A billion-dollar deal for the development of the West Side rail yards is near collapse, an outcome that would deliver a major blow to New York’s development community, which has already suffered through a string of setbacks caused by a tightening credit market and skyrocketing construction costs.

Late yesterday, Metropolitan Transportation Authority announced that the deal with the developer Tishman Speyer — reached just more than a month ago — had reached an “impasse.” “The cause of the impasse was Tishman Speyer’s attempt to change a central deal term in an effort to postpone the closing on the Eastern Yard until the Western Yard was satisfactorily rezoned,” a spokesman for the MTA, Jeremy Soffin, said in a statement. “This demand changed the economics of the proposed deals and the certainty of payments to the MTA.”

After a drawn-out selection process, the MTA tentatively chose Tishman Speyer to re-create the 26 acres that constitute the Hudson Rail Yards project on Manhattan’s West Side. At the time, Tishman Speyer won with a bid valued at just more than $1 billion, edging out its main rival, the joint venture of the Durst Organization and Vornado Realty Trust, in a fierce bidding war.

Within weeks of that announcement, the two parties had already missed the first of several deadlines. The MTA has not issued a “conditional designation letter” to Tishman Speyer, which was to have been issued within two weeks of their tentative agreement, reached March 26.
A spokesman for Tishman Speyer, Robert Lawson, said he is hopeful the deal can be salvaged.

“This is a highly complicated deal and we have been negotiating in good faith with the MTA for several weeks,” he said in a statement. “We share the same goal as the MTA and the City to transform Hudson Yards into a successful and vibrant community. We still hope to be able to complete this deal and reach an agreement that satisfies the needs of everyone,” he said in a statement.

A total collapse of the deal would represent a blow to the MTA. The agency pledged that the billiondollar infusion would immediately go toward plugging a $700 million gap in the agency’s budget.

Even before the ink was dry, there were several complications with the tentative agreement.

Tishman Speyer has been at loggerheads with the city over its commitment to an infrastructural improvement — specifically, sewer and water upgrades at the site. There was also disagreement between Tishman Speyer and the city over the raising of the streets surrounding the yards, required to facilitate the construction of a platform that the developer would be required to build over the working rail yards. The platform alone would cost Tishman Speyer more than $2 billion.

It is unclear whether the MTA would now have restart the bidding process or just opt for one of the runner-up bids.

The other bidders were Extell Development Co., the Related Cos., and Brookfield Properties. Mr. Soffin said the MTA is “exploring its options.”

A source with knowledge of the negotiations said the MTA would not necessarily have to start from scratch.

When asked about the possibility of reentering negotiations to develop the rail yards, a spokesman for the Durst Organization, Jordan Barowitz, said: “This is an extremely important project for the city and it’s imperative for the MTA to figure out how to make it work.”

Tishman Speyer had planned to build 8.1 million square feet of office space and about 3 million square feet of residential housing, with 3,000 residential units.

Governor Paterson, Mayor Bloomberg, and a number of other elected officials were on hand for the announcement of the Tishman Speyer deal, and touted the agreement as proof that a major development project could occur even in tough economic times. At the press conference. Mr. Paterson compared the project in its importance to the creation of Rockefeller Center, which was planned during the Great Depression.