Nothing shocking here...
(NY Times)
Spitzer, in Reversal, Is Expected to Approve Freedom Tower, Officials Say
By CHARLES V. BAGLI
February 13, 2007
With the downtown real estate market improving rapidly, Gov. Eliot Spitzer is expected to abandon his criticism of the Freedom Tower as a looming white elephant and to approve construction of the tower, which would rise 1,776 feet at ground zero, according to city, state and Port Authority officials.
When the new governor took office in January, his administration had put the Freedom Tower, one of five towers planned for the downtown site, under review. But with tenants leasing about two-thirds of the newly completed 7 World Trade Center and vacancy rates falling in Lower Manhattan, officials say that the prospects for the 2.6-million-square-foot Freedom Tower are improving.
Officials say that the point of no return is fast approaching for the $3 billion tower. Critics of the project, who regard it as poorly designed for corporate tenants and too big and expensive, had hoped that Mr. Spitzer, or his partner at the Port Authority of New York and New Jersey, Gov. Jon S. Corzine of New Jersey, would delay or kill the project.
Mr. Spitzer is expected to make an announcement about the Freedom Tower before a Feb. 22 meeting of the authority, which plans to vote on $460 million in contracts for concrete and electrical and plumbing work on the building. Next month, there will be another $300 million in contracts for curtain walls, elevators and escalators.
A spokeswoman for the governor, Christine Anderson, declined to comment.
The Port Authority, however, was buoyant about both the downtown real estate market and the tower. “While we are pleased that the market conditions continue to be strong and that the building is on schedule and on budget,” said Stephen Sigmund, a spokesman for the authority, “we have not reached any final conclusions or moved to final authorization.”
The officials said that the governor’s change of heart is not an indication that corporations are suddenly lining up to lease space in the Freedom Tower, which some potential tenants fear is a possible terrorist target. Yet some authority executives say those anxieties are subsiding as the city’s economy improves.
Indeed, a state official and two senior executives at the authority say the authority has received unsolicited inquiries from hedge funds and investment banks about buying the tower, but officials have not taken any formal steps down that road. In the last year, the city has been awash with investors eager to invest billions in real estate, be it office towers or large residential complexes. For example, Stuyvesant Town and Peter Cooper Village, adjoining apartment complexes in Manhattan, sold for a record-breaking $5.4 billion in November.
A senior Port Authority executive said that a sale or lease to a private owner would entail the buyer’s guaranteeing that the tower would be completed on schedule. It would also mean that the authority would not have to finance nearly $1 billion to build the skyscraper, and it would not suffer continuing losses until the building was fully leased. The buyer, in turn, would enjoy the future appreciation on the property.
Still, some real estate experts questioned why the Freedom Tower was being built at the same time that the developer Larry A. Silverstein was getting ready to build three office towers with more than six million square feet of space. They complained that it had attracted only government tenants who were being forced to pay higher rents than they should.
The developer Douglas Durst and the real estate investor Anthony E. Malkin say the tower is ill conceived, the result of a hasty six-week “redesign” after the police raised security concerns.
Mr. Durst said that the value of the tower would increase over time, but added that it made little sense to build everything at once.
“People want to see an economically viable building in a resurging downtown,” Mr. Malkin said. “Why is government building a skyscraper for government tenants in what should be the most valuable cornerstone of the project, and maybe all of downtown? Private capital has shown a willingness to build, but perhaps not with this design.”
Mr. Durst and Mr. Malkin say they are continuing in the footsteps of their families.
Mr. Durst’s father, Seymour, and Mr. Malkin’s grandfather, Lawrence A. Wein, were ardent opponents of the original plan for the World Trade Center. In 1964, they formed the Committee for a Reasonable World Trade Center, which argued that the complex would flood the real estate market with subsidized space and compete unfairly with private landlords. By some accounts, the complex was not fully occupied and successful until shortly before it was destroyed.
Under the terms of a deal struck last fall, the Port Authority has taken over financial responsibility for the Freedom Tower from Mr. Silverstein. At $3 billion, the tower will cost $1,155 per square foot, which real estate experts said would require a net annual rent of as much as $80 a square foot.
The authority expects to get about $1.2 billion in insurance proceeds, $250 million from New York State and nearly $1 billion in tax-free bonds. That still leaves a considerable shortfall, although the state and federal governments have signed nonbinding agreements to lease one million square feet, or 38 percent of the skyscraper, for initial rent of $59 a square foot.
In order to get construction financing, lenders usually require private developers to secure leases for about half the space in a proposed office building. In addition, investment banks, companies often paying the highest rents in the market, have no interest in the tower, principally because the floors would be too small for trading operations.
State, city and Port Authority officials, even some who had been critical of the Freedom Tower in the past, say that the downtown market is improving faster than anyone expected. Mr. Silverstein is getting rents as high as $70 a square foot for 7 World Trade Center, they say.
JPMorgan Chase is talking with the authority about the possibility of acquiring the site of the former Deutsche Bank building near ground zero, soon to be demolished, and Midtown corporations and law firms are beginning to move downtown, drawn by rents that are 30 percent cheaper than those uptown.
Port Authority officials say that if the Freedom Tower is delayed, they will be unable to capitalize on the current market.
According to Newmark Knight Frank, a real estate firm, the vacancy rate for office space downtown has fallen to 10.3 percent, from 13.9 percent only a year ago. The Dutch bank ABN Amro recently signed a lease for 140,000 square feet at Mr. Silverstein’s 7 World Trade Center, at the northwest corner of Vesey and Greenwich Streets. But Goldman Sachs plans to vacate as much as 2 million square feet in several office buildings when it moves to its new headquarters at Battery Park City.
Barry M. Gosin, the chief executive of Newmark and a former critic of the Freedom Tower, said that he could now go “either way” on the project. “There’s some merit to building it later,” he said. “You’d get the full benefit of the created value. On the other hand, building now is fine.”
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