Breaking: Vornado Pauses Penn Station Area Development Days After Major Community Lawsuit Questions ESD Approval Process


The breaking news is that Vornado will not begin new construction around Penn Station for an indefinite period because “headwinds in the current environment are not at all conducive to…development.” We will have much more on the implications of this announcement in the weeks ahead. 

Below is our summary of the important lawsuit filed last week by the Penn Community Defense Fund, ReThink NYC, the City Club of New York, and other community groups challenging the decision of Empire State Development (ESD) to approve the General Project Plan (GPP) for the Penn Station redevelopment project. The state’s FY 2018 budget gave the ESD the power to override New York City zoning laws and grant more than 18 million square feet of development rights to private owners around Penn Station. 

The community lawsuit makes three main arguments challenging ESD’s approval of the General Project Plan:

  1. First, the groups allege ESD’s approval of the GPP and the Final Environmental Impact Statement (FEIS) was arbitrary and capricious, an abuse of discretion, and in violation of various laws. According to the suit, ESD has asserted that the GPP is necessary to generate new revenue to support the reconstruction and potential expansion of Penn Station, but, as Reinvent Albany has also highlighted, the suit notes that ESD has not provided any evidence as to how the GPP serves that purpose. ESD has not made adequate cost estimates for Penn reconstruction, nor has it provided any final revenue estimates for the GPP. The suit also posits that ESD’s estimates of when GPP revenue would be available did not consider the impact of remote work or the oversupply of Midtown office space. (The vacancy rate for office space in Midtown was 21.5 percent in the second quarter of 2022, up from 21.0 in the first quarter, as stated in the suit).
  1. Second, the groups allege ESD violated the State Environmental Quality Review Act (SEQRA) by segmenting its review of the Penn Master Plan. According to the suit, SEQRA requires that state agencies undertake an environmental review of any proposed actions, and requires agencies consider entire actions; conducting separate reviews of individual components of actions is not allowed. However, in its environmental review, ESD only considered the GPP and not other parts of the Penn area Master Plan: Penn reconstruction, a potential expansion of Penn Station, and transit and public realm improvements in the neighborhood.
  1. Finally, the groups say the GPP area around Penn Station is not “blighted” and thus not eligible for assistance according to the Urban Development Corporation Act (UDC Act). The UDC Act authorizes ESD to acquire, sell, and lease property by eminent domain and override local laws for “civic” or “land use improvement” projects. The UDC Act, according to the suit, does not apply because the area in question is not blighted, proving that it is not a “land use improvement” project. The suit says that very few of the lots in the project area are in bad shape: just eight of the Project Area’s 61 lots are in “poor” or “critical” condition – and the only lot in critical condition is owned by Amtrak. A much higher threshold of lots were considered “blighted” in the Atlantic Yards project: 86%. Further, because the GPP does not make provisions for project costs, it cannot qualify as a “civic” project. 

The groups’ lawsuit also asks the court to find that the Public Authorities Control Board’s (PACB) July 27, 2022 vote was “arbitrary and capricious” and violated Public Authorities Law. By law, the PACB exists to approve or disapprove “applications” from designated state authorities, including ESD, based on a “commitment of funds” sufficient to pay for the project. However, the PACB did not approve any such thing. In fact, the PACB approved a non-binding, non-enforceable framework agreement between the city and the state regarding possible future Payments in Lieu of Taxes (PILOTs). On the PACB’s own agenda, the amount of bonding that ESD would eventually seek for the project was listed as “$N/A.” Throughout, ESD failed to state the actual terms and conditions of the city-state agreement, and failed to demonstrate it has the commitment of funds for the project. 

The groups also document ESD’s failure to maintain an arm’s length relationship between ESD and Vornado Realty Trust, who owns or controls four of the eight parcels (and part of a fifth) covered by the GPP. The petitioners state that it is clear from documents obtained via a Freedom of Information Law (FOIL) request that the project is a “joint venture” between ESD and Vornado. The company, as noted by the petitioners, will benefit “extravagantly” from the project. In an email from Holly Leicht of ESD to ESD staff and senior Vornado executives, Leicht said, “We need to coordinate and script this meeting to ensure we’re cohesive and have a good story to tell about why we landed on these [tower] densities….”

The lawsuit clearly outlines why Vornado’s prominence in developing the project created an unseemly conflict for the state:

The financial interests of Vornado and ESD (and by extension, the taxpayers of New York) were in direct conflict: What was better for Vornado was worse for ESD, and vice versa. How could advisors resolve those conflicts in a manner that did not prejudice New York’s taxpayers?

Click here to view the full lawsuit.