Pressures, Delays Mount
At Ground Zero Site

Three and a half years after the World Trade Center collapsed under terrorist assault, a big chunk of the $4.6 billion in insurance money has been spent. Yet the only things rising on the Ground Zero site are projected costs and tensions between the many interested parties.

The main issues are money and security. The New York Police Department has raised questions about the ability of site's centerpiece -- the 1,776-foot Freedom Tower -- to withstand a bomb blast. Addressing those problems could delay the project by months. Citing the need to redesign the Freedom Tower, the resignation of a top Ground Zero official, and uncertainty over how buildings at the site will be financed, people involved in the development say momentum has hit a low point.

The latest verbal jab came yesterday from New York Sen. Charles Schumer who said a "culture of inertia" has infected the project. "We have not yet ordered one beam of steel for the Freedom tower yet. Nearly four years after Sept. 11, we are losing steam," the Democratic senator said in a speech in New York.

He said delays could jeopardize $2 billion of federal aid New York wants to use to connect the Trade Center to a major suburban labor market and John F. Kennedy Airport, elements seen as critical to attract office tenants back to lower Manhattan.

The flurry of activity among rebuilding officials in the wake of the security setback has reopened the dialogue on fundamental issues, including the order buildings on the site should be built, and what they will be used for. Sen. Schumer and people within the leadership of the Port Authority of New York and New Jersey have suggested rebuilding begin with the smaller, easier to lease office buildings, leaving the Freedom Tower for later. There has also been discussion of cutting back on the office space at the site -- vacancy rates remain high in lower Manhattan -- and adding more retail and residential space, both of which are in high demand in the area.

"We should build things that make sense in the marketplace, that private investors can move ahead on," says Robert D. Yaro, president of the Regional Plan Association, a civic group. "Let's go ahead with those things now like a hotel, retail, possibly residential."

Silverstein Properties Inc., the lease holder for office space, has resisted designs that would accommodate prime retail stores, instead favoring plans that would reserve premium ground-floor space for his office tenants. That's one area of tension between the firm, which is controlled by Larry Silverstein, and the Port Authority, the bi-state agency that owns the site.

The Freedom Tower (shown in this rendering, with spire) is the centerpiece of the World Trade Center, but must be redesigned to address security concerns.

Mr. Silverstein, who purchased the 99-year lease on the site shortly before 9/11, also faces challenges on how to pay for the new office buildings out of his company's roughly $4.6 billion insurance fund. At least $1.8 billion of the insurance settlement has been spent so far to repay loans, buy out investors and pay lawyers, architects and engineers. Some officials involved in the project are particularly annoyed that Silverstein is taking $1.25 million a month in management fees, in addition to its overhead.

Around $400 million of the insurance money fund has been paid by Silverstein Properties to the Port Authority to meet Silverstein's lease payments. The Port Authority has redistributed much of that money to projects not related to the Trade Center.

Some Port Authority officials have long considered trying to remove Silverstein Properties from the project, but always have found the political and legal costs too high. Nevertheless, last week Port Authority commissioners discussed the thorny legal issues that surround an eminent domain action against Mr. Silverstein and several felt it should be studied by the Port Authority's legal department. That could be the first step in trying to oust Mr. Silverstein from his position at the Trade Center site. Port Authority spokesman Steve Coleman declined to comment.

To be sure, reports of usurping Silverstein Properties have appeared before and come in the context of intense negotiations with the private developer over many issues, including who will pay for shared infrastructure and design issues related to the site's potentially lucrative retail developments. Silverstein spokesman Howard J. Rubenstein said that "the Silverstein organization remains committed to working with the governor and mayor to accomplish a speedy and successful rebuilding."

After a massive cleanup effort and the reconstruction of the commuter rail terminal at the base of the Trade Center, the last 18 months have seen little progress at the site, which remains an empty canyon in lower Manhattan. The only building to go up is 7 World Trade Center, which sits just to the north of the site and replaces a building that was destroyed in the attack. The 56-story building, scheduled for completion at the end of the year, has yet to find a tenant, and is considering changing its name to remove the reference to the World Trade Center.

The NYPD, meanwhile, raised its latest security concerns about the Freedom Tower in a report April 8 when the department said that large truck bombs could get close enough to the building to bring it down. The concerns were expressed around the same time Goldman Sachs Group pulled out of plans to erect its own tower across the street. People familiar with the report said the higher standards represented the difference between withstanding a 5,000 pound bomb and a 10,000 to 15,000 pound bomb.

7 World Trade Center, now under construction, will be marketed under a newly created street address, 250 Greenwich St.

The security modifications are expected to add at least $250 million to the $2.25 billion price tag of the Freedom Tower, which is scheduled for completion in 2009, though design modifications are in an early stage and that figure is preliminary. Silverstein is expected to ask for government money to cover those and possibly other costs. Delays could set the tower back a year or more.

In another blow to the rebuilding, on Monday, Kevin Rampe, president of the Lower Manhattan Development Corp. said he would leave the city-state rebuilding agency for the private sector. He leaves as the design for the Freedom Tower, a compromise forged personally by Mr. Rampe has unraveled. Mr. Rampe says the Freedom Tower redesign is just one issue in a much larger building program. "There's an extraordinary amount of progress," he says, pointing to advances in designing the memorial, permanent train station and cultural buildings.

Other elements will be hindered by the security debacle and the lack of consensus between Mr. Silverstein and the Port Authority. Several major property developers have expressed interest in investing large sums of money in the retail spaces. But that project can't move forward until Mr. Silverstein and the Port Authority agree on retail use of his planned office towers.

There must be a "meeting of the minds on what is representative of the marketplace in lower Manhattan. I think the market hasn't moved to a place that is going to deliver the kind of rents that Larry Silverstein is looking to secure," says Mitchell Steir, chairman of Studley Inc., a New York-based commercial real-estate tenant representation firm.

The security issues at the World Trade Center have not helped Mr. Silverstein's marketing efforts. Besides his own firm, the only other potential tenant at 7 World Trade Center is CB Richard Ellis, the real-estate brokerage trying to fill the building. People familiar with the matter say CB Richard Ellis is in negotiations to take half a floor in the building.

To woo tenants, Silverstein Properties is trying to distance the building from the image of the Trade Center, though it literally sits on the site's edge. Instead of 7 World Trade Center, the building will be marketed under a newly created street address, 250 Greenwich St. The idea, according to someone familiar with the matter is to emphasize the building's proximity to TriBeCa, the trendy neighborhood to the north. It's also a tacit admission, according to real-estate executives, that the World Trade Center name scares prospective tenants.

Email your comments to rjeditor@dowjones.com.