Silverstein, Port Authority Reach
Agreement for World Trade Center

World Trade Center developer Larry Silverstein and the site's owner, the Port Authority of New York and New Jersey, reached an agreement today that paves the way for significant construction to begin at Ground Zero, four and half years after terrorist attacks destroyed the Twin Towers.

"This is a real turning point in the development of lower Manhattan," said Anthony R. Coscia, chairman of the Port Authority.

Mr. Silverstein said: "With today's agreement, we can now move forward with rebuilding the World Trade Center." But without being specific, he indicated that there were still items to nail down. "I trust that we can continue the spirit of cooperation and partnership so that we can all get the job done. Clearly, there are some issues that need to be resolved."

Mr. Silverstein and Port Authority officials met late into Tuesday night finalizing the framework deal, which will involve the developer giving up the rights to build two of the five planned towers at the site. The pact, which had been negotiated for months, includes a major influx of government money to prop up the project's troubled commercial aspects, including nearly 10 million square feet of commercial office space.

Construction on the Freedom Tower -- the iconic centerpiece of the project -- could begin in a "matter of days," according to an aide to Mr. Silverstein. The five planned towers would be completed around 2012.

In a four-page letter to the Port Authority of New York and New Jersey yesterday Mr. Silverstein said, "We are accepting all of your economic terms." The letter went on, however, to detail at least two economic items to which he wasn't committing, including his share of the cost to build the site's foundation and underground services, and the Port Authority's share of any future profits. Mr. Silverstein said those issues were relatively minor.

Mr. Silverstein and Port Authority officials met to hash out the remaining issues. Mr. Coscia and Port Authority Executive Director Kenneth J. Ringler said in a statement yesterday: "We are pleased that Silverstein Properties [Inc.] has agreed to accept the unified proposal. ... We look forward to Silverstein Properties signing the framework proposal and, once it does, to the Port Authority Board considering the proposal at the regular monthly meeting [today]."

Despite agreeing to what Mr. Silverstein called "real concessions," the proposed pact is a big win for the developer and his investors, including New York real-estate tycoon Lloyd Goldman. Mr. Silverstein won back his and his partners' original $125 million equity investment in 2003 as part of refinancing of his mortgage. Now, he will be relieved of the most difficult to build and worst-located Freedom Tower and gets to keep the three best-located towers that are closest to transportation and the heart of Wall Street. In addition, government agencies have agreed to be anchor tenants in his buildings. The state and city last year created subsidies to entice potential private-sector tenants.

Government agencies would fill more than 20% of the planned office space. Despite that guarantee and the other subsidies, it doesn't mean clear sailing for the much-criticized project. Its long-term economic viability will still depend on attracting large private-sector tenants, said Kathryn S. Wylde, chief executive of the Partnership for New York City, a business group. Whether there are enough tenants to fill the commercial space "is still an issue of concern," she said. She is hopeful the "resolution of these open political issues that have had a chilling effect on the site will result in commercial tenants coming forward."

Ms. Wylde said improvements in transit, including $3 billion, mostly in federal money, for two transit hubs, will entice big business to relocate downtown. None of the transit improvements will extend service to new areas; they will simply create architecturally significant terminals and pedestrian pathways between the subways and a commuter rail line.

The deal would involve a major government injection of money into the site. Mr. Silverstein would hand over to the Port Authority the rights to rebuild two of the five planned skyscrapers, including the Freedom Tower, seen as the most expensive and difficult-to-market element at the site. It will cost more than $2 billion and is seen as a possible terrorist target. The Port Authority and the City of New York would move 1.2 million square feet of offices to towers 2, 3 or 4, which Mr. Silverstein would control, alleviating somewhat his difficult task of attracting tenants. The Port Authority would reduce the rent Mr. Silverstein owes under his $3.2 billion, 99-year lease.

The deal would also require New York state to follow through on a promise to lure a major federal government tenant -- possibly the Federal Bureau of Investigation -- to take close to one million square feet of space in the Freedom Tower. That lease would be valued at $47.5 million a year for several years. New York state would inject a further $250 million from its share of a previous toll increase at Port Authority-owned bridges and tunnels. The Port Authority would also give $100 million to build the memorial. A total of $3.5 billion in tax-exempt Liberty Bonds would also be used.

The Port Authority would also require Mr. Silverstein to buy the rights to the lucrative retail portion of the site, valued at several hundred million dollars. He would, in turn, sell those rights to a developer that specializes in retail. That provision, however, would first need to gain the cooperation of Westfield Group, a former Silverstein partner and retail real-estate company that owns a "right of first offer" to build and own a mall-size collection of stores there. A Westfield spokeswoman declined to comment.

A tower previously assigned to Mr. Silverstein would be bid out to another private developer. The Port Authority is expected to sell development rights to Tower 5, tentatively slated to be a massive residential skyscraper, for at least $250 million. Those proceeds will help the Port Authority pay to build the 1,776-foot-tall Freedom Tower. Mr. Silverstein will still earn a $20 million fee for managing the construction of the Freedom Tower.

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