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The man behind the largest real estate project in U.S. History

Stephen Ross is pitching the dream, with an extra dollop of hyperbole. The founder and chairman of Related Cos. is standing on a dilapidated branch of an ancient elevated railway, known as the High Line, that runs through the Chelsea neighborhood on the West Side of Manhattan near the Hudson River. Below him is a bleak industrial landscape — a vast rail-yard complex packed with the trains that feed Pennsylvania Station, surrounded by a patchwork of parking lots and auto-repair shops. “This is not how New York should look!” exclaims Ross over the drone of the locomotives on a sunny morning. “We will change that. You’re looking at something that will be far greater than Rockefeller Center — that will be the new heart of New York City.”

Pointing with a roll of blueprints, the master real estate developer sketches the skyline of a future city within a city by describing where landmarks will rise over the next decade. He gestures toward the site of two silver skyscrapers to come, one a new headquarters for Coach, the other reportedly set to be occupied by Time Warner. Jutting out from the Time Warner tower will be a triangular, open-air observation deck at a height of 1,053 feet that, Ross boasts, “will be a few feet higher than the deck at the Empire State Building!” The two office behemoths will bookend New York City’s biggest retail mall, an ultra-luxury emporium the size of an entire city block and at least five stories tall. Its 14 restaurants will feature an exclusive menu of celebrity chefs, from Daniel Boulud to Thomas Keller, in a complex curated by master restaurateur Danny Meyer. The new metropolis, says Ross, “will display the work of more great architects in one place” than any other development anywhere in the world, showcasing the contrasting designs of luminaries such as David Childs, Robert Stern, David Rockwell, William Pedersen, and Elizabeth Diller.

Welcome to the Hudson Yards. Put simply, it is the largest private real estate project in U.S. history — and, in fact, worthy of most of Ross’s superlatives. Related Cos., one of the world’s largest private real estate developers, is both the controlling owner of the site and the developer for its planned 17 buildings. The project calls for 18 million square feet of offices, stores, apartments, hotels, a school, and even a mammoth, city-sponsored “culture shed” for fashion shows and concerts. Some 55,000 people will live or work here. Its size eclipses America’s previous largest development, the 16.8- million-square-foot CityCenter in Las Vegas, and it’s likely to get larger; its $20 billion estimated cost is unparalleled as well.

Related agreed to buy the rail yards from the city five years ago for $1 billion. That’s the price tag for the official site, and it covers 26 acres, the equivalent of six city blocks, encompassing the entire area between 30th and 33rd streets and 10th and 12th avenues. But Related, along with its joint venture partner, the Canadian real estate giant Oxford Properties, is greatly expanding its footprint in the Hudson Yards neighborhood by purchasing adjacent parcels. Like a latter-day Robert Moses, Ross has a plan that will dramatically shift the center of gravity of America’s biggest city. New York is hungry for modern, state-of-the-art office and apartment towers, and that’s what the Hudson Yards will offer in a single, gigantic location. “You’ll never see 26 acres again in the heart of a great city, where you can build an entirely new neighborhood totally from scratch,” says Tom Barrack, CEO of Colony Capital, a $28 billion private equity firm specializing in real estate. Construction officially began late last year, and the first building is scheduled to open in 2015.

Pulling off such a colossal project in the middle of New York City won’t be easy. Besides navigating the complex, 10-year construction schedule, Related must build hugely expensive infrastructure: The entire development will rise on top of six-foot-thick concrete platforms that will spread, building by building, to cover the rail yards because the trains will keep running below. The concept is actually nothing new for New York. The northern stretch of Park Avenue, the city’s premier residential address, arose over sunken rail lines in the 19th century.

Fortunately for Ross, forces are coalescing to give the Hudson Yards project strong momentum. The Manhattan real estate market has rebounded from the financial crisis. And the Metropolitan Transportation Authority is spending $2.4 billion on the first major subway extension on the West Side of Manhattan in more than half a century. A new branch of the No. 7 subway line will go from Times Square to a terminus adjacent to Hudson Yards, connecting the once-isolated area to Midtown and Grand Central Terminal by mid-2014.

It all appears to be coming together for Ross, 72, a real estate titan at the top of his game. With a fortune estimated at $6 billion and a side job as the owner of the Miami Dolphins (he took a controlling interest in 2009 for a total price of $1.1 billion), Ross could have chosen to settle into a cushy, jet-setting retirement. Instead he’s taking on a slate of ambitious projects around the globe. In Abu Dhabi, Related is co-developing the 280-acre Al Maryah Island complex, one of the largest real estate projects ever in the Middle East. In Brazil, Ross is building two luxury condo towers in São Paulo in partnership with his longtime pal Jorge Pérez, who founded the similarly named, Florida-based Related Group, of which Ross’s Related owns a 25% share. Then there’s the Grand Avenue urban-renewal project in downtown Los Angeles, where Related has begun work on a complex that will include hotels, stores, and apartments covering three city blocks. Back in New York, Related is also leading the historic rebirth of barren Willets Point, a 23-acre area in Queens around Citi Field, home to the New York Mets.

But it is Hudson Yards that will be the crowning achievement of his long career. Ross took on the project during the depths of the financial crisis. It was his vision of what could be and the force of his personality that overrode the risks of starting with no tenants or financing. And now that work has begun on the site, the lawyer-turned-developer is overseeing it with the same relentless attention to detail that he brings to all his projects. Ross granted Fortune an exclusive look into how he runs his business and described how his long career in real estate prepared him for attempting a project as outrageously ambitious as Hudson Yards.

If there’s one quality that sets Ross apart from other major developers, it’s his skill at orchestrating highly complex projects. He specializes in keeping all the elements in balance, planning to ensure that the inevitable downward shifts in rents and prices during a multiyear project don’t derail it along the way. Ross’s approach to building Related, which he founded in 1972, reflects his view that developers get in trouble not because their projects won’t eventually thrive, but because they lack core financial strength and hence run out of cash in tough markets. Most developers sell their apartment buildings and retail centers once they’re completed and move on to the next deal. Related’s strategy is to own and manage the projects it builds.

Today Related has a $20 billion portfolio, primarily consisting of shopping malls and apartments — lots of apartments. The company owns 5,000 mostly upscale rental apartments in 20 buildings in New York City, making it one of the Big Apple’s largest landlords. And it has another 1,000 rental units in Boston, San Francisco, and Chicago. Ross got his start in affordable housing, and that market remains a bedrock for Related: The company’s portfolio of 45,000 below-market-rate apartments in 19 states is among the largest in the nation. Though Related declines to disclose its free cash flow, Fortune estimates that it’s several hundred million dollars a year. That big, recurring income stream gives Related a stability rare in the development world.

With such a solid financial base, Ross is willing to take huge risks on gigantic, long-term projects that spook his rivals. “He’ll take it right to the edge,” says Rafael Cestero, who served as New York’s affordable-housing chief under Mayor Michael Bloomberg, “but he never goes over.” Ross is a master at sequencing jobs so that the tenants or buyers he attracts at the start cover a big chunk of the eventual costs, even if he generates no profit from those early deals. That’s the strategy at the Hudson Yards, where the office space is essentially a loss leader for the highly lucrative stores and apartments that will arrive much later.

It’s a playbook that Ross has used before. He has become the biggest practitioner in the U.S. of what’s called mixed-use development. Rather than specialize in apartments, retail, or office buildings, today Ross not only builds all three but also blends them into fully integrated neighborhoods that, though they’re built all at once, resemble areas developed organically over decades. In his view, all three components reinforce one another, making each more valuable than it would be alone. “Most developers don’t like mixed use,” says Barrack. “They want to specialize. It’s a much more complex exercise, but the potential profits are also much bigger.”

That approach has helped make Ross perhaps the leading private figure in a real estate revolution in New York in recent years. Bloomberg’s greatest accomplishment in his 12 years as New York City’s mayor was to rezone large swaths of underutilized land from industrial and commercial uses, for which demand was extinct, to residential and office use. “We were accused of being too close to Ross,” says former deputy mayor Dan Doctoroff, now CEO of Bloomberg LP, “but Ross was the only developer willing to step up on projects like the Hudson Yards. He was also the best at mixed use. Ross shared Bloomberg’s vision of New York more than any other developer.”

In his wood-paneled office on the 19th floor of the Time Warner Center in Midtown Manhattan, filled with Dolphins and University of Michigan Wolverine paraphernalia, Ross chronicles how his career divides into a series of quantum leaps to ever more daunting projects. The setting is appropriate, since the Time Warner Center was his first large-scale, mixed-use project and has proved to be a valuable training ground for Hudson Yards. There are doubters each time he takes on a new, bigger project, says Ross. “I always just say, ‘We’ll figure it out.’ ”

Ross grew up in Detroit, the son of an inventor of vending machines and fuel additives whose creations often failed to make money. As a business role model he had his uncle, Max Fisher, a Detroit gas-station magnate and local legend who would later rescue his nephew during hard times. While Ross was still in high school his family moved to Miami, where he graduated from Miami Beach Senior High School, ranked 400th in a class of 440. He managed to get admitted to the University of Michigan, class of 1962, and today is a leading benefactor of his alma mater. In 2004 he endowed the renamed Stephen M. Ross School of Business with a $100 million gift. The ringtone on his cellphone plays the Wolverines’ fight song, “The Victors.”

After practicing tax law for a few years in Detroit — “Being best known as Max Fisher’s nephew was not the way to go through life” — Ross ventured to Wall Street, taking a job with Bear Stearns in 1970. It was clear from the start that the headstrong Ross didn’t like working for anyone else. He soon clashed over a deal with a partner, who announced, “I have no confidence in Ross!” Ross shot back, “I have no confidence in you either. So go to hell!” He got fired the next day. A $10,000 loan from his mother paid for rent and meals while Ross sought to apply his expertise in tax law to development.

He realized that specializing in affordable housing had the potential to be highly lucrative, chiefly because the tax benefits were extremely enticing to investors. His first project was a 150-unit apartment complex in Woonsocket, R.I. It’s a business Ross has pursued ever since. Although affordable-housing programs vary widely, the basic formula is generally similar, and Ross mastered it. He typically raises all the construction financing from the proceeds of low-interest municipal bonds and tax credits purchased by banks and wealthy individuals. “The investors get the tax credits; the cash flow goes to the developer,” explains Ross. As a result, Ross would get to own the buildings — and collect a stream of rents that varied little in good times or bad — by investing small amounts of his own cash.

By the mid-1980s, Ross had established himself as a rising star in mainstream development as well, erecting residential towers on Manhattan’s Upper East Side. But near disaster struck in the real estate crash of the early 1990s. “I was worth $350 million in 1988, and by the early 1990s, I was worse than broke,” recalls Ross. “I owed the banks $120 million.” Confident the market would recover, Ross bought time by allowing the banks to secure their loans with his finished and unfinished buildings. His uncle Max and his friend Pérez, among others, invested a total of $15 million in exchange for equity in Related, and later cashed out for four times their investment. Ross was able to keep most of his properties.

But the near-death experience changed his thinking forever. From then on, Ross shunned the high leverage that’s routine with most developers. Today he raises around half the cost of his projects in equity that Related and its partners provide. Ross also learned the wisdom of getting gobs of cash from investors when times are good.

Ross believes in finding talented people and holding on to them. During a visit to the University of Michigan in 1988, a real estate professor told Ross, “You’ve got to hire this kid — he’s the brightest student I’ve ever had.” The wunderkind was Jeff Blau, who would become Ross’s ace dealmaker. Proving that he had the chutzpah necessary to work with Ross, Blau, whose father was a plumbing contractor and small developer in Queens, told Ross that he needed to get back to New York for the weekend and asked for a ride in Ross’s plane. “I had no reason to go back to New York,” says Blau. “I just wanted time on the plane with Stephen so he’d offer me a job.” When Blau joined Ross full-time in 1990, Related was doing no new projects. The development staff had shrunk from 20 to four. Blau filled the time by commuting to Philadelphia to secure an MBA from Wharton. Blau told Ross that he’d work for him for a couple of years, then start his own business. “If you’re as good as you think you are, I’ll find a way to keep you,” Ross told him. In September of 2012, Blau, 45, replaced Ross as Related’s CEO.

Blau’s tenure is a tribute to Ross’s ability to keep ambitious lieutenants supremely challenged, as well as make them rich. Ross also recognizes that to keep such folks he needs to make them partners. Blau and Bruce Beal, Related’s president, alone own 30% of Related, worth more than $2 billion. Unlike many New York developers, Ross — who has two daughters from his first marriage and two stepdaughters — has no relatives in the company.

After a series of highly successful projects in the mid-’90s, Ross and his team captured the prize that made Related a truly major player: the Time Warner Center. Mayor Rudolph Giuliani called for proposals to transform the decrepit New York Coliseum convention center at Columbus Circle into a commercial hub. Ross proposed the largest, most daring mixed-use development in Manhattan history. The plan was incredibly complex and extremely expensive. But Ross was confident he could make all the elements work together. The major innovation was the extensive use of “vertical retail” — four levels of stores and a plaza of restaurants, operated by top chefs, on the top floor. “Almost no one thought it would work,” says Ken Himmel, a mixed-use specialist who ran the retail portion of the project and is playing the same role at the Hudson Yards. The other bidders put most of the retail on the ground floor, with a heavy concentration of banks and drugstores. Vertical retail, separate stores in a multistory complex, had never worked well in Manhattan. New Yorkers preferred department stores such as Macy’s and Bloomingdale’s. Or they shopped at the fancy boutiques on Madison Avenue.

Ross believed his approach could work, but he felt he needed to hedge by finding a major anchor tenant for the office space. In early 1998 he wangled a five-minute slot on the schedule of Dick Parsons, the president of Time Warner (the parent of Fortune’s publisher). “What do you want?” asked Parsons. “There are eight companies bidding on Columbus Circle, and they’ve all been here, and we don’t need more space.” Ross went into full promoter mode. “Dick, this isn’t about space. It’s about showcasing the greatest media company in the world,” he said. Parsons grasped the brand value of having a trophy building, in a world-class location, named for his company. “I knew it would be an iconic place,” Parsons told Fortune. “Our deal put Related on the map and transformed the West Side of Manhattan.”

The Time Warner Center started slowly but proved incredibly lucrative. (If it moves to Hudson Yards, Time Warner will eventually vacate its namesake building.) Boasting upscale tenants from Hugo Boss to Tourneau, as well as a base of mid-tier stores, the vast shopping plazas generate spectacular rents; sales per square foot on the ground floor approach those for the same stores on Madison Avenue. And the prestigious restaurants, including Masa Takayama’s Masa and Thomas Keller’s Per Se, draw crowds to the upper level, right past the display windows of Sephora and J. Crew. That success in blending diverse elements provides a template for Hudson Yards.

On the surface, Ross’s approach to business, and everything else, can look haphazard and improvisational. Friends variously describe Ross as loud, rough, dramatic, and “a bull in a china shop.” “When he goes after something, he’s like a bulldog,” says Pérez. “He shows total single-mindedness. What amazes me is how he blends that with an uncanny ability to keep and grow good people.” A trademark tactic is to take the opposite side of almost every argument. He’ll pop into a meeting about a new building where almost everyone in the room thinks it should have three uses and argue that three is too many. Then he’ll invade the same meeting the next day and argue that four uses is a better idea. “He argues the opposite to make you defend your position,” says Beal, Related’s president. “He actually hasn’t made up his mind and wants to listen to all the arguments, from every direction.”

Before the crash of 2008, Ross made two strategic gambits that fortified Related for the turbulence ahead and provided the ballast needed to secure the Hudson Yards deal. Ross had recognized the gathering storm. “I knew the world would change,” he says. He remembers how his uncle Max Fisher had secured oil for his filling stations on long-term contracts during the Great Depression when supplies were plentiful. “He had a steady flow when scarcity hit later, when no one else did,” recalls Ross. So Ross decided he’d take in a lot of cash while it was plentiful. In December of 2007, he sold 25% of Related for $1.4 billion to five investors: Michael Dell’s MSD Capital, Goldman Sachs, the Kuwait Investment Authority, Mubadala Development of Abu Dhabi, and the Olayan Group of Saudi Arabia. He used part of the cash to buy his first stake in the Dolphins. But a large portion went to bolster Related’s working capital.

When the real estate crash struck, Ross, Blau, and Beal made a second fateful decision: radically changing the business to keep staff in place. Ross announced that Related would suspend all projects not already being built. Blau’s role was to find jobs that Related’s people could perform to generate revenue in a bad market. “We wanted to keep all our people so they’d be ready to go when things turned around,” says Blau. “We transformed our development people into workout people.” For example, Related sent 100 staff members to Las Vegas to rescue the foreclosed-on, $3 billion Cosmopolitan hotel and casino. Related generated substantial fees on the project by reconfiguring it and completing construction on schedule and on budget.

Then, in early 2008, came the opportunity to bid on Hudson Yards — and it almost eluded Ross. The rail yards had originally been picked as the site for the Olympic Stadium in New York’s campaign for the 2012 Games. But after the games were awarded to London, Mayor Bloomberg pivoted and asked top developers for their visions of a metropolis-size development. Ross signed up News Corp. as an anchor tenant and thought Related was a cinch to win. However, in March 2008, Bear Stearns collapsed, signaling the larger crisis to come. News Corp. withdrew the day before the final bids were due. Related effectively folded, and the city chose Tishman Speyer. Ross was disconsolate. Within days he was telling anyone who would listen that he shouldn’t have been so cautious and rational and should have stayed in the race, even without an anchor tenant. “When Stephen lost the first time, he went through an unspeakable litany,” says Marty Edelman, a real estate attorney with Paul Hastings and a longtime friend of Ross’s. “He kicked everybody and anybody for everything. No one escaped except the doorman — until he finally settled on blaming himself.”

Miraculously, he got another chance: In late May 2008, Tishman Speyer suddenly dropped out. The city, desperate to get started, offered the deal to the previous bidders. Only Related stepped forward. However, in negotiations with the city and the MTA, which owned the site, Blau insisted on a major change to the terms. The Tishman Speyer deal had called for the developer to go to contract — essentially commit to buying the land — in four months and start making big payments two years later, in late 2010. Blau and Ross decided that in this dire market, they needed far more time. If they couldn’t find tenants for several years, they’d be forced to make the large payments to the city without any income. The MTA agreed to charge no rent for five years after the closing.

But Ross remained nervous. He still feared that the payments could start long before the project generated any real income. Ross hatched a brainstorm that saved the day. He proposed that the closing be contingent on achieving three “triggers,” or benchmarks, that, once reached, indicated a strong revival in real estate. They included measures based on residential prices and construction activity. The triggers were conceived by Ross as a strategy to buy time, since all three had to hit before Related could be forced to close on the land. Ross was essentially getting an option on the Hudson Yards. It was a wise move. “Even by early 2012, there wasn’t a tenant to be found,” says Blau. But then the market turned. In a major coup Related signed Coach as anchor tenant in its first tower. From that point on, the deal wasn’t in doubt. Related officially closed on the land in April 2013, after investing $300 million in planning, deposits with the MTA, and foundation work.

By dangling the promise of thousands of union jobs, Ross and Blau were able to negotiate crucial cost concessions from New York’s construction unions. It was those concessions that enabled Related to offer Coach, Time Warner, and the other early tenants great deals for taking most of the space in the first two towers. Ross acknowledges that he’s breaking even at best on the early office deals and will generate slim margins from the tenants who are signing on, at higher rates, right now. All told, however, the Hudson Yards should prove highly profitable for Related because the big money is in retail and residential, and residential alone constitutes about half the project. Today condo and rental buildings in Manhattan sell for almost $3,000 per square foot, more than twice what office buildings fetch by the same measure. Related’s edge is the low, and frozen, cost of land, even adding the high expense of installing platforms. “When residential prices rise, so do land costs, which takes away most of the profit,” says Blau. “But we’ve locked in our land costs over many years. They can’t be bid up.” So Related will benefit hugely from future gains in prices.

Back on the elevated rail line, Ross points toward the Hudson Yards’ five-acre public square. He’s especially excited, he says, about the giant sculpture he has commissioned for the site — his gift to the city and a monument that should be worthy of the grandeur of Hudson Yards. In typical Ross fashion, he’s holding an epic sculpt-off, auditioning the works not of one great sculptor, but six. The contest is rumored to pit such legends as Anish Kapoor, Jeff Koons, Thomas Heatherwick, and Richard Serra, or others in their class, against one another. According to his staff, Ross is telling the famous contestants to “raise their games,” to create something totally unlike anything they’ve done before. The colossal work will be many stories high and could cost upwards of $100 million. “This sculpture will be the greatest tourist attraction in New York,” Ross immodestly predicts. “It will be more than the Christmas tree in Rockefeller Center, but 365 days a year. It will be to this city what the Eiffel Tower is to Paris.” As Ross knows, you don’t pull off the biggest real estate deal in U.S. history by dreaming — or talking — small.

This story is from the September 16, 2013 issue of Fortune.