By Charles V. Bagli New York Times
The construction site at 3 World Trade Center, a $2.3 billion tower, for which Larry A. Silverstein, a developer, is seeking funding. Chester Higgins Jr., The New York Times
One World Trade Center, the nation’s tallest skyscraper, is nearing completion, as is a $4 billion transit hub and the September 11 museum. The memorial park is finished and a second office tower, built by the developer Larry A. Silverstein, is open, if not occupied.
But the 11-member board of the Port Authority of New York and New Jersey is sharply divided over whether to double the level of subsidies and support for another Silverstein building, a long-stalled $2.3 billion office tower, at the 16-acre site.
The dispute, which pits one appointee of Gov. Andrew M. Cuomo against another, will come up for a vote Wednesday. This is only the latest fracas involving money, the future of the downtown district, the level of public investments and the symbolic value of closing some of the wounds opened by the terrorist attack.Proponents, led by Mr. Silverstein and Scott H. Rechler, the authority’s vice chairman, contend that the tower, 3 World Trade Center, would essentially mark the completion of the new trade center and spur the continuing transformation of Lower Manhattan into a vibrant, 24-hour commercial and residential district no longer reliant on the financial industry.
Critics argue that it makes no sense to subsidize another downtown office tower with plenty of vacant space that would compete for tenants with other nearby buildings and the Port Authority’s own, half-empty tower at 1 World Trade Center, one of the world’s most expensive skyscrapers.
Kenneth Lipper, a Port Authority commissioner and an investment banker, said that Mr. Rechler’s proposal to guarantee up to $1.2 billion in construction loans for Mr. Silverstein could hurt the authority’s credit rating and even its budget, which is partly reliant on bridge and tunnel tolls.
“The idea of giving a $1.2 billion subsidy to a private developer at a time when the market downtown is in a state of glut defies the public interest and the economic interest,” said Mr. Lipper, a former New York City deputy mayor. “It would turn a patriotic gesture into a vanity project. And it could jeopardize our mission, which is to improve the transportation system in the region.”
Rebuilding the trade center and Lower Manhattan has been an enormous undertaking, with $20 billion alone coming from the federal government. The Port Authority, a bistate agency focused on transportation, has also invested billions.
Leaving aside the memorial, the transit hub and the cultural center, officials sought from the beginning to avoid the mistakes of the original World Trade Center, which opened 10 million square feet of office space during a weak market in the 1970s. Unable to lure corporate tenants, officials had to stock the towers for more than a decade with government agencies.
Only weeks before the complex was destroyed in 2001, Mr. Silverstein had signed a deal valued at $3.2 billion to lease the entire complex for 99 years.
After the attacks, he steadfastly insisted that he was the best person to rebuild ground zero and led a lengthy legal fight to recover $4.5 billion in insurance proceeds.
But his penchant for endless negotiations often left him at odds with city, state and Port Authority officials. In 2006, he surrendered control of what is now known as 1 World Trade Center and more than one-third of the site. But he retained the right to build three office towers.
“He’s playing with the house’s money and, nothing wrong with that, but let’s not feel too bad here,” Mayor Michael R. Bloomberg said at the time, referring to the fact that Mr. Silverstein had little of his own money at stake.
Another long deadlock ended in 2010 when the Port Authority agreed to provide about $1 billion in financing, along with insurance money and tax breaks, for his first office tower, 4 World Trade Center, which was completed last November.
But officials wanted the developer to invest more of his own money and to avoid building empty towers.
Under the agreement, the authority, the city and the state agreed to provide Mr. Silverstein with up to $600 million in assistance for 3 World Trade Center if he secured a tenant for at least 400,000 of the 2.5-million-square-foot tower and raised $300 million in cash.
If he failed to meet those conditions, he was to cap the building at about seven stories, until he found a large tenant and private financing. His third tower would wait until there was enough demand to justify construction.
Port Authority commissioners are now at odds over whether to renegotiate the deal with Mr. Silverstein, again.
In late December, Mr. Silverstein met one of the conditions of the current deal. GroupM, an advertising company, agreed to lease 516,000 square feet, or roughly one-fifth of the 72-story tower.
Although rents downtown are generally 20 to 30 percent cheaper than in Midtown, GroupM qualified for special tax breaks at the trade center worth about $75 million. In addition, state and city officials agreed to give GroupM $15 million.
But Mr. Silverstein could not obtain financing for the project. Lenders today usually want 50 percent of the building leased before they are willing to lend money.
Eager to get the building up, Mr. Rechler, the authority’s vice chairman, crafted a proposal with the developers’ advisers at Goldman Sachs: The Port Authority would guarantee a $1.2 billion construction loan — half the cost of the building, and double the previous commitment — for Mr. Silverstein. That essentially promises Mr. Silverstein’s lenders that the authority would pay the loan if he could not. The developer would also have the use of $1.3 billion in tax-exempt bonds, which can be attractive to investors.
In return, Mr. Silverstein would have to put up about $450 million in cash and, unlike the old deal, pay interest and fees to the authority, which would also have to right to foreclose if Mr. Silverstein defaulted on his payments for the $1.2 billion loan.
Mr. Rechler, the chairman of RXR Realty, told commissioners that his proposed deal put the Port Authority in a better financial position. After he develops 3 World Trade Center, Mr. Silverstein will begin paying rent to the authority on the land underneath it, and another developer will be able to compete for the retail elements of the project. It will not, Mr. Rechler said, affect the authority’s budgets.
“We need to build it out,” Mr. Rechler said. “There’s a tenant that would enhance the transformation of Lower Manhattan beyond the financial sector. To let it go would stunt the momentum.”
But Mr. Silverstein’s second tower would be competing for tenants with the authority’s own $3 billion tower, where there is over 1.5 million square feet available, as well as 1 million square feet at the developer’s first tower, 1.5 million square feet at Chase Manhattan Plaza and 2 million square feet at nearby Brookfield Place. The authority has not been able to find a large tenant since 2011, when it signed a lease with Condé Nast Publications.
Mr. Lipper and several other commissioners opposed to the new guarantee say they, too, want to see 3 World Trade Center completed. “It’s not a question of whether to build it,” Mr. Lipper said. “We’re only talking about timing and who’s going to pay for it, the public or the private sector. I want to finance it consistent with our mission, regional transportation.”
