Another NYC Project Delayed as Recession Continues to Hammer Office Sector

Just days after news broke that Manhattan’s $1 billion Hudson Yards project would be delayed, another major development in the city has been put on hold as a result of the economy’s continuing struggles. Boston Properties Inc.’s $980 million 250 West 55th St. saw one of its major planned tenants scrap plans to relocate to the 1 million-square-foot tower, forcing the developer to suspend construction. The delays are two of the most visible signs yet of just how much the office market has been battered by the recession, which is eroding tenant demand and limiting financing options for owners.Boston Properties, the biggest owner of office space in the United States, had planned to complete the tower in 2011, but the next step remains unclear after a law firm–reportedly Proskauer Rose L.L.P.–was unable to come to terms on a plan to lease 480,000 square feet in the building. “Recently the law firm informed the company that it could not proceed… thereby rendering the project economically infeasible in today’s environment,” Boston Properties said in a statement. Another law firm, Gibson Dunn Crutcher L.L.P., has already agreed to a lease for 22 percent of the property. By suspending construction, Boston Properties said it will reduce its capital commitments through 2011 by some $450 million. Given the state of the current economy and credit markets, not having to come up with that cash is a significant weight off of the firm’s shoulders. The office sector has been among the most affected, suffering as a result of both a drop in the space demanded by tenants as well as credit that is much harder to come by. And Manhattan, which is home to many currently struggling financial firms, saw office vacancies jump to 7.6 in the final quarter of 2008, according to real estate services firm CB Richard Ellis Inc.The announcement comes just days after the development team of Related Cos. and Goldman Sachs said they would extend their partnership period by an additional year in order to accommodate an expected delay in the $1 billion mixed-use redevelopment of a pair of rail yards on Manhattan’s Far West Side. The construction schedule for the project was not yet set at the time the delay was announced.