Freedom Tower Moves Closer
To Being Filled Despite Hurdles

New York state and the federal government have moved closer to committing to help fill the long-troubled Freedom Tower, the iconic skyscraper planned at the World Trade Center site. The moves are necessary to make the $2 billion tower financially viable, but several hurdles remain to secure actual leases.

New York state's Office of General Services has signed a nonbinding "term sheet" that will be the basis for negotiations to take 415,000 square feet in the 2.6-million-square-foot tower. The agency, which is the state government's property manager, would pay an initial annual rent of $59 a square foot. The lease would last 15 years. The term sheet includes an option for the state to expand to one million square feet over 50 years.

Meantime, the federal government's property-management arm, the General Services Administration, has signed the third in a series of nonbinding "memorandums of agreement" to take 600,000 square feet in the Freedom Tower. This latest document specifies the initial rent, also $59 a square foot. A final deal would likely need congressional approval.

The rent represents a substantial premium to current rental rates in lower Manhattan. Average rents for office space downtown were $35.18 in the second quarter, according to real-estate brokerage Cushman & Wakefield Inc. Moody's Investors Service signed a lease to take 15 floors in the rebuilt 7 World Trade Center for the high-$30 to low-$40-a-square-foot range, after government incentives that apply to the Freedom Tower, which is scheduled to open in 2012.

If the state and federal commitments turn into actual leases, it would put the Freedom Tower on stronger financial footing, since the leases can be used as collateral to back construction bonds. The project will be paid for with insurance proceeds and money the Port Authority of New York and New Jersey collects from tolls at its bridges and tunnels.

The project appears to be gaining political support, too. New York state Attorney General Eliot Spitzer, the leading candidate in New York's coming gubernatorial election, who in the past has derided the Freedom Tower as a "white elephant," called Sunday's announcement a "crucial step in ensuring the financial viability of the Freedom Tower."

The Freedom Tower rentals are one piece of a larger rebuilding pact under negotiation and meant to be finalized later this week. That plan would divide responsibility for building the site's five towers and retail mall between private developer Larry Silverstein and the site's owner, the Port Authority.

A joint announcement by New York Gov. George E. Pataki, New Jersey Gov. Jon Corzine, and New York City Mayor Michael Bloomberg, indicates that despite bickering, the sides involved in the rebuilding seem to be working hard to finalize an overall rebuilding pact by Thursday's Port Authority board meeting. Gov. Pataki, in a statement Sunday said the deal helps "ensure downtown's future as the financial capital of the world."

It is unclear if the new World Trade Center will attract private business. The only tentative commitments to fill space there have been from government agencies. In addition to the state and federal governments, the Port Authority and New York City are negotiating to lease 1.2 million square feet in one of the smaller office towers at the site, which will be controlled by Mr. Silverstein. People familiar with the negotiations say the parties are close to agreeing on rents in the high-$50-a-square-foot range.

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