Port, Silverstein Move Closer with New Two-Tower WTC Offer
Eliot Brown March 4, 2010, 4:16 p.m.
The Port Authority of New York and New Jersey this week presented a new offer to private developer Larry Silverstein that seeks to assist in financing construction of two skyscrapers at the World Trade Center.
The offer calls for Mr. Silverstein to raise $300 million in new private capital and for the city to put in a significant contribution toward the redevelopment before the Port Authority would put up money to back financing on two towers—Tower 3 and Tower 4—according to multiple people familiar with the proposal.
Given that the Port Authority’s last offer was for Mr. Silverstein to raise $625 million in private capital, this latest offer seems to narrow what was once a giant chasm between the warring parties. Still, negotiations at the site have long proved tremendously difficult, even in good times, and now neither the Port Authority nor Mr. Silverstein are eager to take the pain involved in finding the extra money to fund the project, which was once envisioned as a privately financed development. The offers and counter-offers have been slow in coming, with each side suspicious of the other, and with both bleeding each other as time goes by without a resolution.
According to the people familiar with the offer, Mr. Silverstein, who has hundreds of millions in insurance money—not enough to finance two towers—would need to raise $300 million in private capital. Last month, Mr. Silverstein offered to raise $250 million, with other conditions, including construction deadlines, for the Port Authority. The Port Authority, in both Mr. Silverstein’s offer and the Authority’s offer, would backstop the financing on the tower, thus capturing the asset should he ultimately default.
The Port Authority’s proposal would also give Mr. Silverstein two years to pre-lease 500,000 square feet in the second tower, the Richard Rogers–designed Tower 3, as a condition to the agency’s backing of the financing. The rents would have to be at least $80 a foot, a rather high level for Lower Manhattan (Most of the higher floors in Mr. Silverstein’s 7 World Trade Center were asking $75 a foot at the market’s peak) for a large amount of space.
Silverstein Properties would also, in the Port Authority’s proposal, have to keep paying ground rent while it still has insurance money, an expense not in Mr. Silverstein’s proposal.
Finally, the agency calls for the city to close the gap, waiving tens of millions worth of payments in lieu of taxes that the Port Authority would pay the city over 30-years. The Port Authority would also seek reimbursement for some of its losses from the city and state should Silverstein ultimately default on either of his towers.
It’s not immediately clear how Mr. Silverstein and the city will react to such a proposal. It does indeed bring the two sides closer than a year ago, when Mr. Silverstein wanted two towers, and the Port Authority refused to commit to any more than backing the financing on Tower 4, which has government lease commitments in place. But it does leave many questions, such as whether Mr. Silverstein would agree to a plan that is so contingent on him finding a large tenant.
And then there is the city.
As both sides have warred and the Bloomberg administration has tried to play the role of mediator, the mayor has at the same time balked at putting in more city money, though the city did not have an immediate response to this offer.
The parties have in recent weeks come back together to renew talks, following an arbitration ruling that generally is viewed as favoring the Port Authority, as it did not grant any immediate damages or rent abatements to Mr. Silverstein. There also seem to be other issues, as a redesign of Tower 2, which would likely be replaced by a podium or open space, and a redesign of Tower 3 that has been requested by the Port Authority. Given the complexity of the site, redesigns of the towers’ bases can take many months, presumably pushing off construction.
Update 4:40 p.m.
Silverstein spokesman Bud Perrone emailed over a statement, which has to be by far the most cordial comment the company has had in a year about the Port Authority:
“We are pleased that the Port Authority has responded to our February 10 offer with their own proposal, which we are currently studying. We will continue to work with the Port Authority and other stakeholders in order to achieve an agreement that will protect the public’s interests and ensure the World Trade Center is rebuilt in a timely manner.”