From an article by Elliot Brown of the New York Observer:
Given that Vornado owns essentially half the neighborhood surrounding Madison Square Garden, and Related is its 50-50 joint venture partner in Moynihan, if the two were able to get their hands on those air rights, they would be able to (eventually) remake the midtown south district and build numerous new towers in the area. Back in headier times, Mr. Roth said simply redoing Penn Station would make Vornado “$1.2 billion in value creation,” adding that “we are about making money here on a grand scale.”
In all, $14 billion in construction was once planned if the transaction had ever come together.
The two Steves put relentless efforts into this plan between 2005 and 2008, trying to convince the Dolan family to move to the rear of the neighboring Farley Post Office—where the developers would build them a brand-new arena—and purchase the Garden with its air rights. But the Dolans balked at the uncertainty and lack of progress on the part of the government, which would have needed to put up in the neighborhood of $1.5 to $2 billion in public funds to rebuild Penn Station. The Dolans ultimately pulled out, and now the public sector is aiming to do a scaled-down version of Moynihan, but even that is up to $1 billion short of funds, at least by one recent estimate.
Thus, those air rights are surely far more valuable to the two developers, who would be able to move the Garden themselves and then use the air rights, than they would be to some other team owner, who would be far less certain about eventually ever striking a deal to sell the arena to the developers and getting a new arena in return.
From an article by Alex Finkelstein of the Real Estate Channel:
In a prepared statement Garden CEO Hank Ratner said it would be “imprudent” at this time to forecast the total final cost of the long-awaited renovation of Madison Square Garden.
However, he said the company is budgeting for more than $977 million. Previously, MSG had pegged the total cost of the renovation at between $775 million and $850 million.
Ratner said the company, once part of Cablevision Systems Corp., had moved up some construction plans, making them a bit more costly. He added that the project overall is proceeding as expected.
From a testimony of Theresa Devine, a senior economist with the New York City Independent Budget Office to the Finance Committee of the New York City Council, on January 7, 2008
“Of course, the Garden also competes against other sports venues for fans and revenue. In recent years the city—ignoring the argument that sports facilities are a bad investment—has entered into agreements with the Nets, the Mets, and the Yankees to subsidize new facilities for each of those teams. IBO has estimated that the net present value (40 years with discount of 6 percent) of these city subsidies range from $140 million for the Nets arena to $162 million for Yankee Stadium. These deals also include additional state subsidies and federal tax exempt financing. Measured on a comparable basis, the Garden’s exemption represents a city subsidy of about $218 million. While the value of the Garden’s subsidy from the city is larger, with these other deals, the city has somewhat leveled the playing field in terms of public subsidies for our major league sports teams.”