By Daniel Geiger Crain’s NY Business
3 World Trade Center (left) under construction. Photo: Associated Press
Officials at the Port Authority of New York and New Jersey said the bistate agency has abandoned plans to provide a controversial $1.2 billion financial guarantee that would allow a new tower to rise at the World Trade Center site and would pursue a deal to finance the soaring building instead with private funds.
Speaking at a Port subcommittee on Wednesday morning, Scott Rechler, the Port’s vice chairman, said the Port was working with the tower’s developer, Silverstein Properties, to structure a “hybrid” arrangement that would bring the Port’s commitment back inline with an agreement in 2010 in which the agency pledged to provide a $200 million backstop for the new building.
Mr. Rechler did not discuss the details of the revised deal being sought, but suggested a reinsurance firm could take on the risk that the Port was initially contemplating.
“We have had some interest, whether it’s reinsurance or others … some of the largest financial players in the world,” Mr. Rechler said.
Another potential scenario, according to a source, could involve Silverstein raising more equity to invest in the tower beyond the $450 million it has already pledged to reduce the loan it needs to build the $2.4 billion project. In that case, it would also secure a larger portion of the tower’s financing on its own, without the Port’s loan guarantee or with the Port committing to the lesser guarantee.
The Port had been expected to vote on the tower financing at a board meeting Wednesday afternoon, but will now postpone that vote to try to arrange the private-sector deal. Executives at Silverstein Properties have for months said that raising the necessary funds for the new tower privately has been unfeasible at a time when lenders have remained reluctant to provide money for speculative office buildings.
In a statement, Larry Silverstein, the chairman of Silverstein Properties, appeared to express some continued uncertainty whether the private-market deal that Mr. Rechler proposed would be achievable.
“Having agreed to the requests conveyed by Port Authority leadership, we are surprised that the discussions did not yield a successful resolution,” Mr. Silverstein stated. “We remain committed to working with the Port Authority to reach an agreement that accomplishes our shared mission of building 3 WTC.”
But Mr. Rechler said he was confident a financing package could be arranged in time to finish a key leasing deal Silverstein has tentatively struck with the large advertising and media firm GroupM, which has committed to take 515,000 square feet in the new tower, known as 3 World Trade Center.
“I have a very high degree of confidence that we will be able to actually implement a structure, a public private partnership, that achieves our objectives and achieves the objectives of the project [and] that will be funded in time to bring GroupM to lower Manhattan,” Mr. Rechler said.
For months, top Port Authority executives, led by Mr. Rechler and the Port’s executive director Pat Foye, have championed the merits of providing the $1.2 billion loan guarantee, which would put the Port on the hook for that amount if Silverstein Properties defaulted on the tower. Mr. Rechler, who is also a prominent landlord in the city, and Mr. Foye said that such a default would be highly unlikely and that the larger guarantee would allow the Port to collect tens of millions of dollars of rent from the soaring new building much sooner and also allow it to sell the property’s valuable retail space and collect over $130 million.
In recent weeks, Mr. Rechler negotiated a 15% profit share for the Port in the new tower, giving it a cut of the building’s earnings as an added incentive. But opposition on the board, led by Kenneth Lipper, a former Wall Street executive who was appointed to the Port last year by Gov. Andrew Cuomo, has continued to stymie the deal. Mr. Lipper has insisted that Silverstein Properties build the tower on its own and that the Port use its financial capacity not for real estate development but its core mission of transportation infrastructure.
Mr. Rechler has also been flexible, stating that as he tried to make the $1.2 billion guarantee more palatable to the Port’s board, he also worked with Silverstein Properties to try to find a private market solution for the financing.
“We tasked Silverstein to also go out and find some private sector hybrid which would significantly reduce the Port’s exposure and … bring us closer to the 2010 agreement,” Mr. Rechler said.
In April, the Port previously had to table a vote on the financing due to opposition, pinning the hopes of the tower’s proponents on this May vote. If a private sector arranagement can be reached, Port executives say they could immediately call a special vote on the tower deal in the coming days or weeks and still give Silverstein enough time to close out the 515,000-square-foot lease with GroupM, which has the right to cancel the deal after June.
