State officials are privately throwing cold water on The New York Times ‘ plan to build an $850 million tower that will serve as its new headquarters on Eighth Avenue, across the street from the Port Authority bus terminal.
The Gray Lady’s development partner, developer Bruce Ratner, has been publicly pleading for the government’s help in getting the building up, saying that, as office vacancies continue to rise, he can’t finance the construction of the building without that elusive anchor tenant. He’s seeking $150 million in Liberty Bonds, tax-exempt federal aid money earmarked for the reconstruction of the city’s economy in the wake of the Sept. 11 attacks. But an executive at the Empire State Development Corporation, one of the two main government agencies controlling the purse strings of the Liberty Bonds, doesn’t think Mr. Ratner’s gambit to use federal 9/11 program money to save the Times tower is going to work.
Mr. Ratner would seem to have a political battle ahead.
The man who controls the ESDC, Charles Gargano, declined to comment through a spokesperson. But another source at the ESDC familiar with Mr. Gargano’s thinking said that the ESDC chief has taken a chilly view of Mr. Ratner’s application.
A spokesperson for Mr. Ratner said that the developer was unavailable and issued the following comment: “We are not aware of the differences in opinion between the city and state. Discussions are ongoing regarding the allocation of Liberty Bonds for this project.”
On the Fence
As part of its $20.8 billion emergency 9/11 aid package, the federal government allocated $8 billion in tax-free, low-interest Liberty Bonds to help finance new construction or rehabilitation projects in New York. For developers, the bonds basically represent ultra-low-interest loans. Of the $8 billion allocated, $2 billion can be spent on commercial projects outside of lower Manhattan. All applicants for funding in midtown must meet two main criteria: first, that their projects are of borough-wide or citywide significance; and second, that the projects cannot be financed in any other way.
The ESDC makes decisions on who gets the money jointly with the city’s development agency, the Economic Development Corporation. Daniel Doctoroff, the city’s deputy mayor for economic development and de facto head of the city’s E.D.C., said that those criteria aren’t easy to calculate.
“In those criteria themselves, there is a lot of nuance,” he said. “Detailed analysis has to go into determining whether a project would be feasible without the use of Liberty Bonds. Similarly, a lot of judgment goes into the question of whether or not a project is of borough-wide or citywide significance.”
He wouldn’t say where he was leaning on the project. But a senior official with the E.D.C. seemed to have some idea.
“The New York Times project is right on the fence,” he said. “Everyone wants it to happen, and it’s just not crystal clear that Liberty Bonds are the key to making it happen.”
While everyone wants the building to go up, the stakes are all on Mr. Ratner’s side. Written into the agreement between Mr. Ratner and the city was a stipulation that Mr. Ratner had to begin construction in 2004; failure to obtain the financing for it kills the deal. That means the state gets its development lot, and the $85.6 million condemnation fees, whether Mr. Ratner builds there or not.
“We understood that the tenant market might be weak, and we had the developer assume an absolute obligation to pay all condemnation costs,” said a source at the ESDC. ” The Times is either helping this great building go up, or they’re paving the way for another building to rise.”
Further diminishing pressure on city and state officials to accept Mr. Ratner’s terms is a new initiative being pushed by the Pataki administration. As the law stands now, the city and state only have until the end of 2004 to allocate the full $8 billion worth of Liberty Bonds. And while there has been “significant interest” in more funding, according to officials administering the program, there certainly hasn’t been $8 billion worth.
So on Oct. 30, Governor Pataki called on Congress to extend the allocation deadline until 2009.
If Mr. Pataki gets his wish, there will only be less pressure on city and state officials to hand Mr. Ratner the Liberty Bonds, ESDC sources said.
That’s despite the substantial investment Mr. Ratner and The Times have already made in the project. In partnership with Mr. Ratner’s company, Forest City Ratner, The Times struck an agreement with the city over two years ago to build its new headquarters on Eighth Avenue between 40th and 41st streets. Under the terms of the deal, The Times and Forest City would pay $85.6 million to cover payouts to building owners whose sites were in turn condemned by the state to make room for the Times building. Some 55 businesses, including sex shops, a student dormitory and fabric dealers, remain shuttered on the desolate block. In their place, The Times and Mr. Ratner would raise a 52-story glass office tower designed by famed architect Renzo Piano. The Times would own the second through 27th floors, filling them with its editorial and corporate operations. Forest City would own the upper floors and lease them out. The Times also received $26.1 million in sales-tax breaks and other incentives in the deal.
Mr. Piano’s tower will be clad in transparent glass and some 250,000 white ceramic rods, spaced to allow insiders to see out and vice versa. Restaurants will line the 40th and 41st Street sides, and stores will occupy the Eighth Avenue corners. Atop the 748-foot-tall building, a small stand of maples will ring an outdoor conference room, and a vestigial lightweight mast will rise to a height of 1,142 feet. Mr. Piano is perhaps best known for the Pompidou Center in Paris, where the building’s pipe works surround the exterior rather than being buried in the guts of the building.
The Big Question Mark
From the beginning, the biggest question mark in the Times -Ratner deal was whether or not Mr. Ratner would be able to secure financing for his portion of the building without an anchor tenant who would commit to a long-term lease. When the parties signed the deal in December 2001, the city’s commercial real-estate market was decidedly soft, especially for the upper floors of skyscrapers. And financing for speculative buildings-buildings without an anchor tenant already committed to leasing a large portion of the rentable space-was scarce to nonexistent.
In addition, Mr. Ratner was asking around $75 per square foot in annual lease payments-one of the loftier rates in the city.
Since signing the deal, the growing glut of vacant office space in the city only worsened the already-dreary commercial real-estate market, and Mr. Ratner wasn’t able to find the anchor tenant that would kick-start his project. Finally, in July of this year, Mr. Ratner announced that he would be seeking Liberty Bonds to help finance the construction, because, as The Times quoted him saying, “It is nearly impossible in the current economic environment to obtain a conventional construction loan …. “
Critics-most notably the New York Post ‘s architecture critic, Steve Cuozzo-called Mr. Ratner’s request disingenuous, citing the fact that Forest City and The Times made a deal with the city before the creation of the Liberty Bond program, knowing full well what a risky gamble it was to build a large office tower without an anchor tenant.
Mr. Ratner should not be the beneficiary of tax-free financing provided to help New York dig out from the attack on the Trade Center, Mr. Cuozzo argued in the Post , since the plan only materialized months after the attacks.
Mr. Ratner originally asked the E.D.C. for $400 million in Liberty Bonds. In September, according to sources within the agency, the city came back with its offer: $100 million in Liberty Bonds, but if the market turned around and rents went up, Mr. Ratner would have to pay the money back to the city.
“We said, ‘We’ll help you mitigate the risk that exists today, but if the market recovers, we would share in the excess until the full benefit of the Liberty Bonds is paid back,’” said an executive at the E.D.C.
Mr. Ratner rejected the offer and pressed for better terms. According to the executive at the E.D.C., the rejection did not create any ill will towards Mr. Ratner; it just prolonged the negotiations.
The New Jersey Times ?
So far, only a handful of non-downtown projects have been granted funds. The largest recipient is developer Douglas Durst, who received $650 million in Liberty Bonds to build a 57-story tower on West 42nd Street in Times Square to house the New York headquarters of the Bank of America.
Critics like John Whitehead, chairman of the Lower Manhattan Development Corporation, decried that move, arguing that Liberty Bonds were never intended for use in a relatively healthy area like midtown. While $2 billion can be spent on projects outside lower Manhattan, those funds don’t have to be used there.
According to sources at the E.D.C., however, Mr. Durst also had a relatively easy time securing the $650 million in Liberty Bond financing because there was a very real possibility that the Bank of America would relocate its powerful securities division to North Carolina instead of keeping it in the city. That means hundreds of high-paying jobs for the city, with hundreds more on the way, according to the bank.
That isn’t the case with The New York Times .
“No one believes The New York Times is going to become The New Jersey Times ,” said a source at the ESDC.
“The New York Times project represents job retention, not job growth,” said an official at the E.D.C. “So just in terms of economic impact to the city, the Bank of America project is an easier one to justify [for Liberty Bond use].”
That view is nearly universal.
It’s also the argument that a growing chorus of downtown rebuilding officials and elected officials are making. Mr. Whitehead and several civic groups, along with Representative Jerrold Nadler and City Council member Alan Gerson, are all stepping up their opposition to the use of Liberty Bonds for the Times building.
“Congressman Nadler believes it is improper and wrong to use Liberty Bonds outside the Liberty Zone,” said a spokesperson for Mr. Nadler regarding the New York Times project.
Councilman Gerson, who testified in a hearing against the granting of Liberty Bonds for Mr. Durst’s Bank of America project, argued that the city should use the bonds to develop infrastructure and facilities that will attract businesses to the area, as opposed to using the bonds to fund one-off projects.
“My concern is that we’re just using Liberty Bonds on a case-by-case basis, without adequate foresight and planning,” Mr. Gerson said.
Follow Blair Golson via RSS.