New York City – Real Estate Slump? Developers Plan 60-Story Hospital Industry Center on West Side

New York City – A major hospital trade association, one of New York City’s most aggressive developers and a financier with a personal interest in health care are teaming up in hopes of building a 60-story glass-and-steel tower on the West Side of Manhattan that would function as an international showcase and permanent conference center for the hospital industry.

The partners – the Greater New York Hospital Association, Extell and Israel Green, a deep-pocketed investor little known outside the real estate industry – say the building would open in late 2013 and would serve as an anchor building for the Hudson Yards, more than 50 blocks of riverfront stretching from West 28th Street to West 43rd Street that make up one of the last parcels of underused land in Manhattan. The Bloomberg administration originally wanted to put a $2 billion football stadium for the Jets on the site, but that notion was blocked by the State Legislature.

Real estate projects all over New York City have been stalled or stopped in their tracks because of the shrinking credit market. But the backers of the World Product Centre, as the tower would be called, say that the prospects for their project – estimated to cost $500 million to $1 billion to build – are uniquely auspicious because the health care industry has proven in the past to be countercyclical and recession-proof, since people always get sick.

In interviews on Wednesday, the developers or their representatives said they imagined the building as a permanent exhibition center for hundreds of vendors to the medical industry, from hospital food and furniture suppliers to pharmaceutical companies and makers of X-ray machines and surgical devices. They have assembled a team of salespeople to begin marketing the 10-year leases that would help secure the financing for the building, focusing their attention on some of the country’s largest health care companies, like Cardinal Health Care, a Fortune 20 company with $90 billion in annual revenue.

Situated on the east side of 11th Avenue between 33rd and 34th Streets, where the now-demolished Copacabana nightclub once stood, cater-corner from the Jacob K. Javits Convention Center, the tower would also house the headquarters of the hospital association, now located on West 57th Street.

“From an economic development aspect, it’s more important than ever to do a building like this, because New York City’s future can’t be continued reliance on Wall Street,” said Marc V. Shaw, executive vice president for strategic planning at Extell, the development company, and a former budget director in the Giuliani administration and former chief executive of the Metropolitan Transportation Authority.

The Bloomberg administration has embraced the project as part of its efforts to wean New York City’s economic base away from the financial industry, which has been its mainstay, and as a way to bolster the tourism industry by filling hotel rooms with medical executives during the off-season.

Robert C. Lieber, deputy mayor for economic development, said in an e-mail message on Wednesday, “New York City has all the makings of a major hub of commercial bioscience activity – more than 70 hospitals, top medical research institutions, the most talented work force in the nation – and we see the industry as a prime opportunity to grow and diversify the economy.”

Lee H. Perlman, president of the for-profit venture arm of the Greater New York Hospital Association, said the centralized location would address Congressional concerns that the financial relationship between hospitals and doctors and their suppliers, including drug and medical device companies, has become too cozy and insulated from public scrutiny.

But real estate executives and others said it would be an uphill fight to convince potential financial backers of the project’s potential to succeed in bleak economic times. They noted that the International Toy Center, a similar concept, failed and is now being converted into offices and residences.

One executive who spoke on the condition of anonymity for fear of alienating Extell said he found it hard to believe that enough companies would commit to 10-year leases in the current market to make the project financially viable. “Under normal conditions, Israel Green and Extell could – and did – raise a lot of money,” the executive said. “They are as smart as they come.”

But he said that over the next 12 months, space would become cheaper to lease, and that it might make more sense to lease than to build. “There is nothing getting done or built that’s over $100 million these days, because you simply cannot get the lenders together to fund it,” the executive said. “In fact very little is being done above $75 million. When you’re looking into a crystal ball, a year to a year and a half looks to us like a train wreck just beginning to hit.”

Anna Levin, chairwoman of the Clinton-Hell’s Kitchen Land Use Committee for Community Board 4, said the infrastructure for Hudson Yards could not yet support a 60-story building, and that infrastructure construction – including the extension of the No. 7 subway – was likely to fall behind schedule because of the sagging economy.

“It may not be a stupid idea, but at this point I think it’s kind of an isolated idea, wrapped up in a whole bunch of uncertainties,” Ms. Levin said of the plan for the World Product Centre. “It’s all still a pretty picture, but with no reality behind it yet, and this smells to me like the city is trying to create some reality.”

The World Product Centre was jointly conceived by Mr. Perlman and Mr. Green. Mr. Green and a partner, Joseph Neumann, owned the Salmon Tower, a 59-story office building at 500 Fifth Avenue, at 42nd Street, in the 1980s. Mr. Green said he became interested in health care after his wife was found to have thyroid cancer 10 years ago, and that he had originally hoped to build the World Product Centre near the World Trade Center – hence the word “Centre” in its name – a plan that was dashed by the 2001 terrorist attack.

The developers said that the building would have 1 million square feet of space and 1,800 showrooms, but that a typical company would occupy two or three showrooms. Mr. Perlman said that the backers needed 10-year commitments from about 600 companies to make the financing work, and that they would need to sign up about 200 to start construction.

Mr. Perlman said that several companies had expressed interest, though none had yet signed a lease. “We have 18 months to do it, and that’s our goal,” he said.

Mark Rosenbaum, an executive at Cardinal Health, based in Ohio, said the company, with 2,500 sales representatives, has showrooms in Columbus and San Diego, and often shows clients its products in use at places like the Cleveland Clinic or the Mayo Clinic. “I think it makes sense,” Mr. Rosenbaum said of the World Product Centre. “We are certainly interested in it, and we are very seriously considering what it might mean to us.”

Mr. Shaw said the developers were not asking for government financing at this point, though they might look for tax breaks down the road. He said the building would finance itself through leases that would “replace the conventional bond that’s hard to get right now.”

Besides the showplaces and trade association headquarters, the tower would include a 500-seat auditorium, work spaces for visiting businesspeople, and a training and education center for the hospital industry.