April 23 (Bloomberg) -- The Port Authority of New York and New Jersey postponed a vote on a proposal for a $1.2 billion loan guarantee that would help developer Larry Silverstein build 3 World Trade Center in lower Manhattan.
The commissioners will discuss ways to further reduce the authority’s risk in providing the financing, Executive Director Pat Foye said at a meeting today in New York. Three of the nine trustees spoke critically of the proposal negotiated by Foye and Vice Chairman Scott Rechler. Three others made remarks suggesting they were inclined to support it, while the rest made neutral comments about the plan.
“I would not be in favor of this deal as it is presently constructed,” said David Steiner, a New Jersey representative. “Silverstein has too good a deal. Unless the deal is improved and we make a substantial better return, with very little or no risk, I am not in favor of it.”
The delay calls into question the prospects for the 80-story tower, which is stalled at eight floors, as the commissioners tangle over the agency’s role in its development. The Port Authority, owner of the Trade Center site, is divided over providing more subsidies to Silverstein. The developer completed 4 World Trade Center last year with the help of leases by the agency and the city of New York, which together will occupy about half of the skyscraper as its only signed tenants.
Proponents contend the loan guarantee is critical to the revitalization of the 16-acre (6.5-hectare) site, while Kenneth Lipper, a trustee from New York, argued the project diverts the agency further from its primary mission of operating bridges, tunnels, airports and shipping terminals in the two states.
Jones Lang LaSalle Inc. is advising the agency on the proposal, Lipper said.
“We’re not there yet,” Foye told reporters after the meeting. “My expectation, and I think that of the majority of the board, is that we will come back with a revised proposal for consideration by the board in a public session in May.”
Silverstein is seeking financing help following the debut in November of 4 World Trade Center, the first tower to open at the site. About 45 percent of the building’s 2.3 million square feet (214,000 square meters) are unspoken for.
In 2001, Silverstein agreed with the Port Authority to a 99-year lease of the original twin towers just before they were destroyed in the 9/11 terrorist attacks. He has continued to pay ground rent, funded by proceeds from a $4.6 billion insurance settlement. In 2006, the agency took over the development of 1 World Trade Center, a skyscraper approaching completion, in a renegotiation of Silverstein’s lease.
The plan for 3 World Trade Center would restructure a 2010 agreement. In return for the loan guarantee, the agency would receive payments including $100 million in fees and a release from an earlier commitment to provide Silverstein $200 million in cash. The authority would have the right to foreclose at 50 percent of the tower’s value if Silverstein fails to live up to the deal’s terms.
Silverstein also would be required to raise $450 million of the $2.3 billion tower cost in the form of equity or high-interest mezzanine debt. Under the 2010 agreement, he had to provide only $300 million of equity and mezzanine financing.
The overflow crowd of public spectators at today’s meeting included Janno Lieber, president of Silverstein Properties Inc.’s World Trade Center unit. After the board declined to vote, Lieber said he was optimistic that the deal would go through and not set back the project.
The planned 2.5 million-square-foot skyscraper has one committed tenant, the advertising firm GroupM, which signed a lease for 515,000 square feet in December.
“We have a tenant standing by waiting to know their future,” Lieber said.
The Port Authority shouldn’t extend its credit to Silverstein if the private debt markets won’t, Lipper said in a lengthy denunciation of the plan.
The agency “has more critical transportation projects that it must build than it has money to build them,” he said, identifying the Port Authority Bus Terminal in Midtown and John F. Kennedy International Airport as properties that need upgrading. “At some point we have to face the fact that common sense and our core mission takes precedence over patriotism, or the project becomes a vanity project that we’re doing for our self-satisfaction.”
He was joined in criticizing the deal by William “Pat” Schuber, a New Jersey representative, who said he was “prepared to wait out” additional negotiations to see if his concerns are alleviated.
Lieber objected to Lipper’s contention that the loan guarantee would burden the Port Authority and the public. The agency stands to gain about $500 million in fees and other payments if 3 World Trade Center is completed, as well as increased and accelerated ground rent, which would benefit toll-payers and airport customers, he said.
Bill Rudin, a Manhattan developer and president of the Association for a Better New York, called the financing package an investment that would pay dividends to the Port Authority, downtown and the entire region.
“We need to continue to show the world that we’re rebuilding,” Rudin said in a telephone interview before the meeting. “And this contingent liability is something worth taking on.”
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