With $600 M. in Public Pledges, Trade Center Stalemate Nears an End
Eliot Brown March 25, 2010, 12:07 p.m.
The yearlong battle at the World Trade Center between developer Larry Silverstein and the Port Authority is poised to come to a close this afternoon, as the parties involved are near a tentative agreement that involves $600 million in new public guarantees and calls for $300 million in additional private investment, according to multiple officials familiar with the terms of discussion. Other subsidies have been added as well, including a partial rent abatement for Mr. Silverstein and a $5-a-square-foot hike in the rent the Port Authority would pay for the 600,000 square feet it is leasing in one of Mr. Silverestein’s towers.
An array of government officials from the city, state, and Port Authority have come to a general agreement on the terms of a deal with Mr. Silverstein, although the Port Authority staff still must meet with its board and Mr. Silverstein, as of early this morning, had not given a final signoff.
A large chunk of the Lower Manhattan site has sat fallow for months, as Mr. Silverstein, unable to finance his towers in the recession, has sought government aid. The Port Authority, the primary target for much of the past year given that it was responsible for infrastructure delays, had resisted offering much public assistance, leading to a lengthy arbitration with Mr. Silverstein.
But in recent weeks, the city, Port Authority, Mr. Silverstein and the state have come together, cobbling an array of public funds to near an agreement on a complex finance deal that would allow for two towers. The deal would be contingent on Mr. Silverstein raising $300 million in private capital and leasing out 400,000 square feet of space in his 2.3 million-square-foot tower, which currently has no tenants.
In the end, should the deal actually happen, it seems the persistence in pushing the public sector to put in money proved successful, as, ultimately, the city and state each stepped in with significant contributions.
According to multiple government officials familiar with discussions, if there is indeed going to be a deal today, it would involve governmental assistance coming to $600 million—$200 million apiece from the city, state, and Port Authority—split between equity contributions in Tower 3 ($130 million from the city and $80 million from the state), and a $390 million backstop on the debt ($200 million from the Port Authority, $70 million from the city and $120 million from the state), should Mr. Silverstein default. Additional insurance money that Mr. Silverstein was planning to use for Tower 2 would be used for the backstop as well.
This represents a turn from earlier discussions, which centered around the Port Authority guaranteeing all debt payments and capturing Tower 3 should it prove a financial failure. The Port Authority, controlled equally by New York and New Jersey, strenuously fought such a plan, saying such a commitment would dramatically injure its ability to invest in transportation projects. Mayor Bloomberg in particular put great pressure on the Port Authority, and, ultimately, the agency, the city, and the state put in more to make a deal happen.
In all, the deal come as a victory for Mr. Silverstein, who drew a line at two towers, demanding that the Port Authority owed him the responsibility to make it happen on account of the agency’s delays.
Mr. Silverstein was in a position of great leverage, as without a deal, infrastructure on the rest of the site would have been rendered non-functional without hundreds of millions of dollars in changes, and, if he defaulted, the Port Authority would have stopped receiving rent payments, currently around $80 million a year.
The tentative deal, reported today by the Times, would still kick many decisions down the road, and numerous officials warn that all the disagreements are now settled.
Update 5:30 p.m.
All the parties have put out a joint statement that basically acknowledges the general terms of the deal, with a 120-day deadline to finish negotiations.
Thus it leads to be seen just how certain the deal is today, but with that said, there certainly is broad agreement on the general principles and numbers involved.
As for what effects the added government contributions will have on their budgets, specifics are unclear. The state plans to use funds in discretionary capital spending pots, while the Port Authority has said it will generally need to trim back its spending on transportation (its capital plan recently was realigned at $24.5 billion over 10 years, down from $29.5 billion at the market’s peak, in part due to the imbroglio downtown). The city plans to redirect payments in lieu of taxes it was set to receive at the site toward its $200 million.