http://www.nypost.com/seven/07142009...82.htm?&page=1
ENDING THE IMPASSE
A POSSIBLE GROUND ZERO DEAL
July 14, 2009
LARRY Silverstein and the Port Authority are locked in a mortal impasse over financing for Silverstein's Ground Zero office towers. But "no way out" doesn't have to mean "no way forward."
Properly tweaked, a proposal to speed up retail development could rapidly bring life and commerce to the 16-acre site.
Retail developer Westfield Group, a consultant to the PA, proposes delaying two giant office towers -- while building two low-rise shopping malls, with a half-million square feet of retail space, on the sites.
At first glance, the idea looks like a nonstarter. It needs Silverstein's cooperation when he's already at odds with the PA. Plus, canyons of Manhattan retail space already stand vacant even at prime locations.
But a modified version of the plan could do wonders. Instead, have the PA build just one mall at the Tower 3 site (where the skyscraper would be postponed but not canceled) and then lease the space to Westfield to manage and sublet. To win Silverstein's assent for the change in plans, help him out with his financing problems for Tower 2.
This would provide swift delivery of what Ground Zero desperately needs as soon as possible: a fully above ground project. (Much of the Memorial is deep beneath the earth, as is the Santiago Calatrava-designed "World Trade Center Transportation Hub.")
And it would break the current standstill over building the office towers -- which is even worse than it appears.
Four office buildings are supposed to be built inside Ground Zero. The PA is responsible for the tallest, 1 WTC (the former Freedom Tower) at the site's northwest corner, which it took off Silverstein's hands under a 2006 agreement. Silverstein still has Towers 2, 3 and 4, which are to rise along the east side.
Steel for 1 WTC's core is rising very slowly. Silverstein is in an even earlier stage on Tower 4. He's eager to get Tower 2 moving, but can't start until the PA finishes readying the site for construction and financing is in place. Tower 3 won't likely rise for years.
But the entire redevelopment clock needs to be reset. The PA has already paid Silverstein more than $100 million in penalties for missing its deadlines on delivering the Towers 2 and 3 sites in shovel-ready condition -- and it faces further charges until it finishes the job.
Meanwhile, Silverstein has his own problems. The credit freeze has forced him to postpone even a smaller hotel/condo project a few blocks off Ground Zero. In search of financing, he's asked the PA for loan guarantees of up to $2 billion for Towers 2 and 4.
But the PA counter-offered to help him finance only Tower 4 -- where he doesn't really need help: Deals are in place for the PA and city agencies to take space there, making the project far less risky.
Why won't the PA bail Silverstein out on Tower 2? Forget its claim to need the cash for more critical projects: It just fears the competition as it tries to find office tenants for the tower it will control, the 2.6 million square-foot 1 WTC (formerly the Freedom Tower).
In a leasing war, Silverstein would clean the PA's clock. His towers have better floor plates and are better located than 1 WTC, which also faces fears that it's the logical target for another terrorist attack. The PA might never agree to a co-financing arrangement that would undercut its own position.
Now, enter Westfield. The global retail development and management company says it "stands ready" to spend up to $1.3 billion to build six-story retail "podiums" housing 500,000 square feet on the Towers 2 and 3 sites. The towers theoretically could later be built atop the podiums when the office market recovers.
Yet the PA can't just make Silverstein's towers go on hiatus and put malls in their place. He totally controls the sites under a 99-year leasehold.
Even so, a shopping mall could be built far faster and more cheaply than a 1,000-foot office tower. And Silverstein has already indicated a willingness to back-burner Tower 3.
But a shopping mall at the site would force him to create a "sky lobby" above the stores when he eventually gets around to building the office tower -- a complex, uncertain redesign that might also make office leasing more difficult.
Happily,
a sign of potential compromise appeared last week: The PA offered to help Silverstein with up to $1.2 billion in financing for Tower 2 if he first raises $625 million elsewhere.
It seemed a joke -- if Silverstein could do that, he wouldn't need the PA's help. But that $625 million happens to be the exact amount that Westfield said last year it would put into a joint venture with the PA to own and manage the retail space Ground Zero.
The PA and Westfield seem to have something up their sleeves -- for example, agreeing to Silverstein's loan request if he lets Westfield in on the action. But, whatever's going on behind the closed doors of the propaganda factories, it's time for all parties to make concessions.
Tower 3's short-term future is off the table anyway; the site could remain empty indefinitely. And putting up all the skyscrapers at once makes no sense in this grim economy. So it's in the general interest to build retail space there.
Silverstein should let the shopping mall go forward at the Tower 3 site, but without relinquishing his right to build the tower later. Reconfiguring its design to accommodate the retail base will take some doing -- but the office floors can't rise for years, so he'll have time to figure out how.
But Tower 2 must rise soon -- lest reconstruction stall after having restored little more than half the 11 million feet of offices demolished on 9/11. A deal to jumpstart Tower 2, holding off only on Tower 3, would yield 8.5 million feet. That's nearly comparable to the lost space, thanks to greater efficiencies provided by today's engineering.
Which means the PA and Westfield must give ground, too. Westfield must accept only one retail podium. And, most crucially, the PA should do the building itself -- because the mall must go up whether store tenants are pre-signed or not.
The PA can't simply sell Westfield an option on land that could remain barren if Westfield doesn't pre-sign enough tenants. So the PA must build the mall without preconditions, then turn it over to Westfield. A glass-wrapped retail podium actually in the ground will be a lot easier to fill than one that remains frozen on paper.
Making all the moving parts mesh is a long shot -- one requiring good faith on all sides and forceful political leadership. But, considering the bleak outlook otherwise, does anyone have a better idea?
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