Jury's Decision Gives
Downtown Time to Think

The major leaseholder of the World Trade Center, Larry Silverstein, spent some $100 million in legal fees to try to convince a federal jury that he was entitled to a double insurance payout. The jury didn't buy it. In their May 3 verdict concluding that the two attacks constitute one event for insurance purposes, the jurors may have dealt Mr. Silverstein's rebuilding efforts -- and the Libeskind masterplan for Ground Zero, which was dependent on the double payout -- a mortal blow. Though Mr. Silverstein may get as much as $4.5 billion, he will not have the $7 billion to $10 billion needed to rebuild the trade center site with his 70-story Freedom Tower plus four other buildings. (Gov. George Pataki announced earlier this month that the developers would break ground on July 4 for the Freedom Tower, the one building Mr. Silverman can afford to complete.)

But this verdict is not a defeat for Lower Manhattan, whose rebirth from the rubble has taken place the old-fashioned way: via capitalism. Fueled by the entrepreneurial energy of hundreds of small businesses, shops, restaurants and services, and bolstered by the goodwill and spending of workers, residents and tourists, the neighborhood is beginning to thrive again. It's not back to where it was in 2001, when demand was so high that many landlords offered old-time commercial tenants buyouts. But it's getting there. According to the Downtown Alliance, Lower Manhattan's commercial vacancy rate fell from 18.3% in 1995 to 8.6% before the attacks, which emptied out many buildings. As of the first quarter this year, the vacancy rate stood at 12.9%.

What the verdict does is give all parties to downtown's rebuilding a pause to think -- and that's not necessarily bad. After all, the World Trade Center had never been the monument to capitalism the terrorists believed it to be. Rather, it was the product of the Port Authority of New York and New Jersey's peculiar brand of government gigantism -- immense office towers built on private land acquired under eminent domain, exempted from city building codes, and freed from all taxes to compete with the private sector. Despite the status of Mr. Silverstein and his partners as leaseholders, the Twin Towers were never truly privatized -- which in normal terms would have meant "sold." Instead they were merely leased for 99 years to maintain such Port Authority privileges as tax exemption and freedom from city regulatory codes.

Double down: Larry Silverstein's efforts to rebuild the World Trade Center complex, including the Libeskind masterplan, seen here, were dealt a harsh blow in court.

Now Mr. Silverstein -- the leaseholder, but not the owner -- and the government agencies in charge of rebuilding must rethink their options. Mr. Silverstein can try to cobble together Liberty Bonds with conventional financing. But his bankers are going to want proof of private demand -- which Mr. Silverstein cannot give them. He has not been able to sign up any tenants other than his own company for 7 World Trade Center, a 52-story office tower he is building at the north end of Ground Zero. Nor does he have a single confirmed tenant for the Freedom Tower.

The Port Authority has repeatedly said it must "honor" the lease with Mr. Silverstein. But what does that mean if Mr. Silverstein cannot "honor" his end? Since he lacks the financing to build, he lacks the wherewithal to complete his side of the contract. One obvious option is for the Port Authority to renegotiate its contract with Mr. Silverstein, letting him build the Freedom Tower, but opening up the rest of the site to bids from other developers. Why not see what an open bidding process would produce?

Meanwhile, the culture of government pseudo-capitalism that built and managed the towers has unfortunately imbued many of the ideas behind the rebuilding efforts. Certainly the agencies in charge think they know best how to administer a central plan -- which has included a memorial and cultural space, as well as the replacement of all commercial and retail space -- with very little regard for actual private demand. While the residential market has fully revived, downtown's commercial vacancy rate is still a little worrisome. Battery Park City, for example, which faces Ground Zero and is generally regarded as downtown's most successful mixed-use development, has almost no empty residential space but nearly one million square feet of empty commercial space.

Plus the central planners have refused to return the site fully to New York's street grid, thereby perpetuating many of the problems of the original World Trade Center, which killed off nearly all the small businesses around it. Mr. Silverstein's setback offers the planners a chance to bring in new developers with new ideas about how to maximize usable space in the context of the pedestrian-friendly grid.

We all know what downtown needs: people working, living, shopping and eating out, just as they always had. Government officials were quick to understand that abandonment by residents and visitors after the attacks would finish off the badly scarred and shaken neighborhood. The Bush administration pushed through aggressive residential subsidies to lure New Yorkers to stay or move downtown. The subsidies worked, and half-vacant buildings filled up again with people who otherwise would have lived elsewhere. The idea was to get people back on the streets, spending money in shops and restaurants. Life attracts life, as urban theorist Jane Jacobs has repeatedly noted. And commerce is a kind of life, she added, that always attracts more.

Entrepreneurs, residents and workers have done their share in restoring the neighborhood's economic life. Government planners have just been handed an opportunity to rethink their share -- and they should.

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