On April 25, lawyers for the 74-year-old Larry Silverstein took part in a conference call with Port Authority officials to hash out the final details of the latest agreement to rebuild the World Trade Center, staying up until 2 in the morning.
It was supposedly a take-it-or-leave-it offer, but Mr. Silverstein was doing neither. He was willing to make major concessions, he had told the media that day, but had to make sure the terms were not impossible to meet.
Finally, he agreed, amid patriotic fanfare, to give up the Freedom Tower, the centerpiece building of Ground Zero—and the biggest dog, as a real-estate proposition, on the site.
The city fathers are calling the new plan “financeable.”
But just last October, Mayor Michael Bloomberg stood before the Daily News editorial board and asked, “Can you imagine the stink if you gave him half a billion dollars or a billion dollars in profit to get him out?”
Right on the money.
While the amount does not go directly to Mr. Silverstein, it’ll cost $1 billion for the state and Port Authority to take over the Freedom Tower, a building that has been redesigned twice, ridiculed by architecture critics and is widely seen as a prime terrorist target—a 2.4-million-square-foot monster that has been classified as a white elephant before it’s even been built.
Well done, Mr. Silverstein!
Indeed, although the revised lease calls for Mr. Silverstein to give back the Freedom Tower and one other building to the Port Authority—amounting to 38 percent of the 10 million square feet he had the rights to—the developer will still build the 1,776-foot-tall Freedom Tower for a fee of at least $21 million, clear and free of its escalating cost.
Mr. Silverstein’s victory is obvious, and yet it has gone largely unnoticed over the past week. Sure, he will have to give up some of his insurance proceeds, but only proportionate to the land he’s lost. He will never again see the $200 million in rent payments he made for development rights he no longer has.
And though he’ll give up 15 percent of the profits should he sell or recapitalize any of the towers, in return Mr. Silverstein will receive a disproportionately large share of the low-interest Liberty Bonds that the federal government authorized to rebuild New York after Sept. 11. And he still gets to build and manage the most commercially viable towers along Church Street.
Perhaps best of all, he gets to pull his name out of the mud through which it has been dragged and may one day get some tenants for 7 World Trade Center, which would be open already except that hardly anyone works there.
“This takes away the more significant problem of renting the Freedom Tower,” said Steven Spinola, the president of the Real Estate Board of New York. “Everybody recognizes that it is the riskiest building to build, and he’s only building it for a fee and then his responsibility ends after that.”
Governor George Pataki has pledged that the state will act more or less as a real-estate broker, guaranteeing that one million square feet in the tower gets rented. The Wall Street Journal reported on May 2 that the candidates are primarily federal agencies, including the F.B.I. and the Secret Service. Apparently, they haven’t heard about how former Mayor Rudolph Giuliani decided to locate the city’s Office of Emergency Management in one of the buildings likeliest to get attacked—before it got attacked.
In addition, the Port Authority and the City of New York have said that they will rent 1.2 million square feet—but in one of the other towers. (Their employees have been through enough already.)
Some of the other so-called features of the revised lease—approved by the Port Authority but not due to close until September—are not so cut and dried. Mr. Silverstein, for example, was said to get a chance to buy the rights to a shopping mall in the base of Towers 3 and 4. A Port Authority official acknowledged to The Observer, however, that another developer, the Westfield Group, still retains the right to make the first offer there.
Politicians were quick to call the revised deal—and much else in the world to boot—a win-win for everybody, and in this case they may have a point. Mr. Silverstein delegated an unattractive chore to gullible bystanders, but the bystanders—first Mayor Bloomberg, and eventually the Port Authority and Governor Pataki—increasingly thought he would never get the chore done. They said he would run out of money first.
No one involved has calculated just how much this deal is costing the public. But consider that the Port Authority will pay for the construction of the Freedom Tower, whose cost the agency’s chairman, Anthony Coscia, put at “north of $2.1 billion.” Some $250 million of that is a direct contribution from the state. Another billion or so comes from Mr. Silverstein’s insurance proceeds. The city and state may get between $150 million and $300 million for the rights to Site 5 that Mr. Silverstein has now given up, south of Liberty Street, but a lot of money has already gone into purchasing that land and cleaning it up.
The other items—lower rent per square foot for Mr. Silverstein, a cut of any profits for the Port Authority—more or less cancel each other out.
Eventually, the Port Authority will recoup its investment by renting space in the Freedom Tower to tenants. But if one-third of them are federal government agencies relocating from elsewhere in Manhattan, that is not much solace.
So maybe Mr. Bloomberg’s “half a billion dollars or a billion dollars” was a pretty good guess.
And Mr. Silverstein is still there, on 62 percent of the site.
“It’s a good deal for Silverstein Properties, and it’s a good deal for the city and the state and the Port Authority,” said authority spokesman John McCarthy. “We are focusing on moving forward and getting this done.”
“The compromise that they reached acknowledges that the Freedom Tower, as more of a political statement than a business proposition, is a statement that requires public subsidy and public ownership to go forward,” said Kathryn Wylde, the president of the Partnership for New York City, a business group, speaking to The Observer. “To ask the private sector to take responsibility for the development and marketing of a building that is more of a political statement than a private statement is obviously very difficult.”
That said, preserving the Freedom Tower was not a favorite move of think tanks from both the left and the right.
“It sounds like a lot of public subsidy to ensure a lot of office development that is not needed in the market and not good urban planning,” said David Dyssegaard Kallick, senior fellow at the liberal Fiscal Policy Institute.
“They have to get out from under the curse of the Freedom Tower,” said Nicole Gelinas, a senior fellow at the conservative Manhattan Institute. “It was designed by political committee. What they should have done is just made two or three basic stipulations and have let the market, meaning Silverstein, redesign it to be more commercially viable.”
Mr. Silverstein, being a good negotiator, never publicly offered to give up the Freedom Tower. He was negotiating from a double position of strength: not only did he have the legal right to rebuild all 10 million square feet, he also knew that the politicians—especially Governor Pataki—desperately did not want to see the rebuilding stall.
Mr. Silverstein insisted it would be very rentable. He may well have even believed his own line. An individual familiar with the developer’s thinking said, “The short-term leasing challenges clearly would have been substantial, but people on the Silverstein team really felt it had long-term potential. Larry is very optimistic about the New York office market.”
Now he will have one less chance to find out how strong that market is.
Follow Matthew Schuerman via RSS.