It seems that Governor Pataki, Mayor Bloomberg, and the Port Authority of New York and New Jersey finally have done what they must to allow lower Manhattan to recover from September 11, 2001: offer Larry Silverstein, who holds a lease to rebuild the World Trade Center, a fair new deal to redevelop the PA-owned property. But as always in the political swamp of Ground Zero, things might not be what they seem. During the next few days, New Yorkers will learn whether the Port Authority’s latest proposal to Silverstein is a good-faith effort or just another attempt to coerce Silverstein into surrendering his legal right to rebuild, so that officials can regain political and patronage control at a site that should have been privatized outright decades ago.
The bare economics of the Port Authority’s offer, announced last week, are straightforward. Silverstein would relinquish the rights to build and control two of the five office towers planned for Ground Zero. He’d give a corresponding share of his insurance proceeds from the attack to the authority, and he wouldn’t contest the state’s approval of one-third of New York’s remaining $3.4 billion in tax-exempt Liberty Bonds to the PA, so that it could use the insurance funds and the cheap Liberty Bond financing to pay for the Freedom Tower’s construction.
In return, Silverstein would enjoy a reduction in the rent he pays to the PA. He’d also win a steady cash flow that would help to shore up shortfalls when he begins to lease out his three towers, since the PA, in addition to taking over the market risks at the Freedom Tower, would commit to renting out space at “market rents” in one of Silverstein’s three towers.
In releasing the proposal, the PA clearly hoped the press would ask how Silverstein could even hesitate. Indeed, only the taxpayers and citizens would seem to have a right to complain (but just a little, since it’s past time to build something at Ground Zero). Taxpayers would wind up subsidizing any losses at the Freedom Tower, the building least likely to succeed thanks to its ungainly government-dictated design. Moreover, since the Port Authority, as a municipal entity that can already issue tax-exempt debt, doesn’t need Liberty Bonds, awarding them to the authority is a waste of a finite resource.
The press quickly obliged: “Take your time, Larry. What’s the rush? We’ve been staring into the void at Ground Zero for almost five years, so who cares if the planet spins around the sun 10 or 15 more times before, maybe, you get a building or two up,” the Daily News sneered yesterday—incorrectly, since Silverstein’s built the only thing to go up at Ground Zero since 9/11: Seven World Trade Center.
But the devil is in the details, not in the press accounts. Yesterday, Silverstein announced that he’s happy with the PA’s general outline, but that he has some problems with the finer points. First of all, if Silverstein were to accept this new deal as is, Pataki, Bloomberg, and PA officials doubtless would want to hold an immediate press conference to herald the fact that the haggling over Ground Zero was finally over. But while the politicos would announce the done deal, the PA wouldn’t actually vote on it until September. Between now and then, it’s more than conceivable that a vital piece could fall through. Will Albany be able to transfer $250 million to the Port Authority, so that it can build the Freedom Tower? Can New York find enough local, state, and federal government tenants to commit to filling up the Freedom Tower, or will it renege on that pledge before the board meeting?
Silverstein is no doubt wary that if some arcane but necessary element goes awry after he’s stood up with the governor and proclaimed a done deal, he’s the one who’ll shoulder the blame. (Pataki’s statement yesterday, ignoring the issues that need to be resolved, could only add to Silverstein’s anxiety.)
Second, under the new deal, the PA would hold Silverstein to a rigorous construction schedule. That’s fine, but if the developer missed a deadline for any reason, he’d default, and lose all three towers, not just the one with the construction delay. The agreement contains no clause allowing for construction delays due to mundane events like stoppages for related work at the nearby memorial or at the new PATH station, or due to spectacular events like a terrorist attack or an oil embargo.
Silverstein’s insistence on such a provision may seem like nitpicking, the kind of thing the News derides as “treating every wrinkle at Ground Zero as a hard-fought negotiating point.” But Silverstein’s financial advisers surely know that without a clause indemnifying the developer for some events outside his control, no lender—including Liberty Bond lenders, whose debt is only tax-exempt, not guaranteed by the government—would put money at risk.
These details are crucial. But that’s what negotiations are for, and Silverstein, having agreed to renegotiate his long-term lease in the first place, after enduring personal insults and slander from Pataki and Bloomberg, deserves to have his concerns addressed calmly and reasonably.
Here’s the test. Will the PA accept Silverstein’s concerns in good faith and quietly go back to the table for wrap-up? Or will the PA, accompanied by Bloomberg and Pataki, start railing again for the media’s benefit about how unreasonable Silverstein is?