Consider it the long-overdue Ground Zero reality check. Yesterday, the Port Authority and Silverstein Properties reached their latest redevelopment agreement, following an acrimonious year of discussions. The deal will bring the developer hundreds of millions of dollars in public backing to bolster Silverstein’s ability to find private financing for Towers 2 and 3, though the public monies are also contingent on such outside financing.
Meanwhile, Silverstein will move forward on construction of the towers’ below grade portions and, if nothing else, the pedestal for Tower 3, as further delays would slow progress throughout the site, where the infrastructure is highly interdependent. “This is a very complex enterprise—it is a tightly constructed puzzle where a lot of pieces have to fit together,” Mayor Michael Bloomberg said at a press conference announcing the deal. “Now instead of an expensive, time-consuming re-design of this intricate job, they can get right to work.”
The latest round of problems began just as construction at the World Trade Center was actually picking up steam. With previous agreements about phasing and funding from 2006 underway, the collapse of the real estate market and the city’s economy with it has made it almost impossible for Silverstein to find lending for his three towers along a restored Greenwich Street. The developer began demanding last year that the Port Authority back financing for the two outstanding towers at the same time it was running out of money.
Because so much infrastructure was located in the towers, including for Santiago Calatrava’s swooping PATH station, Silverstein had a good deal of leverage over the Port Authority, though the agency previously refused to do more than underwrite Tower 3. Summits were held at Gracie Mansion, Silverstein even entered into arbitration to try and reach an agreement. A big part of the dispute was projected office vacancies and the impact millions of square feet of commercial space might have on downtown.
The Port Authority argued that it did not want to be on the hook if the buildings remained empty. At the same time, Silverstein found itself in a conundrum because the developer was still required to make million dollar lease payments on properties that some brokerages predicted to lie fallow for decades to come.
Both sides said this new agreement finally relieved the pressure each was facing as a result of prior agreements and market demands. “We have reached a new atmosphere of cooperation and coordination between the Port Authority and Silverstein Properties,” Governor David Patterson said. “This agreement serves the interests of the public sector to ensure the rents will be market rate and it protects the public’s money.”
The current deal will potentially cost the city, state, and Port Authority $200 million apiece, though the hope remains that a mix of equity stakes and loan backstops will create confidence in the private sector to make the necessary loans for Tower 3. To even access the money, Silverstein must raise $300 million in private investments and pre-lease 400,000 square feet in the tower. If this succeeds, the developer will have access to $130 million from the city and $80 million from the state as an equity stake in the tower. The remaining money is loan guarantees, with $70 million from the city, $120 million from the state, and $200 million from the Port Authority.
Janno Lieber, President of World Trade Center Properties for Silverstein, said he expects the private sector will respond favorably to this support, and the building will be completed by 2015, two years after Fumihiko Maki’s Tower 4 and SOM’s Tower 1 (aka the Freedom Tower). “We’re going to let the marketplace decide that, but I think there is demand,” he said.
Should the project not find funding, Silverstein will still be required to complete the tower up through the first few floors, which will house much of the utilities for the PATH station. The timeline for Tower 2 has been pushed back indefinitely, though the developer is now required to at least complete it up through the ground level.
One area that was not on the table during the cost-cutting phases was the architecture. Asked whether Silverstein had considered pairing back the designs to save money, as has happened on projects like the Atlantic Yards arena, Leiber said no. “The Richard Rogers tower for Tower 3 is the building we’re going to execute,” Lieber said. “And when we get to Tower 2, it is are expectation that that will still be the work of Norman Foster.”
In closing the press conference, the mayor declared, “It’s a great day for New York. We’re finally going to fill that whole in the ground.”