Lower Manhattan’s recovery since 9/11 has been a triumph, first of Ground Zero’s recovery workers—who worked 24/7 under Mayor Rudy Giuliani to clear the site’s 16 acres by May 2002—and then of the private sector. Another miracle will be if downtown’s resurgence can survive what may be coming next: a full-stop bust for Gotham’s economy, as is inevitable for a city dependent on the cycles of the financial and real-estate industries.

Politicians have mostly impeded downtown’s recovery. Early on, then-governor George Pataki slowed things considerably by insisting on architectural beauty pageants, “skyline elements,” and the like. New mayor Michael Bloomberg looked on passively at first, but after years of state-level delays, decided that all of the planned new office space wasn’t economically feasible for lower Manhattan. The mayor’s public skepticism provided an opening for the Port Authority of New York and New Jersey, which owns the Trade Center site, to push for a renegotiation of its contract with developer Larry Silverstein, who has held a long-term lease for the site’s office space since before 9/11. This round of negotiations added months of uncertainty and additional delay.

Eventually Silverstein prevailed, keeping his rights to rebuild three towers under the lease, but allowing the Port Authority to assume market responsibility for a fourth building, the Freedom Tower, the tallest building planned for the site, upon its completion. From the outset, Pataki and Bloomberg should have let Silverstein take over the site once workers had cleared it—allowing him to rebuild with clear design parameters for a public memorial, and giving him some flexibility on his lease payments during the years of rebuilding work.

Still, after all the drama and wasted time, things seem to be working out at Ground Zero: construction is under way, and downtown is thriving. Seven World Trade Center, which Silverstein rebuilt quickly without government interference, is nearly three-quarters full. Goldman Sachs is constructing a new headquarters near Ground Zero, and JPMorgan Chase plans to erect a tower on the site of the Deutsche Bank building across the street—a site that the state and city will control until its demolition is completed. Since 9/11, more than 10,000 people have made downtown their new residential home, continuing a pre-9/11 trend. So what’s a few years’ delay, one might ask, now that things are going so well?

The problem is that downtown’s quick rebound has been fueled not only by recovery-worker heroism and private-sector determination, but also by an unprecedented property- and financial-industry boom—one that may well be sputtering out. Over the past few years, hedge-fund managers and other financial-industry tenants, swelled by record profits, drove rents in some midtown office towers above $100 per square foot—making downtown’s lower prices for Class-A space more attractive. Similarly successful business anchors downtown were hungry for more space. And rock-bottom interest rates after 9/11 made money cheap for everyone: property developers borrowed readily to renovate downtown’s old buildings into residential towers quickly, and workers from the financial industry, flush with record bonuses, moved into the new condos, also borrowing freely when they couldn’t generate enough actual cash.

But it’s quite possible that New York will see real-estate prices fall in the next few years, for both residential and commercial properties. Few people will shed tears if unsustainable prices for office space and apartments decline. But a bust could hurt downtown’s still-fragile recovery in the long term much more than it would hurt midtown. If already-built office buildings in midtown are one-quarter empty, developers who own land in midtown could reasonably decide not to build more buildings there for a few years until market conditions warranted. But it wouldn’t be so easy for Silverstein to take the same approach at Ground Zero—delaying one tower for a year, say, if financing conditions ever required it. Constraints in the lease that he holds with the Port Authority, as well as public perceptions, deprive him of the flexibility that most other developers enjoy—particularly since many politicians and media outlets would love to see him fail.

Despite these limitations, Silverstein has an advantage: insurance proceeds from the attacks to start rebuilding his towers. That money, and money from other sources, probably gives him a year or more before he must raise new debt from fickle bondholders and bankers. When that time comes, Silverstein can tap into Liberty Bonds—approved by the federal, state, and local governments for rebuilding Ground Zero—to raise more of the needed cash (though those bonds offer only tax benefits, not financial guarantees, to investors).

If New York’s economy is in fact entering one of its cyclical busts, then downtown’s continued revival might hinge on politicians’ tenuous comprehension of financial cycles. The pols will need to understand that a bust is just the other half of an economic cycle—not an excuse for tinkering once again with long-delayed World Trade Center redevelopment. But if vacancy rates for office space rose, it probably wouldn’t be long before enterprising city and state officials, egged on by owners of competing office towers, started wondering why we needed all the new office space downtown, and trying to reopen Silverstein’s lease yet again to retake control of some of the site for yet more rethinking.

Silverstein has an aggressive schedule under his lease, planning to break ground on two of his three buildings next January, when the Port Authority is supposed to transfer the two sites to him after finishing preparation work, and on the third building next July, when the Port Authority is to turn over that tower’s site. But anything can happen in the economic, financial, and political worlds between now and the middle of next year, and after Silverstein depletes his insurance cash. Those who care about downtown’s future can only look back with regret on the years that Ground Zero’s public-sector planners frittered away—when funding to build or buy anything was there for the taking—and remember the old saying: time is money.


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