On November 21, the New York City Council unanimously approved the Port Authority’s project to replace the Midtown Bus Terminal through the City’s Uniform Land Use Review Procedure (ULURP). This decision has significant implications for the city’s infrastructure, property tax landscape, and the real estate market in the surrounding neighborhood.
The Port Authority plans a $10 billion project to replace the 73-year-old Midtown Bus Terminal with a modern facility designed to meet current transportation needs and enhance the surrounding community.
The PILOT Agreement and 40-Year Term
A critical aspect of financing the project is the use of Payments in Lieu of Taxes (PILOTs). Under an agreement announced on March 12, 2024, the city will contribute future tax revenue from these three new commercial developments to support the terminal’s replacement and expansion:
- PABT North (Tower 1):
- Location: Above the new main terminal at 8th Avenue and 42nd Street.
- Specifications: Up to 3.0 million square feet of commercial space; height of 1,346 feet above grade.
- Timeline: Construction expected during Phase 2 (2029-2032).
- PABT South (Tower 2):
- Location: Above the new main terminal at 8th Avenue and 40th Street.
- Specifications: Up to 2.0 million square feet of commercial space; height of 926 feet above grade.
- Timeline: Also part of Phase 2 (2029-2032).
- LT-3 PILOT Site:
- Location: Dyer Avenue, north of West 30th Street between 9th and 10th Avenues (Block 728, Lot 1).
- Specifications: Lot area of approximately 81,847 square feet; potential for up to 2.3 million gross square feet of commercial development.
The PILOT agreements allow the Port Authority to capture payments equivalent to real property taxes, mortgage recording taxes, and sales taxes from these three developments for a period of 40 years. These funds are estimated to provide up to $2 billion, covering 20 percent of the project’s cost. After the 40-year term, 100 percent of the PILOT revenues from these developments will flow to the city or the Hudson Yards Infrastructure Corporation (HYIC).
The Port Authority plans to offer PILOT benefits equivalent to those available under the Hudson Yards Uniform Tax Exemption Policy (UTEP) for Zones 2 and 3.
Understanding the Hudson Yards UTEP
The Hudson Yards UTEP provides tax incentives to encourage commercial development in the Hudson Yards area. Key features include:
- Zone 2: Located between the centerlines of Eighth and Tenth Avenues.
- Zone 3: Located west of the centerline of Tenth Avenue.
Eligible projects receive real property tax exemptions with PILOT payments calculated as a percentage of what taxes would have been without the exemption. The percentages start lower during the initial years and gradually increase until they reach full taxation after a specified period.
Application to the PABT Developments
- PABT North and South (Towers 1 and 2): These sites are within the Hudson Yards UTEP Area but not currently designated within a UTEP Zone. The Port Authority may offer PILOT benefits equivalent to those available to eligible Zone 3 projects at the time of lease execution.
- LT-3 PILOT Site: Located within Zone 2 of the Hudson Yards UTEP Area, the Port Authority may offer PILOT benefits equivalent to those available to eligible Zone 2 projects.
PILOT Calculation Under UTEP
The PILOT payments under the UTEP, aligned with the 40-year term of the Port Authority’s agreements, are structured as follows:
- Construction Period: PILOT payments equal full real property taxes.
- Years 1-4 After Construction:
- Zone 2: PILOT payments start at 75-85% of full taxes.
- Zone 3: PILOT payments start at 60-85% of full taxes.
- Years 5-15 After Construction: PILOT payments increase by 3% annually.
- Years 16-19 After Construction: PILOT payments phase out and adjust to the greater of a 3% increase over the previous year or a specified percentage of full taxes.
- After Year 19: PILOT payments equal full real property taxes (100%) for the remainder of the 40-year term.
By integrating the UTEP framework within a 40-year PILOT agreement, the Port Authority can offer tax incentives that reduce the initial property tax burden for developers. This strategy makes the developments more financially viable, attracting investment and facilitating funding for the construction of the commercial developments.
Potential Increase in Nearby Property Values
The new bus terminal is expected to enhance the neighborhood significantly. Improvements include modern facilities, increased public open space, and reduced street-level congestion due to buses moving off city streets and into the terminal. These enhancements can lead to increased demand for residential and commercial properties in the area, potentially driving up property values and property taxes.
Property owners in the vicinity may benefit from:
- Improved Infrastructure: A state-of-the-art transportation hub can make the area more attractive for businesses and residents.
- Enhanced Public Spaces: Nearly 3.5 acres of publicly accessible open space are planned, improving the urban environment.
- Economic Growth: Job creation during construction and increased commercial activity post-completion can stimulate the local economy.
Comparison with Existing Properties
The office buildings across the street from the bus terminal, 11 Times Square and The New York Times Building, have property taxes of approximately $30 per square foot. The new commercial developments may initially pay less per square foot due to PILOT agreements but will eventually reach full taxation levels.
Read more:
- GOVERNOR HOCHUL, MAYOR ADAMS AND PORT AUTHORITY ANNOUNCE AGREEMENT TO SUPPORT REPLACEMENT OF MIDTOWN BUS TERMINAL
- PORT AUTHORITY STATEMENT REGARDING LAND USE REVIEW APPROVAL OF PROJECT TO REPLACE MIDTOWN BUS TERMINAL
- Midtown Bus Terminal Replacement
- Midtown Bus Terminal Redevelopment PILOT Agreement Memorandum of Understanding, March 2024 (PDF, 391 KB)
- UTEP 3A&R with 1st Amendment
