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Old Posted Feb 9, 2006, 9:35 PM
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Dinner With the Governor
New York Sun Editorial


February 9, 2006

As the contenders for Liberty Bonds downtown were preparing for today's public meeting of the city's Industrial Development Agency, Mayor Bloomberg was having dinner with Governor Pataki - and they certainly had a lot to talk about.

The IDA is mulling a request from developer Joseph Moinian for $50 million of Liberty Bonds to help finance a hotel-condominium complex on a vacant lot next to the Deutsche Bank building in lower Manhattan. This proposal is competing for a small portion of the $1.6 billion in bonds that Larry Silverstein is trying to secure from the city to rebuild office space at ground zero. It's clear that Mr. Moinian's hotel fits into Mayor Bloomberg's vision of a "24/7" residential community in the area. It's less clear that the project fits into Mr. Pataki's.

To those who say that the outcome of this hearing will be a test of whether the city can be trusted to allocate the taxpayer-subsidized bonds for their intended purpose - rebuilding in lower Manhattan commercial space lost on September 11 - the mayor's camp says that Congress left some discretion in the allocation of these bonds.

Mr. Moinian has plans for a 53-story, 440,000 square foot structure with 220 hotel rooms and 180 luxury condominiums. He initially sought $147 million in Liberty Bonds that Congress intended for the World Trade Center, as the Sun's David Lombino reported in December, but after negotiations with the city and state, Mr. Moinian agreed to ask for only $50 million in bonds to finance the hotel portion.

In theory this removes one potential obstacle to funding the project with Liberty Bonds. Under the reduced request the bonds would only be funding the hotel portion of the project, rather than luxury condominium units, which weren't on the list of approved commercial uses Congress had in mind when it created Liberty Bonds. It doesn't take any longer to see through that dodge than it does to spell the word f-u-n-gi-b-l-e, for any grant would still amount to a $50 million partial subsidy for condominiums. But there's also the fact that no shortage seems to obtain in respect of private, market-rate financing for hotels.

More substantively, it was Mr. Silverstein who took the central risk downtown and who now owns the property rights at Ground Zero. Before September 11, there were something like 100 million square feet of prime office space downtown. Of that, 15 million square feet were lost in the attacks, while another 12.5 million square feet of office space has already been converted to residential use even without the mayor's grand plans for apartments at ground zero. Constructing enough office space to make a dent in the anticipated shortage in coming decades - Mr. Silverstein envisions building about 10 million square feet on ground zero - will prove harder to finance without the Liberty Bonds.

But what is Mr. Bloomber's logic? He is nothing if not a high-integrity public official and, since the Liberty Bonds are a public obligation, he has plenty of standing. While the Mayor was at dinner with the governor, his development czar, Daniel Doctoroff, called to say that the city would, all things being equal, prefer to allocate the bonds to Silverstein Properties. But, he said, "it's very, very clear that Silverstein Properties will run out of money unless rents go up dramatically in the next few years." And he suggested that even if the allocation to Mr. Silverstein is made, Mr. Silverstein won't be able to complete the project or use the bonds to finish the contemplated buildings.

The way Mr. Doctoroff sketches the case is to suggest looking at the situation in July 2001, when Mr. Silverstein won a competition to lease the World Trade Center from the Port Authority. It was, at the time, 96% occupied, with rents of $50 a foot. Mr. Silverstein's company had to incur debt of only $763 million. To rebuild today, Mr. Silverstein would, after all the insurance money, still have to borrow between $4 billion and $5 billion, or six times as much as before, rents are lower, and nothing's occupied. So the mayor is arguing that the right move is for Mr. Silverstein and Port Authority to strike a deal in which Mr. Silverstein gives up - not for nothing, but for a reduction in rent - two key sites, known as 3 and 4, along Church Street. And let the Port Authority get going. Mr. Doctoroff makes a "use them or lose them" argument in respect of the bonds, for which authority expires in 2009. Hence the pressure for Mr. Moinian's hotel deal.

New Yorkers might be tempted to look to Washington for a solution, but Senators Schumer and Clinton have about as much clout in the Republican congress as Lenin and Trotsky did at the Daughters of the American Revolution. Mr. Bloomberg hasn't helped by opposing the president on his court appointments and backing Democrats locally. So our guess is that the developer who took a risk on the World Trade Center two months before September 11 and the Republican mayor and governor are going to have to find a deal. We'd suggest that the next time the mayor and the governor go to dinner they bring Mr. Silverstein along, so long as they don't serve the taxpayers for desert.
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