Goldman Tower’s Tax-Free Loan Makes Liberty Bonds Tough SellSteven Sloan
Jan. 11 (Bloomberg) -- A tax-free bond program that provided below-market financing to build Goldman Sachs Group Inc.’s headquarters is expiring while New York developers say the city’s commercial real estate market still needs support.
Congress created the Liberty Bond program in March 2002 with $8 billion in tax-exempt funds to rebuild lower Manhattan after the Sept. 11 terrorist attacks. The allocation ran out last month and the tax exemption ended on Dec. 31, along with dozens of other breaks for manufacturers, energy companies and transit commuters. The Liberty Bonds that were already issued retain their tax exemption.
Critics, who include affordable housing advocates, say the bonds were little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp. Developers counter that more than a decade after the attacks, low-cost financing remains necessary to help lower Manhattan’s commercial market recover.
“The Liberty Bonds made available to the World Trade Center site are only enough to support rebuilding a little less than 60 percent of the office space lost on 9/11,” Larry Silverstein, the World Trade Center’s developer, said in an e-mail. “In an ideal world, more such resources would be made available to help jump-start construction of the remaining 40 percent of the office space that was destroyed by terrorists.”
His company, Silverstein Properties Inc., received almost $3 billion through the Liberty Bond program to help redevelop the World Trade Center site. Goldman financed construction of its headquarters at 200 West Street with about $1.5 billion in Liberty Bond financing. Bank of America’s tower across from Bryant Park was financed with $650 million in Liberty Bonds.
Another allocation of the bonds paired with a tax exemption isn’t in the offing. Congress may not consider reviving any of the expired tax breaks until the end of 2012. New York Mayor Michael Bloomberg said policy makers should consider the city’s financing needs before deciding what to do about the Liberty Bonds.
“Just going and raising money because you want to waste it is not something that’s smart,” he said during a Jan. 9 news conference in the Bronx. “Don’t start out with the Liberty Bond program. Start out with: What are the needs of the state? What are the needs of the city? What are the needs of the region? And then we’ll have to figure out how to finance it.”
The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.
A decade after creation of the Liberty Bonds, there is still debate about what they were intended to accomplish. Silverstein said the program helped him rebuild 7 World Trade Center quickly.
“That project, which restored crucial infrastructure and injected confidence in the rebuilding, has been a resounding success since opening in 2006,” he said.
Richard Froehlich, the chief operating officer of the New York City Housing Development Corp., an agency created by the state legislature to fund affordable housing, said the bonds have helped foster residential life downtown.
“It’s becoming an interesting neighborhood,” he said.
The New York City Housing Development Corp. issued Liberty Bonds that helped create 3,396 residential units. Almost all of that housing is in high-end apartment buildings.
Two-bedroom apartments at 63 Wall Street and 90 West Street, financed with Liberty Bonds, are renting for $4,200 a month. Another building financed with the bonds, at 2 Gold Street, is renting three-bedroom units for $5,400 a month.
“There were too many lost opportunities with the Liberty Bonds,” said Bettina Damiani, project director with Good Jobs New York, a labor-backed research group. “Around Sept. 11, people in public service were heralded, but we decided to build housing that totally excluded those types of people from living in lower Manhattan.”
The housing agency required developers who used Liberty Bond financing to pay a 3 percent fee that would go toward building affordable housing in other New York neighborhoods. Froehlich said the fees have added about 800 affordable housing units outside of lower Manhattan which, he said, was always expensive.
“It was not a low-income community before, and it’s not now,” he said. “When you think about it at the time when there was concern about just keeping life downtown, focusing on affordability wasn’t the right issue.”
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