WTC retail deal announced

Real Estate Weekly, Jan 9, 2008 by Daniel Geiger

The Port Authority has announced a deal with the retail operator, the Westfield Group, to co-finance and together develop the nearly 500,000 s/f of retail that is planned in the bases of the commercial buildings and subterranean pedestrian corridors at the World Trade Center site.

As part of the agreement, the Port Authority will pay a larger portion of the planned $1.45 billion development cost of the retail project, but still share in a fifty-fifty split of the profits with Westfield. According to the terms of the deal, the Port Authority will put in $825 million versus a contribution of $625 million from Westfield.

Members on the Port Authority's board suggested that the $200 million disparity between what each will invest--money that officials say will come from insurance proceeds yielded as a result of 9/11--may have been one of the leading issues that prevented a deal from being reached at the agency's previous board meeting.

In late December, the Port Authority called a press conference about the development deal, but when the board convened after a lengthy delay, officials instead said that they had nothing to announce and that an agreement with Westfield hadn't yet been reached.

"Members wanted to review the aspects of the deal," Bruce A. Blakeman, a commissioner on the Port Authority's board, said of the delay. "There were loose ends that needed to be tied up. We wanted to make sure we got the deal right."

Of the $200 million difference, Blakeman said: "I raised that issue ... but if we didn't put in the additional $200 million we wouldn't have had a partner."

A breakdown in relations with Westfield would have been problematic for the Port Authority because, according to a deal that was done in 2003, Westfield has a right of first refusal at the site and could have tied the site up in lawsuits if it was ousted.

"There could have been litigation," Blakeman said, if the Port Authority tried to muscle Westfield out and that a "bird in the hand" was better than the delays the authority would incur in such a process.

But Westfield's rights also precluded the Port Authority from arranging a competitive bid that may have yielded a more lucrative agreement.

As part of the 2003 deal, in addition to giving Westfield residual development rights at the site, the Port Authority repaid Westfield $15 million in interest along with the $140 million it had dolled out in 2001 so that it could operate the World Trade Center Mall, what was one of the most success retail sites in the country.

At the Port Authority's last board meeting in late December, Port Authority chairman Anthony Coscia said that the deal had been done so that the Port Authority could access Westfield's insurance proceeds at the site.

"We inherited a right to a certain percentage of the overall proceeds at the site," Coscia said of the 2003 deal.

"The site broke down so that about 90% of insurable interests was in the office and 10% was in the retail, so we essentially just stood in their shoes."

Port Authority director, Tony Shorris said that Westfield will help design the retail but that most of it will be located in the base of the three office towers that developer Larry Silverstein is building on the east side of the WTC site versus in the various subterranean corridors linking the site's transportation infrastructure.