment of the Penn Station area the company’s “Promised Land” and has pitched its current and future towers there as the New York home for the largest technology companies in the world. Its largest tenant, Meta, the company formerly known as Facebook, leases 1.4 million square feet from Vornado, including space at the Farley Building across the street from Penn Station.

The new towers on Vornado’s five properties around Penn Station could exceed 10 million square feet — more than half of the entire redevelopment’s total size — and consist of a hotel, offices, stores and up to 1,256 residential units. To build them would require demolishing a wide swath of establishments, including a Hooters, an Irish restaurant and various tourist shops.

Mr. Roth, along with his family members, gave Mr. Cuomo about $400,000 in campaign donations before he resigned, and Mr. Roth last year donated the maximum, $69,700, to Ms. Hochul’s campaign. He recently gave $22,600 to the campaign of Lt. Gov. Antonio Delgado, who will appear on the ballot with Ms. Hochul in November. State officials and a Vornado spokesman have said the donations did not influence Vornado’s role in the venture.

The M.T.A. is leading the $7 billion renovation project at the station but New York expects the federal government, Amtrak and New Jersey to contribute most of the money.

An agreement the state reached with New York City allows for payments from developers of the 10 towers to cover part of station renovation costs, all of the costs of the pedestrian and street improvements and half of the costs of the new subway entrances and underground concourses.

The payments from the developers would derive from office leases, retail sales, apartment rentals and the hotel. That arrangement is part of a complex financial scheme known as payments in lieu of taxes, or PILOTs, that would suspend additional property taxes on the buildings for decades after they are constructed.

The tax breaks for developers could be lucrative, a recent analysis concluded, potentially including $1.2 billion in tax breaks for Vornado, the largest landowner in the area. The city would not benefit from the additional property taxes on the new buildings until the station improvements are paid off.

There has been vocal opposition from the outset from many elected officials and community leaders. The opponents include State Senator Liz Krueger, who has questioned the wisdom of betting on office real estate in New York City at a time when the pandemic has upended the way people work and has led companies to shed space at record rates. Also, the new office buildings would compete with Hudson Yards, the newest office district in Manhattan, which has a similarly structured property-tax deal.

A report issued last month by the city’s Independent Budget Office concluded that the state had provided too little information about the funding plan to determine whether it is viable, or if taxpayers would have to foot the bill if the revenue from the new towers fails to materialize.

Another state senator from Manhattan, Brad Hoylman, said taxpayers should be made aware of the financial risks of the project before the board votes to approve the general plan. He was among a group of 15 senators who sent a letter to state officials in March, demanding that they “pause the Penn Station plan until these answers have been provided.”