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By Joan Gralla

NEW YORK, March 26 (Reuters) - New York's Metropolitan Transportation Authority on Wednesday preliminarily approved leasing its west midtown rail yards to developer Tishman Speyer for $1 billion, which topped an offer by Vornado Realty Trust VNO.N in down-to-the-wire negotiations.

Tishman Speyer, which manages New York City's landmark sites Rockefeller Center and the Chrysler Building, will have to spend $2 billion -- four times more than first estimated -- to build a roof over the 26-acre site to support the apartment buildings and office towers planned to rise above it, MTA officials said.

Tishman's plans a massive mixed-use complex, including five office buildings, a public school, retail shops, and more than 1,000 apartments. One feature will be what Tishman calls a "contemporary reinterpretation" of Rome's Spanish Steps, which will link to a promenade along the Hudson River.

The Hudson Yards is the last large tract in Manhattan, a fairly desolate site with few large buildings.

The price for the 99-year ground lease is much less than first expected because soaring construction costs greatly increased the roof's cost and the credit crunch has made it harder for developers to borrow money, officials said.

Democratic Gov. David Paterson compared the yards to the 1930s-era Rockefeller Center. "We are not in a Depression as we were at that time, but we are in a recession. ... Launching the project, we hope, will send a serious, an enormous signal of the confidence that we have in the city's future."

Mayor Michael Bloomberg, asked if the real estate market's downturn will stall the building, said, "You can never be sure of anything but I think it is a wake-up call to get going. ... When you have an opportunity, those people who are successful seize the opportunities and run with them."