April 24 (Bloomberg) -- The Port Authority of New York and New Jersey’s failure to agree to a loan guarantee for World Trade Center site developer Larry Silverstein shows agency leaders are wrestling over its direction as they seek to fix the dysfunction exposed by the George Washington Bridge scandal.
The agency’s nine commissioners yesterday postponed until May a vote on a $1.2 billion backstop for a third skyscraper at the 16-acre (6.5-hectare) site it owns in Lower Manhattan.
While deal proponents, led by Vice Chairman Scott Rechler, say the authority stands to reap hundreds of millions of dollars that could bolster transportation, Commissioner Kenneth Lipper says the project diverts the agency further from its primary mission of operating bridges, tunnels, bus stations and shipping terminals, as well as Kennedy, LaGuardia and Newark airports.
“The real question here is whether we triage a bus station in midtown Manhattan that serves 65 million people a year or JFK, which serves 100 million people a year, in order to build another building that will stay empty in the World Trade Center,” Lipper said. “Why are the taxpayers, the tollpayers, the airport users, why are they paying to finance Larry Silverstein?”
The 93-year-old authority has been forced to re-examine itself in the glare of public attention after an official charged with carrying out New Jersey Governor Chris Christie’s agenda at the agency last year shut down lanes to the George Washington Bridge in Fort Lee, whose Democratic mayor didn’t endorse the governor’s re-election. The Republican governor says he wasn’t involved.
At the same time, the agency is grappling with a business model that some academics have called unsustainable, and billions of dollars in capital needs.
Once a vital force in the regional economy, the Port Authority has been sapped by growing deficits at its PATH railroad, cost overruns at the trade center and spending on pet projects for the governors of New York and New Jersey, according to a report this month from New York University’s Rudin Center for Transportation Policy & Management.
The agency estimates it will spend almost $8 billion on the World Trade Center site before its completion in five years, almost $2 billion more than projected in 2008. Meanwhile, LaGuardia has been likened by U.S. Vice President Joe Biden to a facility in a third-world country, while the decaying 64-year-old midtown bus terminal, which serves 230,000 commuters daily, is getting less than 1 percent of the Port Authority’s $27.6 billion 10-year capital plan.
By contrast, the PATH train, which carries about half as many people into the city from New Jersey and lost $370 million in 2012, will get $3.3 billion, including $1.4 billion to expand service to Newark airport.
The new financing plan for Silverstein comes at an “awkward time,” said Martin Robins, the founder of the Alan M. Voorhees Transportation Center at Rutgers University in New Brunswick, New Jersey.
“It’s obvious they’re trying to get a grasp on their governance, and they also need to get a grasp on their finances,” Robins said. “It makes it more difficult to make this decision.”
The Port Authority has been involved in real estate since the start of the World Trade Center project in the 1960s.
New York Governor Nelson Rockefeller pushed the agency to build the twin towers, saying he was concerned that Lower Manhattan was being left behind Midtown as a business center. In exchange for his sign-off, New Jersey Governor Richard Hughes persuaded Rockefeller to have the Port Authority take over the privately owned Hudson & Manhattan Railroad, now the Port Authority Trans-Hudson rapid transit system.
Silverstein signed a 99-year lease for the trade center just six weeks before the Sept. 11, 2001, terrorist attacks destroyed the towers, killing more than 2,700 people. Rebuilding the site, which had more than 10 million square feet of office space, has been hampered by disagreements over design, the concerns of family members of the victims, lawsuits involving insurance companies and disputes between Silverstein and the Port Authority over rent.
“The Port Authority is in up to its ears in that project, and the only thing to do now is to finish that project, get it done well and turn it into the kind of asset that can produce long-term revenues to support the Port Authority’s core mission,” Robert Yaro, president of the Regional Plan Association, a land-use and transit advocacy group, told the agency’s special oversight committee on April 21. “But it should get out of its extraneous activities as quickly as it can.”
Silverstein wants to alter a 2010 agreement that set the terms under which he could build 3 World Trade Center, the third of four skyscrapers planned. The outcome of the discussions could determine whether he can proceed with construction on the 80-story tower in which the advertising firm GroupM agreed to take 516,000 square feet.
Silverstein is seeking financing help following his development of 4 World Trade Center, which opened late last year and is only 55 percent leased, entirely to government tenants. Under the current plan, Silverstein would be entitled to a total of $600 million in cash assistance from the city and state as well as the Port Authority.
The Rechler proposal would require the developer to raise his equity and mezzanine-debt stake to $450 million from $300 million. Under the plan, the $1.2 billion guarantee would apply only in case of default.
The plan isn’t a giveaway and improves on the 2010 deal, Rechler said.
The Port Authority will collect $100 million in fees to insure about $800 million of tax-exempt bonds, allowing Silverstein to get a lower borrowing cost. It would also release the agency from a commitment to provide $200 million in cash and allow it to reap $230 million by selling an interest in part of the center’s retail property to Westfield Group, which can only happen if the tower is built.
“As stewards of this agency, it’s our job to finish it,” Rechler said. “The worst thing we could do is not act and lose this important tenant that’s making a commitment to Lower Manhattan and the World Trade Center site,” Rechler said, referring to GroupM.
Janno Lieber, president of Silverstein’s World Trade Center unit, who attended the packed meeting, said afterward that he was “optimistic” the deal would go through. The developer has already paid more than $1 billion in ground rent to the authority since the 2001 terror attacks, which helps reduce pressure on the agency to raise tolls to fund transportation projects. Silverstein has also given the Port Authority $3 billion in insurance proceeds, he said.
“The presentation about money coming from tollpayers is exactly wrong -- the World Trade Center exists in part to give the Port Authority a windfall,” Lieber said. “We and the Port Authority need to join forces to get the buildings up so we can continue to pay these huge ground rents.”
Port Authority Executive Director Pat Foye said the commissioners will discuss ways to reduce the authority’s risk and get more favorable terms from Silverstein.
Lipper spoke out in opposition to the loan guarantee, saying the authority shouldn’t be taking a risk to back the third tower, which would add 2 million square feet of office space.
Silverstein should either put in more of his own money or seek other investors willing to put in more equity, Lipper said. The developer wants to change the deal because he can’t find investors who will loan him the money on favorable terms without the guarantee, he said.
“Why aren’t the public debt markets willing to put up the money?” Lipper said. “The reason they’re doing that is there’s a 13 percent vacancy rate downtown right now.”
Concerns that Silverstein won’t be able to fill the vacant space are misplaced, said Mitchell Moss, a professor of urban policy and planning at NYU’s Rudin Center. Four million potential workers live within 45 minutes of the site, which is close to a dozen subway lines, he said in a telephone interview.
“This is the most accessible site on the American continent,” he said. “The building is going to be built. The question is whether you wait for the economy to take over or whether you try to build before it does.”
In 2000, the twin towers generated $33 million in net revenue for the Port Authority.
The governors of New York and New Jersey each appoint six people to serve as Port Authority commissioners. Chairman David Samson, appointed by Christie, resigned last month after a report commissioned by the New Jersey governor on the bridge affair recommended changes at the agency. Another New Jersey commissioner, Anthony Sartor, resigned last week. New York has one vacancy on the commission.
When asked if he supported the financing plan for 3 World Trade Center, New York Governor Andrew Cuomo said yesterday at a press briefing in Albany that the decision was up to the commissioners.
That the agency was holding a contentious internal debate over the 3 World Trade Center financing plan in public was “extraordinary” and a sign of change at the agency, said Commissioner William “Pat” Schuber from New Jersey.
“If there’s any doubt that the authority hasn’t changed,” he said, “this should go a long way to indicate that it has.”
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