It’s 1969 All Over Again

The Port Authority leased the twin towers to Larry Silverstein back in July 2001 in order to get out of the real estate business. Now Mayor Bloomberg wants it to get back in.

For several weeks now, the Mayor has been proposing that Silverstein give the rights to develop Towers 3 & 4 along Church Street, the choicest sites, back to the Port Authority. It was never quite clear what would happen next and why another developer would have any better access to capital or any easier time renting the space than Silverstein would. Today at a City Council hearing, Deputy Mayor Dan Doctoroff gave the answers: the Port Authority should build it themsleves, issuing their own bonds to raise the money, taking about 600,000 or 700,000 square feet for its own offices, and then renting out the remaining 3.1 million square feet. What’s more, the Port Authority would forego the profit that Silverstein is seeking and charge lower rents, he said.

Doctoroff said Silverstein was in danger of running out of money by 2010 and abandoning the project. Doctoroff’s financial projections showed that Silverstein would have to charge $70 a square foot for rent in order to avoid default, and he just could not get anywhere near that, even in 2011, given that the going rate is little more than half that, Doctoroff said.

Whose financial projections said what was a subject of considerable debate over the following hour and a half, but Janno Lieber, project director for Silverstein, made two points that provide some insight into the closed-door negotiations between Silverstein and the Port Authority. March 14 is the deadline for the decision on whether Silverstein gets $1.7 billion in state-controlled Liberty Bonds.

First, the Port Authority could not build the towers as cheaply as a private entity could because of procurement requirements it faces as a public agency. And second, the Port Authority would not want to forego the profit from the World Trade Center rent, which he said was the third largest source of the agency’s revenue.

Lieber wasn’t letting on whether these comments reflected what he was hearing in negotiations, but one thing is clear: his team is talking to the Port Authority these days, while Doctoroff is not.

We don’t rule out that the Mayor is playing a more complex chess game, such as forcing Governor Pataki to abandon the Freedom Tower, or creating delays until Spitzer comes into office next January. There is a groundbreaking scheduled in April. But then again, the Freedom Tower’s cornerstone was laid in July 2004 and look at all that has happened since then.

Matthew Schuerman

It’s 1969 All Over Again