April 22 (Bloomberg) -- A financing plan for a third World Trade Center skyscraper in lower Manhattan is at risk as commissioners of the Port Authority of New York and New Jersey prepare to vote on a $1.2 billion loan guarantee.
William “Pat” Schuber, one of nine commissioners at the agency, said he was uncertain if tomorrow’s expected vote on the financing arrangement would take place. Kenneth Lipper, a commissioner who has been leading opposition to the proposal, said the plan would be defeated if a vote were held tomorrow.
While proponents of the plan led by Vice Chairman Scott Rechler say the guarantee to developer Larry Silverstein for 3 World Trade Center is critical to the revitalization of the 16-acre (6.5-hectare) site that the Port Authority owns, Lipper contends the real estate project diverts the agency further from its primary mission of operating bridges, tunnels, airports and shipping terminals serving the two states.
“I’m not sure there’s support for it yet on the New Jersey side,” Schuber said yesterday after a meeting of a panel seeking ways to reform the authority.
Under the agency’s bylaws, the board is split equally between New York and New Jersey representatives. Six members must vote in favor of the measure for it to pass, with at least one vote of approval from each state.
Schuber is a New Jersey commissioner. Lipper and Rechler are appointees of New York Governor Andrew Cuomo.
The 93-year-old Port Authority has been under heightened scrutiny in the wake of a scandal involving lane closures at the George Washington Bridge by allies of New Jersey Governor Chris Christie. Authority Chairman David Samson, appointed by Christie, resigned last month. David Wildstein, an agency official charged with carrying out Christie’s agenda, and Deputy Executive Director Bill Baroni, another Christie appointee, also quit.
Anthony Sartor, a New Jersey appointee who had been head of the board’s World Trade Center subcommittee, resigned last week. Four New Jersey representatives remain.
Kevin Roberts, a spokesman for Christie, said by telephone that he had no comment on the financing. Matt Wing, a Cuomo spokesman, didn’t respond to an e-mail and telephone call seeking comment.
The 3 World Trade Center proposal restructures a 2010 agreement. A third-party financial analysis of the new plan, along with a number of other materials related to the tower, has been prepared for commissioners to review “to ensure an informed and productive discussion at Wednesday’s board meeting,” said Christopher Valens, a spokesman for the authority.
A delay in the vote or voting the package down could call into question the prospects for the construction of the 80-story skyscraper, which is now stalled at eight stories. Silverstein has signed one tenant, the advertising firm GroupM, to take about 20 percent of the tower. Another 2 million square feet (186,000 square meters) of space is available, which would add to the roughly 2.4 million square feet in 1 and 4 World Trade Center that remain unrented.
“I believe that if it came to a vote, it would be defeated,” Lipper said yesterday in a telephone interview. “If it mercifully goes into postponement for eternity, that’s fine with me too.”
The plan is far from a giveaway, Rechler said in an interview last week. Silverstein will pay the authority back in several ways for the $1.2 billion backstop, which would come in the form of bond insurance, he said.
These include an additional $100 million in fees the agency would receive from the developer and the release from an earlier authority commitment to provide $200 million in cash, as well as an acceleration of ground-rent payments if the project is expedited. The agency would also get $230 million by selling its interest in part of the center’s retail property to Westfield Group, which can only happen if tower is built.
The authority would have the right to foreclose on Silverstein at 50 percent of the tower’s value if he fails to live up to his agreements, according to the plan.
An additional requirement that Silverstein provide $450 million of the $2.3 billion tower cost in the form of equity or high-interest mezzanine debt will put pressure on the developer to fill up the building, Rechler said. Under the existing agreement, Silverstein had to provide only $300 million of equity and mezzanine financing.
“There’s a market check,” said Rechler, the head of office landlord RXR Realty. “People won’t invest if they determine the project shouldn’t go forward, and if they do, they will see that if he needs to lower his rents, he will do so.”
The building would have enough cash flow to prevent a shortfall until at least 2032 even if it were only 50 percent leased, Rechler said.
Janno Lieber, president of Silverstein’s World Trade Center unit, said the developer has already paid more than $1 billion of ground rent to the authority since the 2001 terror attack.
“We need to get the buildings finished to maintain those substantial payments to the authority,” he said in an interview. “Without this cash cow, the entire burden of the Port Authority’s operations would fall on toll payers and airport users.”
The Port Authority’s plan to add its repayment pledge to the debt would help attract bond investors, said Daniel Solender, director of munis at Jersey City, New Jersey-based Lord Abbett & Co., which oversees $15.5 billion of munis.
“It all depends on the security for the bonds,” Solender said in an e-mail. “If it is a straight real estate deal depending upon the building being filled with tenants and that is the only source of revenue for bond security, that would probably be an issue since they are not filling up all the buildings. If it is backed by the Port Authority or the city or something like that, it would get better reception.”
Investors are demanding less yield to buy World Trade Center bonds even as the site struggles to find tenants. World Trade revenue bonds sold in November 2011 and maturing November 2044 traded today as low as 3.92 percent, the lowest level since May 2013, according to data compiled by Bloomberg.