The Metropolitan Transportation Authority, which owns the yards, approved the choice at its board meeting Wednesday.
Tishman, which also owns the Stuyvesant Town apartment complex, and four other developers started a bidding war last fall for the lucrative swath of government-owned land, which officials hope to turn into the city's third major business district.
Gary Dellaverson, the MTA's chief financial officer, who negotiated the deal, said the Durst-Vornado team continued to make counteroffers up until Tuesday evening, but "their economic offer was still less than Tishman Speyer."
Tishman Speyer purchased a 99-year lease to the land - where it plans to build as much office space as was in the destroyed World Trade Center complex, over 2,000 apartments and cultural space.
The developer has an option to eventually purchase the buildings - and can walk away from the project if a planned western extension of the No. 7 subway line is abandoned.
The MTA - searching for cash to stem a budget shortfall of up to $9 billion - said the deal would help them close budget shortfalls of up to $700 million over the next few years.
But MTA officials said Wednesday the payments would amount to about $88 million in rent over three years; they said the possibility of selling off the land to Tishman Speyer and other market changes could generate much more revenue.
Before any buildings are built, Tishman Speyer will have to spend over $2 billion to build platforms over the existing rail yards to allow for the development. It also is taking on a project without an anchor tenant; Morgan Stanley initially paired with Tishman Speyer but recently dropped out.
Tishman Speyer had proposed more office space than any of the other developers - over 10 million square feet. Durst-Vornado had proposed about half as much office space and twice as many apartments, a ratio favored by community leaders who sought a neighborhood geared more toward residents than offices.
"This is just a commercial fortress, and not very well connected to its surroundings and not an appealing place to think about being," said Anna Levin, who heads an advisory committee of community groups interested in the development.
She said it was the least appealing of the five proposals presented months ago to the public.
All the developers proposed elaborate renderings of green space along the river, a cultural center, shops and space for a school. Tishman planned to build shops and restaurants lining the base of each building, similar to Rockefeller Center, and a staircase meant to resemble the Spanish Steps in Rome.
The MTA sought bids for the project after a failed attempt to build a New York Jets stadium that city officials hoped would position New York as the choice to host the 2012 Olympics.
The development, which would take well over a decade to complete, is expected to extend midtown Manhattan - the nation's most expensive commercial market - far west, pairing with another development of offices and retail near Penn Station and Madison Square Garden.
