Wednesday, March 15, 2006

Ground (Zero) To A Halt

WTC site rebuilding talks break off
Wed Mar 15, 2006 3:47 AM ET

NEW YORK (Reuters) - Negotiations between the developer of the World Trade Center site and New York officials broke off on Wednesday after the sides missed a deadline to resolve who would construct which buildings at Ground Zero.
The Port Authority of New York and New Jersey owns the site where the Twin Towers were attacked and destroyed on September 11, 2001. Real estate developer Larry Silverstein of Silverstein Properties holds a 99-year lease that was signed two months before the attacks.

New York Gov. George Pataki set a March 14 deadline for the two parties to reach an agreement on how to expedite the rebuilding.

Bud Perrone, a spokesman for Silverstein, said the Port Authority made the move to suspend the talks, which had continued after a midnight deadline.

"This temporary setback can and must be overcome," Perrone said in a statement, adding Silverstein was ready to resume talks. "We believe we can quickly finalize an agreement that will assure a speedy rebuilding of the World Trade Center."

Representatives from the Port Authority and Pataki's office could not immediately be reached for comment. Perrone would not comment on what differences remained or what steps the parties may take going forward.

A deal is crucial to Silverstein obtaining low-cost financing, in the form of Liberty Bonds, which he needs to rebuild. Silverstein has asked for $3.4 billion in the tax-exempt bonds, half from the state and half from the city.
OK, let's fill in the details a little here for my many out of town readers:

Two months before the 9-11 attacks, the lease to operate the Word Trade Center seven buildings was sold to Larry Silverstein, who, in NYC real estate circles, is considered something of a mensch. When you consider that his competition includes Leona Helmsley and Donald Trump, to call him a mensch is damning with faint praise: it means his fingers aren't as short as everyone else's and he's not quite as vulgar.

September 11 did not remove his lease obligation, which is $10 million a month. He won a judgement, now in appeals, for $4.3 billion dollars from his insurers for the damage to the buildings and site cause by the plane and the collapse of the two main towers. $4.3 billion would only pay for about 35 years of mandatory rent, so it's incumbent upon Silverstein to rebuild at the site.

The total estimated cost to carry out the current design for all buildings on the site is $7.3 billion, which explains the need for the Liberty Bonds proceeds. The Port Authority has offered to take over construction of the Freedom Tower (the centerpiece building...the PA has the wherewithal to do this type of construction as it built the original Twin Towers.) in exchange for $2.9 billion of the insurance settlement. The Freedom Tower is estimated to cost $2.3 billion, but the Port Authority acknowledges they would still need to finance surrounding construction in order to keep the Freedom Tower on plan.

Meaning Silverstein would still have about $5 billion to do the rest of the site, something should be sufficient, given that the infrastructure costs have already been borne in part by the Port Authority and Federal Government (laughingly, I had to add their pittance in) as the site walls needed shoring up in order to accomodate the two subways that run into the site as well as the proposed transit hub.

Another hiccup is that Silverstein wants strictly commercial construction, but Mayor Michael Bloomberg has asked that he set aside 14% of the project for housing, including moderate income housing, and a hotel to replace the mourned Vista.

Silverstein's estimates are that he would need to have about 10 million square feet of commercial space in order to turn a profit on the project. Obviously, he'd have to adjust his plans upward to account for the lower rent per square foot of housing and hotel space, let's say he'd need to add another 500,000 square feet of commercial space to do it.

Not impossible, so one wonders why he's fighting the Port Authority so hard on this, particularly considering the two states involved, New York and New Jersey, and the Port Authority, believe he does not have sufficient funding to do the deal. Plus, he's not the smartest man in the room in this instance. That honor would clearly go to Mayor Bloomberg.

The loser in all this is clear: George Pataki. People associate this image with him...
Cornerstone For Freedom Tower Laid, July 4, 2004
It was unnecessary for him to prematurely "begin" construction, timed carefully to coincide with the Republican National Convention later that summer.

In short, he shot himself in the foot and has shot himself in the foot once again, as he imposed a deadline on negotiations of last night on Silverstein and the Port Authority.

What now, George?

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