After months of sparring over the rebuilding of the World Trade Center, the Port Authority has now offered a plan to allow private developer Larry Silverstein to build two office towers.
Mr. Silverstein and the Authority have been at a major impasse over the future of the site, as the developer has demanded the public sector finance two of his office towers (a demand that is effectively an attempt at an out-of-court settlement for the Authority’s delays at the site). The agency has resisted, offering to help finance one tower (Tower 4), saying its mission is not to fund speculative office towers and doing so would necessitate major cuts to transportation projects. (Mr. Silverstein’s other building, Tower 2, has no tenants and is the size of the Empire State Building.)
The result of the Authority’s new offer: More impasse, at least for now.
According to a person familiar with Mr. Silverstein’s thinking, his firm views the proposal as “blatantly unfinanceable.”
The offer, at least according to a letter sent by the Port Authority, which owns the World Trade Center site, to Mr. Silverstein, calls for the following:
-The Port Authority would back $1.2 billion in debt on Tower 2, estimated to cost $2.4 billion.
-Silverstein Properties would have to raise $625 million in debt that would be subordinate to the Port Authority’s debt. (This means the Port Authority’s debt would be repaid first if Silverstein defaulted.) That would certainly make it harder to raise the money, though Silverstein would have around two years to do so, as the foundations and below-grade work that needs to get done anyway is extensive. (Though the proposal seems to imply constructing the same below-grade for the tower regardless of whether or not it is actually built, or remains as a small podium.)
-An abatement of Silverstein’s ground rent over the next 12 years, accounting for about $770 million off the full ground rent the Authority is currently expecting. (This would lighten the load some for the Silverstein team in its attempt to finance the tower. But, with that said, it’s hard to see a scenario where the full ground rent of more than $80 million a year would come in, given that all the proposals under discussion call for at least one of the planned three towers on the site to be indefinitely delayed.)
The Port Authority’s offer comes after Mayor Bloomberg and Assembly Speaker Sheldon Silver publicly attacked the agency for its intransigence in talks, as it did not put in more money beyond its initial proposal to help finance Tower 4. The city offered $100 million and Silverstein offered $75 million, along with a proposal that it said could save the Authority $400 million in construction costs on its PATH hub and other site components.
The offer, reported in the Times, was sent to the city the same day that Mr. Silverstein sent a letter announcing his intent to go to arbitration, seeking damages for the Port Authority’s delays at the site.