Private Funds Show Interest
In World Trade Center Site

The Port Authority of New York and New Jersey, the owner of the World Trade Center, has begun discussions to shop the Freedom Tower, hoping to lure private equity or hedge funds into owning all or part of the $3 billion skyscraper, people familiar with the situation said. Separately, the agency is in talks to sell development rights to one of the five planned skyscrapers there to J.P. Morgan Chase & Co., the people said.

Taken together, the interest by private-sector money in the site would represent a major advance for the much-maligned development, which has thus far relied almost completely on government support and insurance proceeds.

Steve Coleman, a Port Authority spokesman, said, "We don't comment on discussions we may or may not be having." A spokesman for J.P. Morgan, New York, declined to comment.

Jones Lang LaSalle Inc. is representing the Port Authority as broker in the negotiations.

David Lichtenstein, chief executive of Lightstone Group, a Lakewood, N.J., real-estate investment firm, said he thinks that depending on the price and conditions, any number of private investors, including his own firm, would be interested in equity in the Freedom Tower, whose foundation is under construction. "In this market, I think anything in Manhattan would generate interest," he said. "That's a no-brainer, isn't it?"

Mr. Lichtenstein said he didn't think private investors would necessarily shy away from the tower just because of the site's legacy or the tower's potential as a new terrorist target. "That's what you have insurance for," he said.

Robert Sammons, director of research for the real-estate services firm Colliers ABR Inc., said a flood of investors -- from private-equity firms to pension firms to foreign interests -- are looking to own a piece of Manhattan, driving prices to record levels. "Certainly you're not going to find a better time to try to sell that equity interest," he said.

Designed as the signature skyscraper at Ground Zero, the Freedom Tower will rise a symbolic 1,776 feet. The structure, which has been redesigned several times, including a complete overhaul to better protect it from terrorist attacks, is set to be completed in 2012. The tower has lease commitments from the federal and New York state governments to take one million of the 2.6 million square feet.

Critics have decried the tower as an obvious terrorist target and a financial white elephant that private-sector tenants will shun. The first 18 stories of the tower will be taken up by a mostly unoccupied concrete structure to protect the building from possible truck bombs. The concrete will be covered with thousands of pieces of decorative glass to minimize any bunkerlike effect, say the architects.

Any deal for the Freedom Tower is unlikely to occur right away, people familiar with the matter said.

A move on Tower 5 by J.P. Morgan, on the other hand, could take place as soon as a month, though people familiar with the matter stress the firm is also exploring sites in midtown Manhattan or could choose to do nothing.

If a deal is made, J.P. Morgan would purchase a long-term ground lease from the Port Authority for what is known on plans as Tower 5. J.P. Morgan would build and occupy a 57-story, 1.6 million-square-foot office building, housing its trading and analyst operations. Such a move would be a major shot in the arm for the Trade Center site, which has so far failed to land private-sector tenants. Because the tower can't be ready for occupancy before 2012, the move reflects the panic New York firms are in to secure office space for the future as the cost of new buildings skyrockets. Investors have raced in the past year to pay record prices for Manhattan office real estate.

If J.P. Morgan goes ahead with Tower 5, it would be a disappointment to private developer Larry Silverstein, who is building three other office towers on the World Trade Center site. He unveiled fanciful architectural designs for his towers with great fanfare last year, hoping to lure financial firms to make an early commitment. Mr. Silverstein's towers are scheduled to be completed at least a year in advance of Tower 5.

(In a deal struck last year, the Port Authority took responsibility for the Freedom Tower and Tower 5. Mr. Silverstein would build towers 2, 3 and 4.)

A Silverstein spokesman declined to comment. The Tower 5 site, however, has its own problems. The plot is currently occupied by the building that formerly housed offices of Deutsche Bank AG and was heavily damaged when the Twin Towers collapsed across the street. The razing of that building, at 130 Liberty Street, has been stymied for more than three years because of environmental concerns and the discovery of human remains from the 9/11 attacks on its roof.

Also, as currently configured in plans, Tower 5 is too small to accommodate a floor plan large enough for trading operations. To expand its footprint would involve encroaching on adjacent land, currently reserved for a park and to rebuild a Greek Orthodox church destroyed in the 9/11 attacks. The Port Authority has presented the option of creating enough space by building a cantilevered trading floor that would overhang the adjacent land.

A J.P. Morgan move to Tower 5 would reflect a broader change in the value of residential real estate compared with office buildings. Last year the Port Authority, with the encouragement of New York Mayor Michael Bloomberg, indicated Tower 5 would likely be built as a condominium or hotel, given the then strong demand for anything with a bed in it. Since then, the residential market has slowed, while demand for office space keeps rising.

Real estate has been an important issue for J.P. Morgan as the bank cuts costs under Chief Executive James Dimon. Mr. Dimon said in October that the bank had trimmed its real-estate portfolio by 10 million square feet in the past two years to 67 million square feet. Furthermore, Mr. Dimon is a fan of state-of-the-art technology, so he would likely embrace a facility with the latest tools.

J.P. Morgan has other ties to the redevelopment of downtown Manhattan. Charles Maikish, executive director of the Lower Manhattan Construction Command Center, which coordinates the construction, is a former J.P Morgan real-estate executive.

-- Robin Sidel contributed to this article.

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