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The latest round of painful negotiations between the Port Authority of New York and New Jersey, which owns the World Trade Center site, and Larry Silverstein, who owns the right to re-develop it, has finally yielded some important progress: the heretofore unaccountable Port Authority must meet firm deadlines in doing its part to allow Silverstein to develop commercially viable office space at Ground Zero.
Thursdays agreement between the Port Authority and Silverstein mostly just firms up some details of an April deal. Under that earlier agreement, Silverstein retained the right and responsibility to build three office towers at Ground Zero, but the Port Authority took over the financial responsibility for building a fourth buildingthe Freedom Towerand finding tenants for it. Since Silverstein would now be erecting fewer buildings, hed reduce his ground rent to the Port Authority and give up one-third of the remaining $3.4 billion in tax-exempt Liberty Bonds, awarded by the federal government after 9/11 to rebuild.
But the April agreement left some loose ends. One of the most important was a provision forcing Silverstein to default on all three of his Ground Zero towers should he for any reason miss a construction deadline. Under yesterdays deal, Silverstein will still adhere to strict construction deadlines, but hes won an extra years grace period for any delays.
Most important, Thursdays agreement holds the Port Authority itself responsible for delays. The authority has agreed to pay fines of $300,000 a day if it fails to turn over to Silverstein the land for the three commercial office towers by newly established deadlines: the sites for towers 3 and 4 by the end of next year, and the site for tower 2, the largest of Silversteins trio, by mid-2008. In addition, the Port Authority has formally agreed to lease one-third of the office space in Tower 4, giving Silverstein some cash flow as he finds tenants for the rest of the space.
The Port Authoritys agreement to hold itself to penalties that could cost it as much as $9 million a month is significant, since for the past five years, it has collected Silversteins Ground Zero rent without having to do much of anything. Now, the authority finally has a financial incentive to move quicklyor at least less slowly.
This is good news, for the faster Silverstein can build his three towers, the better for the fate of Ground Zero, and New York City. Why? Silversteins three towers, unlike the Freedom Tower, are likely to be commercially viable. Despite a few trendy design elements, theyre really just going to be normal office buildings, and their most gimmicky features may well disappear as they move from the drawing board to real life. Plus, the three towers will arise closest to Lower Manhattans major thoroughfares and to its transportation hubs, making them attractive to corporate tenants.
Unlike the Freedom Tower, moreover, Silversteins three towers arent supposed to be skyline icons, so they wont have to bear the burden of the symbolic 1,776-foot height that Governor Pataki has forced the Freedom Tower to bear even before its built.
While the success of the Freedom Tower depends on tenants overcoming their fear about working in that building, the success of Silversteins three towers depends only on New Yorks economythat is, will it be strong enough in 2012 (when construction should finish) to support their 6.2 million square feet of new office space? Thats the risk Silverstein, like any developer, takes.
Real progress on Silversteins three towers is important for another reason: the Freedom Towers fate remains far from certain. Earlier this week, PA chairman Anthony Coscia made headlines when he confirmed that he would rather resign than force Port Authority employees to work in the tower after having experienced the horror of 9/11.
His assertion didnt do much for the towers prospectsand though the PAs proposal is to line up lease agreements from state and federal agencies instead, its not clear that their employees want to work in the tower either. Plus, too large a government presence will scare away the private-sector tenants that downtown really needs, as corporate execs who rent Class-A space dont want to work in whats perceived as a government office building.
The best thing for the Freedom Tower would be for New York, and the Port Authority, to just leave it alone for awhile. Perhaps after another three years, say, when visible development is taking place on Silversteins three towers, rationality will at last prevail at Ground Zero, and the new governor and the Port Authority will let the private sector start from scratch on a commercially viable office building, not a skyline landmark designed by committee.
Now that the Port Authority must allow progress on the rest of the site, rethinking the ill-starred Freedom Tower is at least an optionfor on paper, at least, the Freedom Tower can no longer hold up the rest of Ground Zero.