But whether the grand scheme for the complex, which is meant to include four other office towers, will be fully realized is uncertain, The Wall Street Journal reported. A plan to finance the project — estimated to cost more than $9 billion — is caught up in deep disagreements between Larry A. Silverstein, president of Silverstein Properties Inc., which is the developer of the office buildings, and the project's public owner, the Port Authority of New York and New Jersey.
The agency, which runs airports, tunnels, bridges and commercial ports, counts on the rent from the World Trade Center for about 5 percent of its $2 billion-plus yearly operating budget.
Silverstein Properties and the Port Authority continue to be guided by a lease each signed six weeks before the Sept. 11, 2001, attacks. The lease stipulates that should the complex be destroyed, Silverstein must continue to pay the $120 million/year rent in order to maintain the right to rebuild. Silverstein has tried to persuade the Port Authority that his closely held company is capable of rebuilding while meeting its massive rent payments. The rent is currently being paid from insurance proceeds, draining the amount available for rebuilding.
In the fall of 2001, Silverstein sued his insurers arguing that the attacks on the two towers constituted two events, requiring double payouts on the $3.5 billion policy. The first phase of the case, ended in May, found that the majority of the insurers who share the policy are excluded from that line of argument and owe a single payment. That decision, now being appealed, left a $6 billion gap between the cost of the entire project and the cash available.
A second phase, now under way in New York federal court, involves nine insurers that were found to be open to the two-event interpretation. The jury will determine if the attacks constituted two insurable events. If the jury rules in Silverstein's favor, those nine insurers could end up paying twice the $1.1 billion in coverage they represent.
Pending the continuing litigation, between $3.6 billion and $4.6 billion will have been paid out by the insurers. But around $1.5 billion of that insurance money already has been spent on paying off creditors, legal fees in the insurance case, and the Port Authority's rent.
If Silverstein Properties fails to come up with the financing, the Port Authority could force a negotiated settlement that would require Silverstein to return some of the development rights for the remaining office towers to the agency in return for a reduction in what it pays the Port Authority each year in rent. The Port Authority could then resell those rights to other developers. Even if that happens, the construction of the towers would depend on the developers' ability to attract paying tenants, generally a precondition to secure commercial financing.
In July, Silverstein and its advisers at Morgan Stanley presented a business plan to the Port Authority on how it would finance the buildings while paying rent. The plan involves using the remaining insurance money to build the Freedom Tower, filling it with paying tenants, then borrowing against that asset to erect the next tower. Silverstein would repeat that arrangement until all five towers are built. Those at the Port Authority who have seen the plan say Silverstein uses aggressive assumptions about how quickly it can attract tenants and how much it will be able to charge.
Some Port Authority officials dispute whether Silverstein can afford to erect the Freedom Tower and the four other planned office buildings while continuing to pay the bi-state agency the rent it owes according to his July 2001 lease. That lease envisions a rent increase in August 2006 to $138 million a year.
The Port Authority and Silverstein are also battling over who will pay the $1 billion to $2 billion to construct the site's underground backbone, including delivery ramps, walkways and mechanical systems that will support both the office buildings and the site's cultural, memorial and transit functions. Those familiar with the negotiations say the sides are far from an agreement.
It's unclear when a deal could be hatched, but lack of an agreement isn't slowing the first phase of construction. There is enough insurance money and federal aid to build the first elements, including the Freedom Tower and the transit hub. But once that money is spent, the rest of the office towers' development will depend on Silverstein being able to attract tenants.
The first World Trade Center, completed in 1972, dumped millions of empty square feet of office space on a stagnant economy that couldn't absorb it. State agencies took much of the space at artificially low rents, creating a subsidy that hurt competing buildings. The result was a real-estate recession in downtown Manhattan and a financial drain on the Port Authority. It took almost three decades before the towers held enough market-rate tenants to make the complex a cash cow.
Today, some worry the current rebuilding plan will run into similar problems.
As a sign of the difficult task the development faces, at least one major tenant has passed on moving there. Goldman Sachs Group Inc. is building its own skyscraper — similarly sized in terms of square footage to the Freedom Tower — directly across the street instead. It is slated to open around the same time as the Freedom Tower, in 2009.
Profound shifts in the real-estate market also suggest that the trade center faces an uphill battle. Rae Rosen, senior economist at the Federal Reserve Bank of New York, says she doesn't see sufficient demand in financial-services job growth in the near term to fill the 30 million square feet of proposed office development in the region, including the 10 million at the trade center site.
Another obstacle: The Freedom Tower's design, unlike that of most tall buildings, hasn't been guided by the regular rules of real-estate finance, but instead by the perceived need for a defiant symbol.
