Lots of Tension, Few Tenants
For 7 World Trade Center
Seven World Trade Center, Manhattan's most modern office tower, will likely be very quiet when it opens in March. Despite two years of sales pitches for the 52-story steel-and-glass box that overlooks the dusty pit where the Twin Towers stood, no major tenants have taken space in the skyscraper.
That bodes ill for its builder, Larry Silverstein, who is fighting tenaciously to erect five more office buildings, including the iconic Freedom Tower, next door.
Owing to the 99-year lease he signed on the World Trade Center six weeks before the Sept. 11 attacks, Mr. Silverstein has the right to rebuild the site. And while he won't rebuild the Twin Towers, he does want to replace most of the destroyed office space. Trouble is, if he can't rent the space in 7 World Trade Center, how, critics ask, can he expect to fill almost six times that much?
Besides the lack of prospective tenants, Mr. Silverstein has had several setbacks and is engaged in an increasingly tense struggle with politicians and government agencies who could derail the plans of the 74-year-old real-estate veteran. Even his longtime financial backer may be open to a deal that would allow their partnership to be removed from at least part of the rebuilding process.
Mr. Silverstein's latest bad news came this week, when he failed to reach agreement with New York City on a timetable for the project and on how much Mr. Silverstein can request as a developer's fee. That pact was necessary for the city to approve $3.5 billion in tax-exempt bonds to help pay for the rebuilding of the Trade Center site. The two sides are still talking, but Mr. Silverstein says the lack of a deal will only delay rebuilding.
More than four years have passed since 9/11, and little has been rebuilt on the site except a temporary commuter rail station and 7 World Trade Center. The lack of progress has led to finger-pointing between Mr. Silverstein and the city, New York State and the Port Authority of New York and New Jersey, which owns the Trade Center site and serves as Mr. Silverstein's landlord. Political leaders are becoming more involved in the rebuilding. This is the last year in office for New York Gov. George E. Pataki, and he is concerned about his legacy, while New York Mayor Michael Bloomberg, fresh off a re-election romp, is no longer focused on building a football stadium for the New York Jets or bringing the Olympics to the city.
Last week, for the first time, Gov. Pataki, long a Silverstein booster, indicated that diminishing the developer's role could help the rebuilding go faster. "The best way to do it might be to have more involvement by the Port Authority, more involvement by perhaps other private-sector investors," he said at a news conference. Port Authority Chairman Anthony R. Coscia and Mayor Bloomberg, who has asserted his influence through control of the approval of the tax-exempt bonds, also have suggested a reduced role for Mr. Silverstein.
The developer rejects such a move out of hand. But his main financial partner, Lloyd Goldman, who normally takes a backseat to Mr. Silverstein in public, says the door is open to a deal that would reduce their role. "We're not looking for a deal to be made. We're not soliciting offers. We're looking to live up to our contract," he says. "If there is a deal that makes sense, we would evaluate and accept."
Mr. Goldman, 47 years old, is the money behind the brash public face of Mr. Silverstein. When the two bid on the Twin Towers in 2001, it was Mr. Goldman's $80 million that led the $125 million initial payment. Mr. Silverstein put about $14 million in the deal. When the Port Authority awarded Mr. Silverstein's team the lease, he and Mr. Goldman established a 10-year agreement whereby Mr. Silverstein would operate the project through 2011.
Next year will be pivotal for Mr. Silverstein. In addition to needing to find tenants for 7 World Trade Center and secure the tax-exempt bonds, he plans to begin foundation work on the signature building on the site, the 1,776-foot Freedom Tower in April. He will also face an increase in the rent he has continued to pay to the Port Authority. The annual payment will rise to $138 million from $120 million a year next August and will further diminish the pool of insurance money he has to rebuild. At least $1.6 billion of the potential $4.6 billion already has been spent or allocated.
A key factor in the debate over how to rebuild is that there is little demand at the moment for five new office towers. While Midtown Manhattan's real-estate market is thriving, downtown remains sluggish, with many office buildings being converted to condominiums. The Port Authority, city and state say what downtown really needs is shopping, plus a hotel and possibly some housing.
The Port Authority has increased pressure on Mr. Silverstein in recent months by unveiling plans for a 550,000-square-foot mall that would be sprinkled through the five buildings Mr. Silverstein wants to build and a $2.2 billion train station the Port Authority is building with federal aid. Mr. Coscia, the Port Authority chairman, has called for Mr. Silverstein to cede a portion of the development back to the Port Authority in hopes that it, or another private developer, could build it faster than Mr. Silverstein.
Mr. Silverstein rejects that argument and says he is building as fast as he can. He says he is waiting for the Port Authority to excavate the eastern part of the site and build a so-called bathtub, which serves the dual purpose of foundation for the building and bulwark against water seeping in from the Hudson River nearby. Because that seven-acre quadrant didn't have skyscrapers before 9/11, its foundations are relatively shallow. Now that the plan calls for three 700-foot-plus tall towers there, and an underground mall, workers must dig 70 to 80 feet to bedrock so the buildings can have a solid base. On the way down, they will remove pieces of an old rail tunnel that existed before the World Trade Center was built in the 1960s.
It will take two years to dig the bathtub and require close to 2,000 trucks a day to haul out the earth and supply workers and equipment. The Port Authority says that the bathtub will be ready in mid-2008 and that plans for the area need to be drawn up now, not when it is complete.
The timetable for rebuilding the overall site is long, and some say optimistic. The Freedom Tower won't open until 2011. The retail mall and towers on the eastern flank won't be complete until 2012, and the final tower in 2013 or later. A memorial will begin construction next year and be completed in 2009. The cost for the entire rebuilding is unknown, but estimates range from $9 billion to $13 billion. While Mr. Silverstein probably has enough insurance money to build the Freedom Tower and possibly a second tower, he will need to attract tenants to the other buildings in order to take advantage of financing available through the government-backed bonds.
Even Mr. Silverstein acknowledges he may not be around when the project is complete. "If you are asking me to think 10 years ahead, I can't. I'm almost 75. I don't know what's going to happen 10 years, 15 years from now."
While Mr. Silverstein maintains a mission-like vigor for his task, he is now talking openly about the frustrations of rebuilding. At one point in an interview, he asked, "What do I have to show for the last five years of my life? Not very much." Mr. Silverstein dwells on the fact that he will have spent the last 10 years of his working life on the Trade Center, a project he says "has this disastrous effect on everything around us."
The copper-haired developer's most pressing struggle is to fill the almost-empty 7 World Trade Center. In September 2003, he listed the tower's 42 rentable floors and invited 20 of the city's top real-estate brokers to dine on his yacht, the Silver Shalis, where he championed the project's architecture and security.
Early discussions were promising, but there were no takers. Local brokers say that Mr. Silverstein's high rents keep companies from closing deals. "When Larry decides to set the price where the market is, then it will rent," says Barry Gosin, chief executive of real-estate brokerage firm Newmark & Co. Real Estate Inc. "It's probably the nicest building on the market. But it's still downtown."
There are prospects. Robert Joffe, partner at Cravath, Swaine & Moore, says his law firm is considering, among other options, moving its headquarters there from Midtown. Beijing Vantone Real Estate Co., a Chinese real-estate company, is negotiating to rent five floors near the top. So far, just two small tenants have indicated their intention to take space there. Ameriprise Financial Inc., formerly part of American Express, will take half a floor, and the nonprofit New York Academy of Sciences will take a floor. Neither, though, have signed a lease.
Mr. Silverstein's lack of tenants has made some real-estate executives, including Mr. Gosin, skeptical that lower Manhattan needs five new office towers. "There's just not enough demand for office space," he says.
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