Rebuilding the WTC is an historic mission that must be fulfilled for many reasons, including the economic future of the region and the Port Authority itself.
After years of debate and occasional setbacks, remarkable progress has been made at the new WTC. On May 15, the Memorial Museum, which sits below the completed Memorial Plaza, will open. Later this year, the iconic One World Trade Center will celebrate its completion, joining 4 and 7 World Trade Center. And 7 World Trade Center – originally derided by naysayers as a white elephant destined to remain empty – is fully leased to a wide range of top-tier companies. Among these are firms in the burgeoning TAMI (technology, advertising, mediation and information services) sector.
But continued momentum is far from assured. Silverstein has signed a 515,000 square foot lease at 3 WTC with Group M, a media and technology company that wants to bring thousands of jobs to Lower Manhattan. But the construction financing market demands different structures than it did pre-recession.
As a result, and given the enormous economic benefits for the Port Authority of a completed tower, Port Authority Vice Chairman Scott Rechler has been working with developer Larry Silverstein to come up with a financing plan that will get 3 WTC built once and for all.
The plan calls for the Port Authority to guarantee a larger portion of Silverstein’s construction loans, which will make it possible for the company to borrow in today’s market. Of course, the Port isn’t actually giving Silverstein any money, they’re just helping the company to borrow money it will have to pay back. Further, the company got significant new rights and powers it didn’t have under the current agreement, which was negotiated in 2010.
Specifically, the agreement would require Silverstein to pay interest to the Port Authority for any funds that are advanced via the loan guarantee. And it gives the Port Authority the right to take control of the tower in the event that Silverstein is not able to repay the Port within 90 days. What this means is that, even in the (unlikely) worst case scenario of a default, the Port Authority would inherit a modern office tower, with a half-million square foot anchor tenant already secured, for half of the $2.4 Billion it will cost to build
The current agreement, which was negotiated in 2010, doesn’t give the Port Authority any of these powers. In fact, it made it possible for Silverstein to borrow almost $400 million against the government backstop indefinitely, without any interest payment, schedule for repayment or risk of foreclosure.
In return for agreeing to the new structure, the Port Authority has insisted that Silverstein increase its “skin-in-the-game” by raising the company’s equity contribution to the tower from $300 million to $450 million. This is in addition to the roughly $500 million of Silverstein’s own insurance the company has already used to build the tower to its current 8th floor height.
It is undeniably in the Port’s financial interest to see that 3 World Trade Center is built.
Under the deal negotiated by Rechler, completion of 3 WTC would generate some half a billion dollars of new money to the Port Authority over the next 15 years -- including $320 million in additional ground rent from Silverstein and $80-$90 million in credit enhancement fees Silverstein has agreed to pay the Port. And finishing 3 WTC would entitle the PA to receive another $131 million from Westfield, the company that controls the retail spaces.
More important, the PA is dependent on continued large ground rent from the WTC. Since 2001, Silverstein has paid the Port Authority $1.5 Billion in ground rent. Together with federal funds, this has helped to offset the costs of the World Trade Center rebuilding. But the numbers are even bigger going forward. Over the balance of the lease for his buildings at the World Trade Center, Silverstein will pay the Port Authority $25 billion. This includes at least $4.2 billion in rent for 3 World Trade Center alone – and that’s a minimum that could be increased if the building performs successfully once it is finished.
These ongoing revenue streams are essential to the agency’s ability to fund maintenance and expansion of its vast network of airports, bridges, tunnels and mass transit systems.
The benefits of building 3 WTC will be felt not just for users of Port Authority facilities, but also in communities throughout the city and the region. It will guarantee employment for nearly 10,000 construction workers and keep many companies in business and hiring, including the minority and woman-owned businesses that will secure about 40 percent of the contracts issued on the project.
The completion of 3 WTC, alongside 4 WTC and the PATH Transportation Hub, will make the area more appealing to tenants for all the buildings – including One WTC, which is owned by the Port Authority itself, in partnership with the Durst Organization. And it will draw more and better retail to the site. Westfield has identified big name retail tenants that would go into the retail space at 3 WTC. The critical mass of street-level retail, finished streetscape, and sense of place that a completed 3 WTC will provide is exactly what Lower Manhattan has been waiting for since 9/11. That critical mass – and the increases to jobs, property values and taxes it will trigger – is critical to the public interest in the full rebuilding of the site, as much as the specific economic benefits to the Port Authority.
All the trends point to unprecedented commercial leasing success in Lower Manhattan:
Today, Downtown is one of the top places
in the United States to live, work, shop and visit:
In 2017, when 3 World Trade Center opens,
the neighborhood will have fulfilled its potential:
New York City needs new office buildings:
Our City’s stock of office buildings aging fast – the average age of a Manhattan office building is 72 years. We need new buildings to protect New York’s ability to compete for top-tier jobs.