http://www.crainsnewyork.com/article...REE/905149986#
Silverstein facing uphill struggle downtown
Port Authority digs in its heels; the agency will finance one building at the World Trade Center but wants one of Silverstein's plots on the site in return.
By Theresa Agovino
May 14, 2009
The Port Authority is demanding that developer Larry Silverstein give it one of the plots for his three planned towers at the World Trade Center site in exchange for helping to finance construction of one his buildings, sources say. To win its aid, the agency is also telling Mr. Silverstein to exercise a lease option that would lock New York City into renting 600,000 square feet in the building that it may back or alternatively, to find another tenant.
The Port Authority of New York and New Jersey and Mr. Silverstein have clashed over funding the developer’s towers and their feud threatens to impede building progress on the site. Mr. Silverstein has asked the Port to help fund two of his three towers but the agency has said it will only consider one because aiding more than that would hurt its balance sheet and put public money at risk in a private, speculative real estate development.
Many real estate executives have said there is no need for new office towers downtown at a time when tenant demand is shrinking, rents are falling and vacancies are rising. Mr. Silverstein has insisted there will be tenants for the towers by the time they open, beginning in 2014. He consistently reminds people he was ridiculed for rebuilding 7 World Trade Center after it was destroyed in the Sept. 11 attacks and points out that the vast majority of the building is now occupied.
Last Friday, Mayor Michael Bloomberg called for a summit to be held this week to end the log jam. That meeting now looks likely to happen next Thursday.
Sources say that Mr. Silverstein is resisting exercising his option with the city for what is called Tower 4 because he believes the agreed upon starting rent of $59 a square foot for the 15-year lease will be way below the market when the building finally opens, currently slated for 2014. Downtown rents are currently $44.58 a square foot, down 11% from last year, according to Cushman & Wakefield Inc. The Port signed a 30-year lease at Tower 4 for 600,000 feet.
The Port, sources say, told Mr. Silverstein that if he doesn’t want to enlist the city he should find an alternate tenant because empty buildings are harder to finance and because they drive down neighborhood rents. The problem is that the recession has pushed the most major tenants to the sidelines and those still scouting the market are in no rush to ink a deal.
Accounting and consulting firm Deloitte is seeking between 600,000 and 800,000 square feet and it asked Silverstein Properties to submit a proposal for Tower 4. However, numerous developers received the requests and sources say the firm is in no hurry to make a decision.
Additionally, the Port has told Mr. Silverstein it wants to take control of the site where he would build what is referred to as Tower 3 so that it can build a squat structure that would house retail tenants. It would give Mr. Silverstein the option of building an office tower or hotel over the stump when the market improves.
Sources say the Port also wants Mr. Silverstein to hand over part of his insurance money to help build the common infrastructure for the site. In return, the Port would build Mr. Silverstein’s infrastructure, stop his rent payments and give him the financing he desperately needs—a deal the agency values at $1.2 billion, sources say.
But other sources familiar with the project say the Port is essentially confiscating Mr. Silverstein’s development rights for Tower 3 without compensation. The source notes that the agency would require Mr. Silverstein to surrender all penalties the Port has paid for missing deadlines—about $100 million—and waive the right to any future fines.
These sources add that the Port is only willing to backstop the debt payments on the tower for 10 years, which could make financing very difficult to find. They add building one tower won’t create the critical mass necessary to lure tenants and retailers to the site.
The Port declined comment on the negotiations. In a statement, Janno Lieber, president of World Trade Center Properties said that the company has already made numerous compromises on the site and that the proposal to build two towers is fair, especially since at one point the developer was supposed to construct five. Moreover, the Port has collected more than $2 billion in payments from Mr. Silverstein.
“As well as employing tens of thousands of workers, completing two buildings will assure that the WTC site is a finished, attractive and exciting place that helps, rather than hinders Downtown's revival. That's what New Yorkers have been promised throughout the past eight years,” he said.
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