Developer to pose challenge for WTC?

October 5, 2008 3:02:41 PM PDT
The politicians in charge of the World Trade Center site checked off the problems solved that had stalled the effort to rebuild it for seven years: a subway line running through the middle of the site. A land deal with a church. An over-budget, newly redesigned train station.Larry Silverstein didn't make the list. The developer that once held the lease to all the office space destroyed in the Sept. 11 attack on the trade center didn't appear at last week's announcement setting new budgets and schedules for the 9/11 memorial, a $3.2 billion transit hub and a building billed as New York City's tallest.

But Silverstein, and a complicated 2-year-old agreement that sets penalties on both sides for failing to rebuild in time, could pose an even bigger challenge for the Port Authority of New York and New Jersey, the government agency that owned the trade center.

The developer and the agency are gearing up for round 2 of talks to renegotiate the lease Silverstein signed six weeks before the trade center collapsed. It would amend the latest version of the lease signed in 2006 after months of publicly bitter talks; a Port Authority official called Silverstein "greedy" while the agency was charged with holding up the rebuilding.

In that deal, touted then as the solution to all the rebuilding obstacles, Silverstein agreed to build three office towers instead of five, and pay about $40 million less in rent a year for the undeveloped site. He also said he would give up rights to all three towers if he couldn't finish building them by 2013. New talks would likely focus on extending that deadline, based on the delays on other parts of the site.

The Port Authority agreed to excavate the land Silverstein needs to build foundations for his towers by set deadlines or be forced to pay $300,000 a day in deadlines. This year, it has paid over $43 million to Silverstein in late fees, and still hasn't turned over all the land.

Before the delays announced Thursday for the memorial, transit hub and 1,776-foot Freedom Tower that stretch into 2014, Silverstein had said he would open all three buildings between 2012 and 2013.

On Thursday, he said: "We are now going to study the Port Authority's report and backup materials so that our construction professionals can evaluate the new dates they have identified. This will allow us to gauge the impact on our part of the World Trade Center rebuilding effort."

The Port Authority, meanwhile, left all dates open and suggested that the financial crisis that has already sent commercial real estate prices dropping could stall Silverstein's plans.

"I'm not going to pin the development of the real estate projects to a particular schedule," said the Port Authority's executive director, Christopher Ward. "The market will respond as it needs to respond."

Ward also said the agency would seek "to maximize that schedule" with Silverstein, without saying how.

In its deal two years ago, Silverstein and the Port Authority split billions of dollars in insurance proceeds and tax-exempt Liberty Bonds to pay for building the five towers. At some point, the two parties could be in the position of competing for tenants to fill the office space. The Port Authority agreed to move its offices into one of Silverstein's towers, and has commitments from the state government and a Chinese business center for about half the space in one of the towers it controls.

Merrill Lynch & Co. had negotiated to rent space in one of Silverstein's towers, but dropped out in July after the Port Authority announced it would have to re-evaluate its ground zero plans.

The transit hub's schedule will be of particular concern. Ward said the agency had thousands of design drawings but only released a handful in a 70-page report; the Port Authority also simplified parts of architect Santiago Calatrava's design but didn't scale back the massive terminal as much as Silverstein, the city and the foundation building the Sept. 11 memorial had hoped.

Delays in the hub and memorial could hurt Silverstein's efforts to lure tenants to his towers and pay to build them. Silverstein has just over $1 billion in proceeds and $2.7 billion in bonds to build the three towers.

Through years of skepticism on whether the trade center's lost office space was still needed, Silverstein has said he would build as fast as he can and the space would be rented. He points to 7 World Trade Center, a building that also collapsed on Sept. 11, 2001, that he rebuilt in the time it took to renegotiate his first lease with the Port Authority. It is mostly rented, although HSBC, a banking company, recently pulled out of a deal to lease the top floors.

"The reality is that the economy has slowed down. ... The developer has a greater challenge today than he had six months ago," Mayor Michael Bloomberg said last week.

But "Silverstein, last I checked with him, still planned to go ahead and do it, and still thought he could get the financing and get the tenants and we certainly hope he can."

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