Saturday, March 21, 2009

Larry "CHUTPAZ" Silverstein asks the government for bailout of WTC construction

NEW YORK -- The rebuilding of the World Trade Center site, already hobbled by years of delays and infighting, is facing fresh problems as private developer Larry Silverstein asks the government for crucial financial assistance, according to people familiar with the matter.

The result would be that the Port Authority of New York and New Jersey, the government entity that owns the site, would take on more of the risk of the project at a time when the agency already faces budget restraints to pursue its core transportation and infrastructure missions.

The Port Authority, eager to prevent the project from stalling, is considering helping to finance at least one of Mr. Silverstein's planned three office towers, according to people familiar with the matter. Mr. Silverstein is requesting financing help on at least two of the three towers. The Port Authority would require concessions from Mr. Silverstein, including possibly giving up some of upside profits should the towers succeed in the long term.

The project, meant to be a symbol of the recovery after the Sept. 11 terrorist attacks, has been through years of costly delays and acrimony. The plan for the 16-acre site includes five skyscrapers, a memorial, a transit hub, a shopping mall and a performing-arts center. Much of that was recently expected to open between 2011 and 2013.

Those dates are in jeopardy and at least some elements are unlikely to be finished until the later part of the next decade. The memorial is set to open by the 10th anniversary of the attacks, but even it faces budget shortfalls and is pursuing federal stimulus money.

Despite the long-term financial problems, the site has been a beehive of activity after years of delay. The Freedom Tower, owned by the Port Authority, is poking above street level. The memorial is taking shape. And Mr. Silverstein recently installed a crane to begin foundation work on the smallest of his three towers.

But if construction of the office towers doesn't proceed, the entire site could be plunged into further delays and uncertainty. The planned $3.2 billion transit hub relies on Mr. Silverstein's office towers for ventilation and fire exits. The Port Authority's $3 billion Freedom Tower would be unable to open as planned because its delivery ramps tie underground into the part of the site that Mr. Silverstein jointly controls with the Port Authority.

Mr. Silverstein declined to comment through a spokesman, but in the past said he is committed to building as quickly as possible.

A Port Authority spokeswoman said: "We are continuing to discuss with Silverstein Properties how to best meet a changed market while ensuring the World Trade Center site is rebuilt in the best public interest."

Mr. Silverstein originally planned to finance his three towers through a combination of insurance proceeds, government-subsidized bonds and commitments by the Port Authority and the City of New York to occupy part of one of the towers. He also hoped to attract private-sector tenants to anchor the towers. Before its sale to Bank of America Corp., Merrill Lynch was a possibility.

But with the economy in a tailspin, raising money to build the $7 billion of office space has been nearly impossible. Making things more difficult, Mr. Silverstein is obliged to pay the Port Authority $79 million a year in ground-lease payments, a legacy of his July 2001 agreement to buy a 99-year lease on the Twin Towers.

The ground-lease payments to the Port Authority act like a first mortgage on the properties. Any construction financing Mr. Silverstein tries to secure then becomes subordinate to the ground-lease payments, which is an unattractive prospect for lenders.

Those lease payments have drawn $800 million out of the $4.5 billion insurance settlement since 2001. (The Port Authority has said that money is earmarked for reinvestment into the site.)

In 2003, Mr. Silverstein used part of the insurance proceeds to pay back his and his partners' $125 million equity in the original 2001 purchase. An additional $563 million was used to pay off a mortgage on the Twin Towers. Much also has been spent on design and site preparation. Mr. Silverstein has less than $1 billion in insurance money left, said people familiar with the project.

The Port Authority, which derives almost all of its revenue from tolls and fees at its airports, ports and bridges and tunnels, had been wary of putting additional resources into speculative office buildings. Such a move will siphon resources from its other development needs.

An alternative financing strategy being floated among the parties is to build the towers only up to the first several floors, which are slated for retail space. That would allow the needed infrastructure to be built. The office parts of the towers would be built atop the pedestals when the economy revives. But that strategy has logistical challenges, such as finding retail tenants willing to reside in space that would have to be closed when construction above it resumed.

While people familiar with the talks are hopeful a deal will be struck, Mr. Silverstein has legal leverage to stall the project in the courts, according to people familiar with the project. The Port Authority has failed to deliver parts of the site to Mr. Silverstein in a timely manner, according to the rebuilding agreement struck in 2006, and has incurred more than $70 million in penalties it pays to Mr. Silverstein. Mr. Silverstein could argue that the agency has made it impossible for him to build.

The Port Authority also has leverage over Mr. Silverstein regarding promises he made to complete the buildings by certain dates and could theoretically try to remove him from the project, according to government officials. But the agency, which reports to the governors of New York and New Jersey, is unlikely to want the project tied up in a protracted legal battle.

Write to Alex Frangos at

Printed in The Wall Street Journal, page A1