Is Silverstein Down to One At Zero Site?

The rebuilding process at Ground Zero had churned forward for months-internecine bureaucratic and artistic squabbles notwithstanding-pretty much the way Governor George Pataki said they would at a meeting at the Ritz-Carlton Hotel in Lower Manhattan a little over a year ago.

Plans were drawn up for the “iconic” tower on the site-the Freedom Tower, a 1,776-foot-tall skyscraper cobbled together by the unlikely team of Skidmore, Owings and Merrill’s David Childs, house architect to New York’s real-estate gentry, and the wild-and-woolly Bronx-bred European practitioner, architect and theorist Daniel Libeskind-and the public oohed or booed, and the process churned on. Groundbreaking still is scheduled before summer’s end.

There were growing signs of life: A temporary PATH train terminal opened in November of last year, its subterranean platforms dappled in light from the yawning space where the Twin Towers once stood. Architects from all over the world-Santiago Calatrava, Jean Nouvel, Sir Norman Foster-signed on for one or another phase or element of the project, most of them to build office towers for Larry Silverstein, the Manhattan developer who held the 99-year lease on the Trade Center.

Then, on May 3, everything ground to a halt. An entire development program, it turns out, had been mortgaged on the promise of Mr. Silverstein receiving an enormous payout from his insurers. The developer claimed that the attack constituted two separate catastrophes, entitling him a double payout from his insurers. But a Manhattan jury disagreed. And now, barring a lengthy appeals process, it appears that Mr. Silverstein is a day late and a dollar short of the time and money he needs to build back all 10.5 million square feet of the office space he lost on Sept. 11 according to the Governor’s aggressive plans.

And so everyone downtown is buzzing Larry Silverstein is unlikely to be the developer behind most of the office buildings at Ground Zero. Another developer will have to step in. But who has billions of dollars to spend on a spanking new building with no guarantee it will fill up?

“The project has never been dependent on a single individual,” said Ground Zero master planner Daniel Libeskind, who has had conflicts both with Mr. Silverstein and his favorite architect, Mr. Childs. Mr. Libeskind at one time proposed an alternative vision for Ground Zero that drastically reduced the amount of commercial space on the site. “This is not a private project that is going to be dependent on a Larry Silverstein or another developer. Of course we need the money and investment in the site. But the essence of the site is not about that. The essence is that it has to be rebuilt because of its civic nature and because of its memory and because it means something to every single person in the free world. So how can you reduce it to Larry Silverstein?”

But for months, everyone had. Mr. Silverstein, as he was himself fond of saying, was possessed of the only fund of private money for rebuilding. With the jury verdict, however, he could no longer make that argument.

And now the vultures are circling.

Some of them are culture vultures, long opposed to plans to replace all of Mr. Silverstein’s lost office space and erect a temple of commerce on the spot where 2,749 people died.

“Silverstein in theory can do a part of the project, but he probably can’t do the whole thing,” said Bob Yaro, president of the Regional Plan Association, one of the city’s leading private urban-planning organizations. “It’s time to reopen the lease and reexamine the program.”

“There was this hold-your-breath attitude until one could see if the money was going to be double, or not, and no one wanted to jinx the ability to get a lot of money to do ultimately whatever the program would be,” said Rick Bell, executive director of the New York Chapter of the American Institute of Architects. “This gives us the opportunity to rethink the programming of the site. But in rethinking the programming, you don’t have to throw out the master plan. Because the main elements of the Libeskind site plan-the memorial, the street connectivity, the cultural buildings-all those things make sense. What never made sense was 10 million square feet of office space, and now we have a chance to take a hard look at that.”

Mr. Yaro favors inclusion of more mixed-use and residential developments at the expense of perhaps several of the planned office towers.

“Some business leaders have suggested that the best way to develop the site is to maximize the amount of commercial space, he said. “But I would argue that the most important thing is creating a magnetic place … that can be a catalyst for attracting new activities to the entire district.”

Not surprisingly, Mr. Yaro’s suggestion is anathema to many members of the business community, who believe that the 10 million square feet of office space is critical to lower Manhattan’s health in the long term. Kevin Rampe, the president of the Lower Manhattan Development Corporation, the state agency charged with rebuilding Ground Zero, was strongly critical of using Mr. Silverstein’s precarious financial situation as a jumping-off point to rethink the programming of Ground Zero.

“We have to remember that we’re dealing with the future of lower Manhattan, and its complete revitalization is going to be contingent on the ability to build 10 million square feet of office space,” he said. “It’s not something that should be revisited at all.”

Tim Sheehan, a senior vice president at the commercial real-estate firm CB Richard Ellis, said that lower Manhattan could easily absorb another 10 million square feet of space over the next 20 years if New York experiences another 1990′s-like boom.

“We’re pretty bullish downtown, and when we get back to office-employment levels that approach the numbers we had in 2000, there will be the need for additional office product,” he said.

Kathy Wylde, the president of the New York City Partnership, said that although Mr. Silverstein’s courtroom losses have weakened his leverage with the Port Authority, the owners of the site, it is important that the pace of commercial development on the site not slacken.

“The challenge now is to not let this be an excuse for those who would like to revisit the plan, who would like to change the uses, who have got other ideas for the money,” she said. “We’ve got to make sure we don’t allow those voices to derail the entire process.”

No one is seriously suggesting-yet-that Mr. Silverstein is in danger of being forced off the site completely. To date, he has been keeping up his $120 million in annual lease payments to the Port Authority. But according to the terms of the lease, Mr. Silverstein is obligated to rebuild all 10 million square feet of office space that was destroyed in the Sept. 11 attacks, and continue paying $120 million a year in rent to the Port Authority for office space that doesn’t yet-or doesn’t any longer-exist.

“He’s going to have to show that his financing is in place, or his personal wealth is such that he can adequately guarantee that he will make those payments, and I don’t think people have any great expectation that he will do so,” said an official involved with the rebuilding process. “So there’s going to have to be a negotiation between the Port Authority and Silverstein about what he’s willing to commit to, and what he isn’t willing to take on.”

Indeed, Mr. Silverstein’s keeping up with lease payments and his stated intention to rebuild all of the destroyed office space are also required under his lease. But his stinging courtroom defeats at the hands of his insurers have made it increasingly unlikely that the embattled developer will be able to meet his obligations, city and state officials say.

Not so long ago, there were other major players in the Manhattan real-estate market that wanted a piece of the World Trade Center.

Mr. Silverstein joined the herd with five days left in the bidding in 2001, when the Port Authority decided to lease the Twin Towers to a private developer to manage and maintain. After being hit by a drunk driver in midtown, he didn’t abate: He went over documents from his hospital bed. At closing time, Mr. Silverstein was in a pool of three finalists that included Steve Roth’s Vornado Realty Trust and a partnership of John Zuccotti’s Brookfield Properties and Mortimer Zuckerman’s Boston Properties. When the bids were unsealed, Vornado had the high bid of $3.25 billion-$600 million higher than Mr. Silverstein’s offer. But Mr. Silverstein subsequently upped his ante to a mere $30 million below Vornado’s offer, and was there to step up the pace when negotiations between Vornado and the Port Authority broke down.

And while things have changed at the W.T.C. since real-estate moguls were fighting to get a piece of it-will they now?-that kind of scrappy determination still may not be enough to lock Mr. Silverstein in at Ground Zero. His courtroom defeats leave him with a maximum of $4.6 billion in payouts, far short of the entire complex’s estimated $9 billion price tag. Worse, if Mr. Silverstein loses in the next phase of his trial, scheduled to start in August, he could end up with as little as $3.5 billion. And with about $1.3 billion of that money already spent on lease payments and legal fees, and $1.5 billion pledged towards the construction of the site’s first commercial building, the Freedom Tower, Mr. Silverstein will likely have precious little left over for the other four towers planned for the site.

Although the Port Authority is officially keeping quiet on the issue, city and state officials say it seems certain that Mr. Silverstein will have to renegotiate parts of his lease.

“Is there going to have to be some renegotiation with Larry in terms of his obligations and how he’s going to be able to fulfill those? Absolutely,” said another source involved with the rebuilding process. “The question is [the degree of] his continued involvement.”

“Larry’s $120 million in annual lease payments was based on getting rent from the [pre-Sept. 11] office space,” said an official involved with the rebuilding process. “After Sept. 11, as long as that was being covered by insurance, fine. But if it’s not being covered by insurance, how can he make those payments? And that gets into the issue of, is he anticipating on defaulting on those agreements?”

Mr. Silverstein, for his part, brushed away concerns that his legal or financial woes would stem his ability to remain the principal developer at Ground Zero.

“Of course, I am disappointed that the jury did not see things our way with respect to most of the insurers in the [World Trade Center] coverage,” he said in a statement after the verdicts. “But let me be clear. A defeat in the courtroom is not a defeat for rebuilding. Whatever happens in court, we are determined to rebuild the World Trade Center, under Governor Pataki’s leadership and in keeping with the master plan.”

Carl Weisbrod, president of the Downtown Alliance, the lower Manhattan business-improvement district, is all for sticking with the master plan-whether or not Mr. Silverstein ends up doing all the development.

“At the moment, Larry has a lease, he is a developer, he’s going to build buildings 1 and 2. He has the proceeds to do that,” Mr. Weisbrod said. “The later office buildings will be a product of market demand.”