He woke up obscure on the morning of Sept. 11. Just a few

weeks before, the diminutive, 70-year-old developer had completed the deal of

his life, leading a group of investors in the $3.2 billion purchase of a

99-year lease on the World Trade

Center. Respected within the

insular world of New York real estate,

he remained little known in the world at large.

That all changed the moment the Trade

Center towers-the complex Mr.

Silverstein called "my dream"-collapsed.

Suddenly, the developer was thrust into an unaccustomed

public role as New York's

rebuilder. On television, he vowed to reconstruct the complex. In the

newspapers, he proposed four 50-story towers. In a state of emergency, he was

hailed as an example of New York's

can-do spirit.

"Should we rebuild the World

Trade Center,

the symbol of New York? Absolutely. Without a hesitation," a choked-up Mr.

Silverstein declared in a speech to business leaders at the Regency Hotel on

Sept. 17, bringing the crowd to its feet. "Because to do

anything less would be to simply give an incredible victory to those who sought

to destroy our way of life."

Now that the cheers have faded, the enormity of the

rebuilding job is becoming clear. In boardroom negotiations and back-channel

conversations, the crucial first question-who calls

the shots?-is coming closer to being resolved. And Mr. Silverstein's likely

role is becoming ever more clouded.

"I think he will be very involved," said Lewis Eisenberg,

chairman of the Port Authority of New York and New Jersey's

board of commissioners, which built the World

Trade Center

and still owns the land beneath the rubble. "I don't know in what particular

role at this point."

Mr. Silverstein has talked to another prominent developer,

John Zuccotti of Brookfield Financial Properties, about

designing a master plan that

integrates the World Trade

Center site into Brookfield's

World Financial

Center and Battery

Park City.

"We think we should begin by reconsidering the role of lower Manhattan

in the region," said Mr. Zuccotti.

But the reality is, a little more than a month after the

terrorist attack, Mr. Silverstein is in trouble. He faces a cash crunch, a

multibillion-dollar fight with his insurers and tentative signals from Port

Authority officials at the precise moment he needs to move fast.

Real-estate executives who applauded Mr. Silverstein a month

ago now wonder whether he can hold onto the 16-acre site. Yet in an interview

at his Fifth Avenue office

on Oct. 12, Mr. Silverstein portrayed all these concerns as mere challenges to

overcome. "We paid for [the World Trade

Center]," Mr. Silverstein said.

"We're doing what we have to do because we have a huge investment in this

thing. And as long as we have the cooperation and the wherewithal to rebuild,

that's what we're intent on doing."

Neither element-cooperation or wherewithal-is a foregone

conclusion. While Mr. Eisenberg praised Mr. Silverstein as "a man of great

conscience and wisdom," he and other Port Authority officials made it

abundantly clear that they expect to lead, and not simply follow Mr.

Silverstein.

"I don't know the basis from which [Silverstein] is

speaking," said Port Authority commissioner William Martini, a former New

Jersey Congressman. "Last I heard, the [land] is still

titled to the Port Authority."

"I can't do this alone," Mr. Silverstein acknowledged. "I

can only do it with the government on the federal, state and city level, with

the Port Authority being a total participant."

Mr. Eisenberg said that the Port Authority is making close

study of the site-and Mr. Silverstein's legal rights to it.

"In some ways, it's analogous to 1965," when the World

Trade Center

was begun, said Mr. Martini. "Which entity is best positioned to lead [the

redevelopment]? It's the Port Authority."

Money, too, is becoming a problem for Mr. Silverstein. He

still has to pay rent to the Port Authority as if the World

Trade Center

still existed, full of tenants. For now, he says he is making the

payments-about $2.5 million a week-out of his own pocket. If he defaults on the

payments, he could lose control of the property.

Mr. Silverstein must soon collect at least some of the $7.2

billion in insurance claims he has filed. But his insurers are fighting him. A

long legal battle could turn on a bit of legalism: Mr. Silverstein says that

the assault constituted two distinct terrorist attacks, doubling his $3.6

billion in insurance policies; the insurers say it was one coordinated attack.

Experts call Mr. Silverstein's claim audacious. Why is he

trying it? Perhaps because he thinks $3.6 billion won't be enough. Financial

documents connected to a Trade Center bond issue earlier this year warned that

Mr. Silverstein's casualty insurance policy amounted to "significantly less"

than the cost of rebuilding.

"Is the industry happy about having to pay us $7.2 billion?

The answer is no," Mr. Silverstein said. "[But] without a doubt, we'll get it

resolved."

Appeals to Congress

According to Congressional staff, however, Mr. Silverstein

recently told members of Congress that he needs federal loan guarantees to keep

going while he waits on the insurance payoff. "He was greatly fearful that he

would not be able get that kind of financing without a guarantee," said John

Sheiner, an aide to Representative Charles Rangel, who was present at the

meeting. But Mr. Silverstein dropped the idea when members of Congress voiced doubts.

Despite all these problems, Mr. Silverstein says he is

working on a tight time frame. "The site is going to be cleared, present

schedule, [in] 12 months," he said. "Six months for environmental remediation

and securing the foundations. Eighteen months from today, structural steel can

be coming up out

of the ground. And five years from

today, we can have-and should have-a finished World

Trade Center."

But that schedule could be wildly optimistic in a New

York barreling towards recession. Companies displaced

from the World Trade

Center have found ready space in

buildings emptied by the financial downturn, and any new complex will have to

vie for tenants with a dozen or so development sites at the ready around the

city.

"My sense is that this is going to be a long haul," said

real-estate attorney Lawrence Lipson of Proskauer, Rose.

Among the three finalists in the bidding for the World

Trade Center,

Mr. Silverstein was considered an afterthought, a lone private investor among

big public companies. He rounded up a formidable consortium of investors and

used his patience, charm and wile to prevail. Now he faces a problem like none

any developer has ever seen.

"The impact on lower Manhattan

is devastating; [on] the city, huge; [on] the state, enormous," Mr. Silverstein

said.

Mr. Silverstein added that he narrowly escaped death on

Sept. 11. "The only reason I wasn't there that morning was because of a

doctor's appointment," he said. His firm lost four employees in the disaster.

"It's painful. I'd rather not talk about it. Let's get it behind us," he said,

ending discussion of the disaster with a wave of his hand.

Mr. Silverstein watched the buildings collapse on a

television in his Fifth Avenue

office. He emerged from seclusion soon afterwards, telling The Wall Street

Journal that he planned to rebuild. Since then, he's been moving forward

aggressively. "It costs $2.5 million a week," Mr. Silverstein said. "So when

you're sitting and contemplating the eternal verities, you can do that for 10

minutes, 12 minutes, but then you gotta get on with it."

The plans tentatively call for four 50-story office towers

and a monument honoring the dead. "That's their burial ground, so you need a

memorial," Mr. Silverstein said.

He's already hired prominent architect David Childs, of

Skidmore, Owings and Merrill; urban planner Alex Cooper, who designed Battery

Park City; and a lot of lawyers.

Mr. Silverstein has also been making the rounds around Washington,

accompanied by blue-chip Washington

lobbyists Ed Gillespie and Jack Quinn. In addition to the loan guarantees, he's

asking for legislation shielding him from lawsuits connected to the attack.

Bottom-Line Realities

Mr. Silverstein's alacrity caught many unprepared, including

the Port Authority, which lost 74 employees in the disaster, in addition to its

headquarters building. Yet Mr. Silverstein may have no choice but to move fast.

To keep paying rent to the Port Authority, he must collect at least some

portion of his $1 billion "business interruption" insurance policy. But this insurance

policy, Mr. Silverstein said, only kicks in if he can demonstrate that the

complex will be rebuilt. Even if he collects it, that insurance runs out in

three years.

So Mr. Silverstein needs the Port Authority's cooperation.

"He's going to have to negotiate with the Port Authority," a New

York state official said, adding that Mr. Silverstein

shouldn't put the authority "in a box."

Not surprisingly, the Port Authority and Mr. Silverstein

have differing interpretations of what Mr. Silverstein's rights are under the

arcane provisions of his lease which cover damage to, or the destruction of,

the building.

The problem, said Mr. Lipson-who engaged in lease

negotiations with the Port Authority on behalf of an unsuccessful bidder,

Vornado Realty Trust-is that no one spent much time contemplating the total

destruction of the complex when the lease was written.

"I remember making the comment, '[Terrorists] tried to

destroy the building once unsuccessfully; there's no way the entire building's

going to come down,'" Mr. Lipson said. "You see how stupid I was."

The Port Authority has about $1.5 billion of its own

insurance, which will go to cover damage to the PATH train terminal underneath

the W.T.C. site and other infrastructure. But if Mr. Silverstein defaults on

the lease, the Port Authority stands to collect all his insurance money,

another New York state official

claimed.

Real-estate lawyers and developers said there are reasons

why the Port Authority might not want Mr. Silverstein to develop the site.

"This could be, from start to finish, a 10-year project,"

said one developer. "I think the Port Authority will question his organization,

and question the experience of his partners."

Mr. Silverstein's is a family-run private company. He has

built some buildings-most significantly 7 World Trade Center, which was also

destroyed in the attack-but nothing like the four-building complex he is now

proposing. His partners, which include members of the Goldman real-

estate family and real-estate

investor Joe Cayre, signed on to invest in buildings, and some speculate that

they may not want to be involved in a development project.

Philip Rosen, who represented Mr. Goldman on the deal, said

that the rest of the partners were fully behind Mr. Silverstein. "They're

investors, but they're also developers," he said.

No single developer has tried to complete a project of such

scale in New York since the

1980's, when George Klein attempted to build four office towers in Times

Square. That project went awry amid political squabbling and Mr.

Klein's financial setbacks.

Many suggest that the formula that eventually worked in Times

Square-parceling out buildings to several different

developers-might be the model for the World

Trade Center

site.

Mr. Silverstein indicated he would be resistant to such an

idea. "As I recall, 42nd Street

took I don't know how many years to get done," he said. "If we were to go for

10 or 12 or 14 years … or bring in different people, then I gotta tell

you-we're going to be out of money before we start."

Some involved in the World

Trade Center

lease deal suggested that the Port Authority might try to buy out Mr.

Silverstein's interest in the complex. "The most likely outcome, in my view,"

said one real-estate attorney who has made a close study of the deal, "is that

the Port Authority will say, 'Larry, we love you, you're a great guy, but we

want to do something new.'"

But another attorney who is close to the ownership group

said the partners would resist any buy-out. "I think that that would lead to

years of fighting," he said. "I think that the best scenario is that everyone

sits in a room, locks the door and figures out what to do with the site."

Mr. Silverstein said he's in it for the long haul.

"I've simply decided the next five years of my life are

going to be dedicated to getting this rebuilt," he said. "Because

emotionally, I find it necessary to do it … [and] because, God only knows, the

economy of this city-the economy of the state-is dependent upon our doing so."

To applause from the high-level staff members who had gathered in the Port Authority's World Trade Center headquarters to watch, the 12-member board approved an agreement between New York Governor George Pataki and New Jersey Governor Christine Todd Whitman, ending a 17-month interstate war of recriminations and tabled motions.

Within days, the reinvigorated agency was putting the finishing touches on a few projects near to the hearts of Mr. Pataki and his chief advocate on the board, Empire State Development Corporation head Charles Gargano: the privatization of the World Trade Center and the leasing of air rights above the Port Authority Bus Terminal to private developers, who plan, improbably enough, to build a 35-story office tower they call 7 Times Square above the once-squalid mega depot. But the two long-contemplated projects, having negotiated the choppy seas separating New York and New Jersey's governors, haven't found safe harbor yet. To get there, they're going to have to navigate around the Port Authority's most implacable enemy, Mayor Rudolph Giuliani.

Port Authority board members, including board chairman and Whitman appointee Lewis Eisenberg, an investment banker, and Bradford J. Race, Mr. Pataki's chief of staff, said they anticipated a round of negotiations with the city, leading to a tax break that would smooth the way for the two developments. But Deputy Mayor Anthony Coles said the Mayor's position was that there would be "no negotiation," and that the city would sue, if necessary, to recover all its taxes.

Despite the public pronouncements of peace after this month's agreement, it's clear that deep divisions remain within the Port Authority, over the World Trade Center project in particular. Mr. Pataki, who has publicly committed to returning the building to the tax rolls, wants the privatization to move forward quickly. State officials still doubt whether Ms. Whitman, as well as the Port Authority's staff, really want the Authority's crown jewel and big moneymaker-it took in a $148 million profit last year-sold off.

"New Jersey and some of the Port Authority people want to see this become as cumbersome as possible," one state official said.

For Mr. Giuliani, the situation is a sweet reversal of his usual routine of railing powerlessly against unaccountable bureaucrats in both states-Port Pirates, in tabloidspeak-who, he believes, divert billions in investment away from the city. His calls for the dissolution of the 1921 compact between the states, like his efforts to wrest away Kennedy and LaGuardia Airports from Port Authority control, have played well in the newspapers, but have had little real impact.

Now that the Port Authority wants to do real estate deals in New York City, however, Mr. Giuliani can flex a bit more political muscle. "He can still be a fly in the ointment in any Port Authority real estate deal, insisting on full real estate taxes," said one former Giuliani administration official.

The prospect of a Republican Mayor scuttling deals to privatize 10 million square feet of publicly subsidized office space and build a shiny western bookend to Times Square is ironic, to say the least.

The Mayor's dispute with the Port Authority is a morass of tax-law arcana, but it boils down to this: As a governmental organ, the Port Authority currently pays no taxes on its enormous city landholdings. Instead, it has negotiated a yearly contribution to the city, representing a fraction of the real estate's worth. In the case of the World Trade Center, the Port Authority pays the city $25 million a year. If the building were in private hands, according to Mr. Coles, the owner would pay around $100 million in taxes.

"Once the Port Authority transfers [the World Trade Center] to a private owner through a sale or lease, the city's view is that it will be assessed at the full real property tax," Mr. Coles said. The same principle, he said, goes for the bus terminal tower.

See You in Court

The Port Authority, understandably, is leaving open the possibility of negotiations. There is an open legal question, the Authority believes, over whether a building run by a private developer under a long-term lease, but still technically owned by the Authority, would be taxable.

In other cases where public buildings have been privatized, such as the World Financial Center, private developers have arranged for a "payment in lieu of taxes"-or a "PILOT" in real estate argot-which increases over time until it eventually reaches the building's assessed value.

Such a tax break would be a lucrative inducement to developers wary of the high price the Port Authority might demand for the World Trade Center. It might also help the developers of 7 Times Square offer lower rents to the anchor tenant they need to attract in order to build. Susan Fine, a senior vice president at the Lawrence Ruben Company who is coordinating the development, said she could not comment on whether the company is seeking a tax break from the city. "We're going to work with the city and state of New York to develop a competitive building," Ms. Fine said.

When asked about the World Trade Center, Allen Morrison, a spokesman for the Port Authority, said that the Authority's bidding guidelines "make no representation one way or another to the bidders regarding the tax or PILOT issue." Several people involved with the project predicted the Authority is putting off the tax issue until it settles on a developer. Mr. Eisenberg said there would likely be negotiations later on.

"We see no reason, if we have cooperative discussions with the parties involved, why these projects will not move forward, as other projects have moved in the past," Mr. Eisenberg said.

Mr. Race said that while the Governor's office supports Mayor Giuliani's efforts to increase the tax base, "whether at the end of the day there's some negotiations between the city, the Port Authority and the new owner, that remains to be worked out."

No it doesn't, said Mr. Coles.

"This is not an issue of negotiation for us," Mr. Coles said. "The simple fact is that once the Port Authority transfers the [World Trade Center] … if it's not put back on the tax rolls someone's getting out of paying the tax, and then the city will go to court." Again, he said, the same goes for 7 Times Square.

It would seem, then, that peace is not quite at hand at the Port Authority, despite the deal the two Governors cut earlier in the month.

In fact, the dispute between Mr. Pataki and Ms. Whitman typifies relations between the two states over the allocation of Port Authority resources, with each state believing it was getting a raw deal in the compact that governs commerce and development within a 25-mile circle around the Statue of Liberty. Goaded in part by Mr. Giuliani-"the Mayor laid the groundwork for the recognition by everyone that the Port Authority is not friendly to New York City," said Charles Millard, the former head of the city's Economic Development Corporation-Mr. Pataki's appointees began questioning why, for instance, the $1 fare for the Port Authority's trans-Hudson tubes, predominantly used by New Jersey commuters, had not increased in more than a decade. Or why the Port Authority was investing millions in Newark's airport, diverting traffic away from Kennedy and LaGuardia.

Mr. Pataki raised the issue of privatizing the World Trade Center, too, an idea that had been kicking around almost from the time the towers opened in 1973. In 1997, a study by the investment firm J.P. Morgan recommended a divestiture, saying the authority could reap a $1.1 billion windfall.

The prospect worried members of the New Jersey delegation, though, who saw little advantage to returning the building to New York's tax rolls and who were concerned about the loss of rents. The revenue stream from the World Trade Center has helped subsidize the PATH lines. The Authority's professional staff also opposed privatization, regarding the twin towers as a symbol of the Authority's glory days (the 67th floor views aren't so bad, either).

"Yes, it's a skyscraper, yes, it's a commercial office building, but it's also a symbol of pride for the Port Authority that shows the world what magnificent projects the Authority is capable of," said Angus Kress Gillespie, a Rutgers professor and author of Twin Towers: The Life of New York City's World Trade Center . "To the Port Authority it seems like a stab in the back. Everyone wants the Port Authority to shoulder the projects that lose money, but divest themselves of the projects that make money, like the World Trade Center, so I think they feel betrayed."

Mr. Pataki, however, prevailed when the board voted in September 1998 to pursue a 99-year lease of the building. More than 30 potential investors qualified to bid on the property-including Steven Roth's Vornado Realty Trust, Mortimer Zuckerman's Boston Properties, Tishman Speyer and Donald Trump.

The idea of developing the air rights over the bus terminal also has been under discussion for some time. In fact, the terminal was constructed with a foundation capable of supporting a tower even taller than the 35 stories in the current design. But every time plans moved forward, the real estate market tanked.

The project finally made it out to bid in 1998. Vornado and the Ruben Company won with a steel-and-glass architectural design by Skidmore, Owings and Merrill that has done the unthinkable, according to those who have seen it. The design actually makes the bus terminal attractive.

The developers are paying $90 million up front, plus agreeing to finance $20 million in terminal renovations, for the development rights-revenue the authority says will help offset the $60 million a year subsidy it requires to keep the depot running. All told, the project is expected to cost $400 million, according to the Port Authority-$200 million of it for construction alone.

Then came the logjam.

In January 1999, angry about the supposed inequity in Authority investment, Mr. Pataki directed New York's six Authority board members to block a deal with shipper Sealand Maersk to run a major cargo terminal in Elizabeth, N.J. Ms. Whitman, who desperately wanted the Sealand Maersk deal, responded by blocking major New York initiatives, including the World Trade Center and bus terminal projects. For the next 17 months, the board met only sporadically; the two Republican Governors stopped talking and even stopped using each other's first names in their correspondence.

Chopper Comes in Handy

Months of negotiations between Mr. Eisenberg, the board chairman, and Mr. Gargano, the vice chairman, finally yielded a breakthrough in early May. The two negotiators, according to an account in the Newark-based Star-Ledger , boarded the authority's seven-seat, $1.9 million helicopter-much maligned by those who see it as a symptom of the agency's waste-to meet and brief Ms. Whitman at Toms River High School, where she was conducting a town hall meeting.

A month later, in a meeting lasting barely two minutes, the board unanimously approved a 15-point agreement between the two states. Ms. Whitman got her lease deal with the shipper. Mr. Pataki got a commitment of $250 million in investments in New York, and $287 million more to finance the "train to the plane" running to LaGuardia airport. In addition, the board very likely will raise the PATH fare and proceed with the development projects for which Mr. Pataki has been pushing.

The agreement with the 7 Times Square developers was approved that same day. Authority staff members are putting the finishing touches on bidding guidelines for the World Trade Center privatization, which are to be sent out by the end of the month, said Mr. Morrison, the agency's spokesman.

It's difficult to measure how much the delay hurt the Authority's efforts to complete the projects. A headline on a Wall Street Journal piece about the World Trade Center, "How Not To Sell The Best Known Office Complex," can't have helped, but as some point out, the market for office space actually went higher in the months the board was at an impasse. The value of the lease has been estimated at between $1.5 billion to $2 billion, but, Mr. Eisenberg cautioned, "whatever price was talked about two to three months ago could be substantially different when the decision is made."

The 7 Times Square developers, meanwhile, never stopped showing their building designs to the handful of large-scale office tenants currently in the market for space, including Deutsche Bank, the Canadian Imperial Bank of Commerce, and the accounting firm Price Waterhouse Coopers.

Bruce Mosler, an executive at the brokerage firm Cushman and Wakefield who is working with the developers, said that now that an agreement between the developers and the authority is ready to be signed, he "would be surprised if in the next 60 to 90 days there aren't serious discussions going on with [potential tenants]."

Meanwhile, the real estate deals remain just one theater in the Mayor's multifront war against the Port Authority. Just last month, Mayor Giuliani hired a British firm to monitor the Port Authority's administration of the airports, a prelude, his advisers indicated, to a move to force the Port Authority to negotiate its way out of its airport leases, which expire in 2015. (The authority operates the airports on land leased from the city.) Port Authority officials question the legality of the move.

While neither side considers the issues to be directly related, Mr. Eisenberg said that a larger settlement of city-Port Authority disputes "certainly is a possibility."

"What I can say," Mr. Eisenberg said, "is that I think it is in the best interest of the people of the region for both states and city to negotiate rather than to do battle."

The idea of Mr. Giuliani sitting down to talk with the Port Pirates would have been laughable just a few months ago. Then again, if Mr. Giuliani can visit with Manhattan Borough President C. Virginia Fields and kibitz with Public Advocate Mark Green, surely anything is possible.