The New York Post reports that World Trade Center developer Larry Silverstein is having difficulty attracting tenants to the unfinished "Freedom" tower.
According to columnist Steve Cuozzo, the brokerage firm Merrill Lynch is having second thoughts about moving into the proposed Tower 3 and is asking Silverstein and the Port Authority of NY & NJ for changes which will both add considerable expense to the project and delay completion of some of the other buildings in the complex.
The biggest question is: Can Merrill, battered by writedowns new CEO John Thain has fought to contain, afford to buy or even lease a new, 2.5 million square-foot building that will cost nearly $2 billion to construct?
Of course, a Merrill move to the WTC site would be the best news since 9/11. But if the financial giant doesn't bite, Silverstein and the PA will have only found another way to push back overdue reconstruction.
Silverstein, who was awarded nearly $4.6 billion in insurance funds for WTC, has insisted that the site be redeveloped instead of being converted into a national park much like the U.S.S Arizona, lying on the sea floor at Pearl Harbor, or the Murrah Federal Building in Oklahoma City.
According to Wikipedia:
Silverstein had the legal right to rebuild office buildings including the Freedom Tower at the World Trade Center site and while the site is unoccupied, he continues to pay $10 million per month in rent to the Port Authority of New York and New Jersey. After several months of negotiation, in April 2006 he yielded some of those rights back to the Port Authority.
According to Cuozzo, just a few months ago, Silverstein and the PA declared that the 2012 dead- lines for the office towers were good as gold. "Anthony Shorris, former PA executive director, said, "By the end of 2012, as they say, it'll all be over but the shouting."
But now, maybe not. If you missed the news in the pre-Memorial Day exodus, the PA just gave Silverstein an additional six months to complete Tower 4, and four months more on Tower 3, before he'd have to forfeit the buildings to the PA.
The agreement gives Silverstein until mid-2013 to finish Tower 3, where Merrill Lynch is considering moving, vs. the earlier deadline of Dec. 31, 2012.
The Tower 4 extension was necessary because excavation for both foundations is being done in tandem. The added wiggle time allows Silverstein to enlarge Tower 3's foundation so it can accommodate a redesign of the building to suit Merrill's needs.
Delays associated with lawsuits filed by both Silverstein and the PA and a lack of financing meant that ground was not broken on the Freedom Tower until April, 2006.
The proceeds of the insurance payments from the destruction of the previous buildings alone were insufficient to cover the cost of rebuilding all the planned buildings.After the September 11, 2001 terrorist attacks, the United States Congress approved $8 billion in tax-exempt Liberty Bonds to fund development in the private sector at lower-than-market interest rates. $3.4 billion remained unallocated in March 2006 designated for Lower Manhattan, with about half of the funds under the control of Mayor Michael Bloomberg and the other half under the control of former Governor George Pataki.
Silverstein upset millions of Americans because he tried to essentially "double dip" on the insurance.
Following the September 11, attacks, Silverstein sought to collect double the face amount of that coverage (~$7.1 billion) because, he contended, the two separate airplane strikes constituted two occurrences within the meaning of the policies. The insurance companies took the opposite view. Because some of the policies contained certain limiting language and some did not, the court split the insurers into two groups for jury trials on the question of whether their policies were subject to the “one occurrence” interpretation or the “two occurrence” interpretation.
The first trial resulted in a verdict on April 29, 2004, that 10 of the insurers in this group were subject to the “one occurrence” interpretation, so their liability was limited to the face value of those policies, and 3 insurers were added to the second trial group.
The jury was unable to reach a verdict on one insurer, Swiss Reinsurance, at that time, but did so several days later on May 3, 2004, finding that this company was also subject to the “one occurrence” interpretation. Silverstein appealed the Swiss Re decision, but lost that appeal on October 19, 2004. The second trial resulted in a verdict on December 6, 2004, that 9 insurers were subject to the “two occurrences” interpretation and, therefore, liable for a maximum of double the face value of those particular policies ($2.2 billion).
In 2007, Silverstein and the Port Authority of New York and New Jersey filed a lawsuit against some of its insurers for failure to pay out insurance proceeds following the 2004 verdicts, and that litigation was settled in late May, 2007. Silverstein's lease with the Port Authority for the World Trade Center requires him to continue paying $102 million annually in base rent. He is applying insurance payments toward the redevelopment of the World Trade Center site.
Cuozzo indicated that Merrill Lynch may drive up the cost at WTC and STILL not sign a lease there.
Having redesign flexibility is necessary for Merrill to even consider moving to Tower 3 - but it does not guarantee the firm will decide to do that.In asking the PA to extend construction deadlines, Silverstein presumably found Merrill's interest to be sincere - not a ploy to gain leverage with its current landlord, Brookfield Properties, in talks over renewing Merrill's World Financial Center lease, which is up in 2013.
Merrill, represented by Jones Lang LaSalle's sure-handed Peter "Big Rig" Riguardi - who's also an adviser to the PA - could lead Silverstein on a merry chase. The firm is already deep into talks with Brookfield to extend its WFC lease until 2018.
According to Cuozzo, there are simply too many other variables at play that may doom the project.
Besides the cost to Merrill of moving to Ground Zero, there are a lot of other "ifs" to factor in. There's no telling how Merrill's inevitable request for subsidies beyond those already available to it if it moves to the WTC site will play at City Hall and in Albany. Nor is it easy to believe that even slightly altering Tower 3's current design won't mess up plans for Tower 4, the new PATH terminal and the memorial - all of them linked in a Gordian knot of subterranean infrastructure.
With so many imponderables, it would not seem out of the question for Silverstein and the PA to one day declare yet another postponement beyond mid-2013. If that happens, who can guess when anything might be finished?
So, nearly seven years after 9/11, little has changed at Ground Zero except that a billionaire developer got richer and is using taxpayer money to rebuild a building many Americans don't want. Moreover, if ever completed, the Freedom Tower will be a boondoggle and the money could have been better spent locating companies throughout lower Manhattan instead of at Ground Zero.
AUTHOR'S NOTE: In the interests of full disclosure, a close family friend, Howard Kane, was killed at WTC on Sept. 11. My sister, employed at American Express at that time, witnessed both attacks.