WTC stand-off as talks over rebuilding drag on

Real Estate Weekly, March 15, 2006 by Daniel Geiger

Larry Silverstein and the Port Authority took it to the wire yesterday as they continued to try to hammer out a solution to the World Trade Center stand-off.

Governor George Pataki had given both sides until yesterday (Tuesday) to reach agreement on how to proceed with the controversial rebuilding that has seen both sides bicker over who should do what.

However, as REW went to press, spokes people for both sides confirmed they were still talking although a statement was said to be "imminent."

Just last week, the members of the New York City Council heard arguments from both sides over who will redevelop what portions of the WTC site and what should be built there.

In attendance was the city's Deputy Mayor Dan Doctoroff who indicated that Silverstein Properties, which currently holds the right to replace the WTC's 10 million s/f of office space, will run out of money according to the city's calculations before many of the projects on the site can even be started.

Offering further criticism, Doctoroff claimed that the firm, which just completed 7 World Trade Center, does not have any of its own equity invested in the projects at Ground Zero that would help "align its interests" in realizing the development in a more expeditious manner.

When the insurance money runs out, he contended, Silverstein Properties could simply default on its obligations to rebuild while having collected potentially hundreds of millions in fees in the meantime. Doctoroff's solution to the morass?

Hand the development of Towers 3 and 4 to the Port Authority, which owns the land on the WTC site and has the right to rebuild its considerable retail space.

The Port Authority, he said, could begin work on the towers as soon as late 2007 or early 2008, much sooner than Silverstein Properties' sequential approach to the development of the various towers, which has Towers 3 and 4 scheduled to rise in 2010 and 2011 respectively--what many are calling too long a timeframe considering the widespread and increasingly intense criticism of the site's lack of progress.

According to Doctoroff, the Port Authority would also be able to build the two towers more economically because it plans to take up to 700,000 s/f in Tower 3, wouldn't need to abide by the same profit margins for the projects that a private developer needs, and would incorporate residential and hotel components in at least one of the buildings--additions currently considered to be more profitable than office space.

"The key is they can go ahead faster," Doctoroff said. "They can occupy their own building, they can do it at no profit which changes the feasibility."

But Doctoroff's plan of replacing the developer and installing a government institution to handle the job wasn't entirely convincing to some of the council members.

"Let's say you're right about the change in the plan, do you still want to change who does it?" Councilman David Yassky asked. "I have to tell you that I'm skeptical that the Port Authority is going to get something done faster or better, and certainly not faster and better, than a private entity. That just to me is implausible."

Silverstein Properties' project director for the World Trade Center site, Janno Lieber, also spoke before the panel and, in addition to asserting Silverstein's financial ability to complete the projects in as timely a fashion as the Port Authority could, challenged Doctoroff's claims that the Port Authority could build on a tighter budget.

He said that the Port Authority would have additional procurement costs and questioned its desire to do such a project without any profit.

According to Lieber, the yearly lease payment that the Port Authority receives from Silverstein Properties is its third largest single source of income.

Complicating things is that it's not clear whether Silverstein Properties, even if it was willing, could turn over the insurance payments that would partially finance the construction of Towers 3 and 4 to the Port Authority.

Some real estate ex perts have questioned the wisdom of the Mayor Bloomberg's plan to stuff Towers 3 and 4, considered by many to be the most viable office properties on the WTC site because of their large floorplates, with government agencies and residential and hotel units.

"I don't think that such a small addition consisting of a hotel and condos, especially taking into account the prospect of a softening condo market, would make much of an economic impact," Lieber said after the Council meeting.

What would make an economic impact however is if the project doesn't qualify for Liberty Bonds. Tax free bonds that effectively offer developers very cheap financing for their projects, Liberty Bonds were created as a way to spur redevelopment downtown after 9/11.

Without them, even assuming pearly rent projections, Towers 3 and 4 really don't make much economic sense.

Of course, it's the Mayor's office that holds the power over whether Silverstein Properties will be able to qualify for the bonds and Doctoroff asserted that they won't be issued until Silverstein Properties can demonstrate that "the projects are economically feasible."