The Next World Trade Center Delay

wtc construction joe woolhead The Next World Trade Center Delay

Since August, developer Larry Silverstein and the Port Authority have been clashing in an extensive, binding arbitration over the redevelopment of the World Trade Center site. And, throughout, key sections have been stalled, with giant holes for two towers on the site going unfilled as the two sides await a ruling from the arbitrators, expected soon, that could chart a path forward.

But as the ruling nears, another option looms: more arbitration, and, with that, likely more delays.

The terms of the arbitration have remained mostly private, but buried in bond documents filed by the Port Authority, the site’s owner, is a suggestion that if no satisfactory settlement emerges after the first round, Silverstein Properties will undergo the lengthy process again, seeking damages in the billions of dollars.

“Absent a settlement, the Silverstein net lessees plan to commence a second arbitration in which they will show that the Master Development Agreement was the product of the Port Authority’s negligent misrepresentation and/or fraud,” a bond document filed in the fall and examined by The Observer says, “in which they will seek an award of monetary damages, including rescission damages totaling at least $2.75 billion, which will be dedicated to the project.”

Predicting exactly what the arbitrators will say is a lost cause, as the three-person panel of a judge, a construction executive and a lawyer are given broad discretion in how they rule. But it’s clear that whatever the ruling, it will be a crucial time for the site, with renewed pressure for the sides to strike a deal and ward off further delay.


Held on the 10th floor of Mr. Silverstein’s 7 World Trade Center, the arbitration has been a mostly private affair that’s dragged on through the fall and into the winter, as executive after executive involved with the site trekked up to the lawyer-filled room to testify. (In an ironic twist, the room used to be the design studio for the delayed towers.)

Citing the Port Authority’s substantial delays at the site, Mr. Silverstein called for the arbitration after months of talks over how to finance development of his towers in the recession went nowhere, becoming more of a two-way public mudslinging than a negotiation.

Mr. Silverstein has not publicly discussed specifics of the arbitration. But, according to the bond filing written by the Port Authority, he wanted three main items: relief on the development schedule, which currently requires completion of his three office towers within five years; an abatement of the rent “until the project is completed and generating sufficient ground rents”; and a declaration that the Port Authority had breached the 2006 “Master Development Agreement” for the site.

Both Silverstein Properties and the Port Authority declined to comment, but in a fall State Senate hearing, Silverstein executive Janno Lieber suggested that the firm would indeed file for arbitration again should a ruling fail to lead to a new deal, and would request back the $2.75 billion in insurance money paid to the agency.

“If, at that point, we can’t work something out,” Mr. Lieber said, “we will have to proceed to ask the other question, which is, ‘Will you give us the money back that we’ve given you, the Port Authority?’ And we’ll use it to build buildings.”

Of course, it’s not clear that the impasse will continue forever, and indeed, there appear to be a few glimmers of hope for a deal. After breaking off all talk in the heat of the fight over the financing last spring, the Port Authority and Silverstein have at least reengaged in recent months.

And Bloomberg administration officials, who have tried to play the role of brokers for the past half-year, have told others they now believe a plan to pay for two Silverstein towers through hundreds of millions in private capital is workable given a slightly improved financing market, according to people familiar with discussions. (The city declined to comment.) That basic structure, with Silverstein putting in money on top of the firm’s insurance money, resembles what the Port Authority proposed in July, before the arbitration began.

Silverstein rejected that plan-which called for $625 million in new private money to help build a new tower-as unworkable given the lack of financing for anything new in the recession-battered market. At the time, the city publicly supported Silverstein’s position, strengthening the developer’s hand.

But if the Port Authority and the Bloomberg administration are indeed coming closer on a financing structure, it would seem to mean a shift in the political winds, which favored Silverstein before the arbitration began.


Stalemate is nothing new to the project, which has seen constant delays related to the impasse among the multitude of partners throughout the eight-year reconstruction of the site. The essence of the constant problems is that the deal is a public-private partnership structured with fantastic assumptions about office space demand, in which both the public and private are overdependent upon one another.

The deal was built under the now-dubious assumption that everything could get financed and built at once-that the private market would absorb 10 million square feet of space with not a single private tenant committed in 2006. Normally, the changing economics that ensued would lead a developer to simply delay the starts of buildings. But in this case, the function of the entire site rested on Mr. Silverstein building his three towers at the same time, as the project’s vital organs and guts lie in the basements and bases of his buildings.

This co-reliance has been at the heart of the ongoing fight, which has specifically focused on a request by Mr. Silverstein for the Port Authority to back the financing on two of his planned towers, with the third, Tower 3, to be put on indefinite hold.

For months, there was no progress-the Port Authority offered a one-tower plan that Mr. Silverstein flat out rejected-and the disagreement turned into a full-on public battle. The two sides stopped talking and traded barbs in the press; the mayor and Assembly Speaker Sheldon Silver condemned the Port Authority publicly, opposing Governor Paterson, who controls half of it.

Should no deal materialize, the Port Authority is preparing a self-proclaimed “Plan B” that would involve building around Mr. Silverstein’s two empty holes for Towers 2 and 3. (He has built the smallest of his skyscrapers, Tower 4, up to grade, and is now working on the initial floors above street level.) That plan is not viewed in high regard by those watching the site, as it would cost untold hundreds of millions of dollars in additional investment; would deprive the site of key features such as a parking garage and a secure underground delivery road; and would mean a major redesign of certain features.

The Port Authority has set no public date on when it would have to pull the trigger on such a plan. And as for an exact date for an arbitration ruling, that’s anyone’s guess: The panel finished testimony and received all closing arguments late last year, according to people familiar with the proceedings.

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