At 3 p.m. today, Mayor Bloomberg is hosting a summit at Gracie Mansion, an all-out attempt to try to break an impasse at the World Trade Center redevelopment. At issue is the fate of three private office towers, which developer Larry Silverstein is unable to build with private lending given the economy, and for which he has asked for financing assistance from the public sector. He now wants to build two, with the Port Authority backing the financing, whereas that agency, which owns the site, has said it would help finance one tower.
Heretofore, there has been no accord, and construction has been stopped below-ground on part of the site. Given the project’s extraordinary physical interdependence, stalled construction of the office towers threatens completion of major elements in the rest of the site.
And at least as of Wednesday afternoon, none of the parties seemed in a position to come out of the Gracie summit holding hands and declaring victory, and there had been few behind-the-scenes talks to come to any conceptual agreement. The root of the problem is both financial and structural, as each of the players has little desire or ability to put in substantially more money, and all approach this from different standpoints.
Here’s a look at each of the stakeholders expected at the summit and generally where they’re coming from:
Larry Silverstein, developer of Towers 2, 3 and 4
Be it a personal longing, his many years (he’s 78) or a capitalistic desire, Mr. Silverstein and his deputy Janno Lieber have insisted that they will settle for no less than two towers built right now. His offer to the Port Authority has him using all his insurance money, but nothing beyond that, a position that will surely be tested in the summit. Given the delays and public and political commitment to the site’s rebuilding, the crux of Mr. Silverstein’s position is that the public sector has a responsibility to see those towers built, and in this economy, that means the Port Authority must help finance them.
He seems ready and willing to test that position in court should the stalemate continue. And unlike everyone else at the table, he is mostly impervious to scathing editorials, poll numbers and the public backlash that would accompany long-term delays at the site. It is for this reason that he very much has the upper hand in these negotiations, as without his assent, delays will continue and major portions of the site—including the PATH hub, bus parking, the vehicle security center—will go unfinished.
The host of the meeting, the mayor has taken a more conciliatory role than in the past and tried to play mediator this time around. His Economic Development Corporation president, Seth Pinsky, has undertaken a financial analysis at the site. Along with Deputy Mayor Bob Lieber, the Bloomberg administration is expected to urge a framework at the summit to break the impasse. As they don’t have much financial investment in the site, more than anything else, the city officials want a solution that brings forward progress, particularly on the memorial and museum. And so long as the city isn’t putting in new money, it would seem the Bloomberg administration would have every reason to favor two towers over one.
From an economic development standpoint, the added office space helps keep rents lower and increase New York’s competitiveness—not a very popular position among competing landlords or anyone who would have to put up money and risk default. In terms of possible financial commitments to help build the towers, the Port Authority asked that the city increase its rent in Tower 4 from $59 a foot to $65, though for now, the rent is still $59. The city also collects Payments in Lieu of Taxes (PILOTs) on the site, which, at least based on a 2003 agreement, are worth about $55 million a year. Forgive that over 20 years, and that’s over $1 billion, though it’s hard to think the mayor’s budget office would allow that to go down without a fight.
The governor, along with his Port Authority executive director, Chris Ward, has been resistant to committing additional state funds for the project, which, if they came from anywhere, would come from the Port Authority. He’s been relatively mum on this impasse so far, though Mr. Ward has strenuously denied that the Port Authority has enough money to back financing on two towers at the site, even if it wanted to. (It doesn’t.) Instead, Mr. Ward has offered to back financing on one building, Tower 4, along with asking a number of other concessions from Mr. Silverstein.
Any money that went to finance the towers would put a big dent in the agency’s 10-year capital plan, which finances airport, bus and rail improvements. Already, the capital plan, based on projections from a better economic era, has taken a hit from declining toll revenue and airport traffic. It also seems to have eaten up $2 billion that was slated to go toward an unspecified New York–based transportation project.
NJ Governor Jon Corzine
Along with Governor Paterson, Mr. Corzine has final say over any major action at the Port Authority, an agency that is, by mission, devoted to regional transportation and port issues between the two states. Like Mr. Paterson, officials on the New Jersey side of the river, including the Port Authority’s chairman, Anthony Coscia, have been opposed to putting more money into the World Trade Center project for the purpose of speculative office towers. Given that some of the Port Authority’s spending is split, more or less, dollar for dollar between New York and New Jersey, it’s hard to see how Mr. Corzine would be happy with the agency devoting even more of its 10-year capital plan to the Manhattan-based World Trade Center.
He is a big fan of the planned new rail tunnel under the Hudson River, to which the Port Authority has committed $3 billion in its capital plan. Given that he has a reelection in November he’s trying to win, it’s also hard to see a scenario where Mr. Corzine would support raising tolls at the Hudson River crossings, which could very much be necessary if more is spent on the World Trade Center.
Sheldon Silver, New York Assembly Speaker
The constant advocate for downtown, Mr. Silver called for this summit two weeks ago, saying he was “fed up” with the delays. He pushed the debate toward two towers, calling for all the parties to put in money to make it happen. With that said, he, unlike everyone else at the table, has no direct say in the matter, only a bully pulpit.
A few possible broad outcomes:
-Everyone gives more money; build two towers. This seems like the feel-good option at first glance, if Larry Silverstein, the city and particularly the Port Authority were to agree to up their contributions and break any stalemate. But the big question is, where would the money come from? It’s unclear just how big of a bite financing $3 billion or so in office towers would take out of the Port Authority’s capital plan, but it’s safe to assume it’s going to be large. The agency claims it’s already down to skin and bones in the plan, and there simply is not room to finance a second tower—not that the two governors are willing. Mr. Silverstein, perhaps along with his partner Lloyd Goldman, can surely come up with some money, as 7 World Trade Center is doing quite well, though whatever he can produce—he hasn’t discussed how much he’d be willing to put in of his own equity—isn’t going to be the $2 billion necessary to build the second tower.
-Build one tower; offer Larry a better deal. The Port Authority’s offer to Mr. Silverstein to build one tower was taken as a slap in the face by the developer. The agency called for withholding about $150 million in fees, using all his insurance money in the below-grade infrastructure, and a redesign of the podiums for the two unbuilt towers to a model that does not allow for large ground-floor lobbies (which are attractive to big tenants like banks). Sweeten that deal with boosted rent on the part of the city, podium designs that are more amenable to Mr. Silverstein and a more acceptable fee structure, and perhaps Mr. Silverstein would consent to a deal. But at least based on his rhetoric—he and Mr. Lieber have insisted that they aren’t going to settle for less than two towers—that seems unlikely.
-Eternal litigation battle; stalled construction. No one seems to want this route, but then again, all the parties are quite far apart. If nothing substantive is to come out of the summit, it’s not hard to see the litigation and arbitration route being the only option left. Before the summit was called, an increasing number of people involved with downtown redevelopment viewed arbitration as the realistic next step. Everything, of course, depends on what comes out of the summit.
Follow Eliot Brown via RSS.