More W.T.C. risk for Silverstein, but bigger potential payday
By Josh Rogers
Two governors, a mayor, a developer and a public authority agreed last Thursday to a general financing framework to redevelop the World Trade Center site.
The agreement, expected to be finalized four months from now, would allow the developer, Larry Silverstein, to complete construction of 4 W.T.C. as well as the retail complex at the Tower 3 site with the help of the Port Authority of New York and New Jersey. If Silverstein can pre-lease 400,000 square feet of Tower 3, and raise $300 million privately, the Port, New York City and State would guarantee $390 million of financing support needed to build the tower over the stores.
One of the governors, Chris Christie of New Jersey, did not appear at the March 25 press conference to celebrate the deal. He released a statement saying he was “supportive of the broad outline” of the agreement, but “I remain steadfast that any final agreement protect the taxpayers, commuters and toll payers of New Jersey and New York.”
The two sentiments sounded to be at odds since the framework in effect includes financial commitments from New Jersey commuters and drivers as well as from New York taxpayers. The Port is funded by PATH commuters and regional tolls. Its board is appointed by the New York and New Jersey governors.
The agreement leaves no insurance money or tax-free Liberty Bonds to pay for Tower 2. Chris Ward, executive director of the Port, said if market forces prevent construction of the tower, he would be open to Community Board 1’s recent recommendation to set up a temporary park, outdoor performance space or greenmarket at Vesey and Church Sts. He said there are no plans to build a retail podium at the site.
A finalized deal would end a year-plus stalemate on rebuilding the site. Silverstein ended up putting more money in, and taking on more risk than he had been offering, but if the economy rebounds, he will get a bigger payoff than he would have under his previous offer.
Silverstein had offered the Port a 30 percent interest in a second W.T.C. tower if the Port gave full backstopping of the loan, but under the new framework, the Port, city and state will only get a shared 15 percent of Tower 3 in exchange for a partial backstop. The 15 percent would be paid if Silverstein’s firm ever sold or refinanced the tower.
“The worst thing we could do in the tough economic times is leave a big hole in the ground, not have people come to the city and spend money going to hotels, eating in restaurants and going to Broadway shows,” Mayor Mike Bloomberg said explaining the city’s reasoning.
Both sides were happy with the agreement. “What a great day,” said Ward. “It was long, it was difficult, but today we are moving forward with a framework to restore Downtown.”
“It hasn’t always been easy, but I know we’re both passionate about rebuilding the World Trade Center,” said Janno Lieber, president of Silverstein’s World Trade Center Properties. “And with this agreement we now have an opportunity to truly work side by side to accomplish that historic mission.”
Unlike the 2006 agreement between Silverstein and the Port, the new deal will not have penalties on either side for missing deadlines. The Port had paid Silverstein about $125 million in fines, and until a recent arbitration panel decision, Silverstein stood to lose all three tower sites if even one of the buildings was finished late.
Gov. David Paterson and the mayor gave different reasons for why they thought the new agreement would work this time.
“There have been a number of plans, but you have never had these parties together in the same room with an agreement,” said Paterson. “You’ve never had that deal. That’s what makes it unique from any other time.”
All of the parties did agree in 2006, although Paterson, Christie and Ward were not in power at the time.
Bloomberg said he is just as confident as he was four years ago.
“You’re always confident when you go into everything,” he said. “I think what happened with the last deals is nobody thought the world was going to fall apart.”
The mayor said the city is recovering from the economic crisis faster than the rest of the country. Real estate brokers “are eating their ways through all of the sublet space,” Bloomberg said. “Now is the time to put a shovel in the ground….
“If you go back and look at all of the people who had planned to have new corporate headquarters in ’07 and the beginning of ‘08, I think not one of them has a new corporate headquarters. They still have all the needs.”
No public money would go to build Tower 3 until Silverstein raised the $300 million and signed tenants to 400,000 square feet for at least $60 a square foot. At that point, the city would forgo the $130 million they would have eventually collected in taxes from Silverstein for the middle tower on Church St., and the state would invest $80 million in equity. Silverstein would also get backing for $390 million in loans in order to help him sell the tax-free bonds. The Port would support $200 million in loans, the state $120 million and the city $70 million.
At Tower 4, the Port would backstop the loans to finish the building at the corner of Church and Liberty Sts by 2013. As per the ’06 deal, the city and Port would lease 60 percent of the building, but under the new deal, they will pay $65 per square foot instead of $59. Silverstein had argued that the rent the two would be paying was too low to repay the loans.
The backstopping in both towers would cover the shortfall if the rent take is not enough to pay back the lenders.
Bloomberg said real estate factors can’t be the only considerations at a site where thousands of people died: “Of course it’s different -- it should be.”
With reporting by Julie Shapiro