What’s $1B Between Friends?

At a press conference this morning, Port Authority officials came close to saying that Larry Silverstein was using the Freedom Tower as a trump card in World Trade Center talks.

“Yesterday at 5 o’clock, we had had a long day of discussion,” Kenneth Ringler, the Port Authority’s executive director, said. “We thought we were moving in the right direction. Then at 11:35 they came back with a proposal where their demands were just as high as they were before. They were increasing their demands, and quite honestly, in my view, I think they thought they had leverage and we would back down because we wanted to make a deal and we wanted to move the Freedom Tower forward.”

They thought they had leverage? Indeed. Silverstein and his team must know how much the Governor wants the Freedom Tower. (We explore this point in detail in this week’s issue.)

But Ringler didn’t specify just how much Silverstein had jacked up his demands, or even whether the developer had agreed to any sort of deal before they took that 5 o’clock break. Nor did Charles Gargano, the Port Authority’s vice chairman, who also spoke at the press conference.

The documents that Silverstein presented near midnight, Gargano said, showed that he was not negotiating in good faith and that “the motivation is to get as much money out of the project as possible.”

In the end, Gargano said that the two parties remained “close to a billion dollars” apart and that Silverstein wanted to build the later towers without taking on any risk—presumably entirely with insurance proceeds and Liberty Bonds.

The Port Authority had offered to build the Freedom Tower and the fifth tower, which may well include apartments and a hotel, Gargano said. Silverstein would continue to build towers 2, 3 and 4, which have the large floor plates and close access to subway stations that make them easier to lease to office tenants. The Port Authority also agreed to reduce the rent increases that were part of its pre-Sept. 11 contract with Silverstein, and that the state was offering low-cost Liberty Bonds to help finance the middle three towers. In return, the Port Authority wanted the developer to hand over some of the $4.6 billion in insurance that he is expecting because of the terrorist attacks, though just how much is unclear. (The Times said the agency wanted one-third of the total or $1 billion. We assume that means one-third of the unused insurance proceeds, since Silverstein is expecting $4.6 billion in total. If so, that’s a good deal for Silverstein: he keeps 78 percent of the insurance money and only builds 62 percent of the site’s square footage.)

Whether it is even legally possible for Silverstein to hand over his insurance compensation, or whether his award would decrease if less office space gets built, is another matter.

“We will not continue negotiations until Silverstein Properties puts something on the table that is more in the public interest,” Gargano said. He also threatened legal action if the developer delayed the groundbreaking on the Freedom Tower, scheduled for some time next month.

Meanwhile, Silverstein is paying more than $10 million a month or so in rent to the Port Authority, and untold sums in lost opportunity costs. Pataki, who shares control over the Port Authority and could use progress at Ground Zero as fodder for a presidential bid, is watching as his beloved Freedom Tower is imperiled again.

Silverstein is answering questions at 3:30 today.

Who said public-private partnerships are a good idea?

Matthew Schuerman

What’s $1B Between Friends?