Commercial developers clamor to cash in as clock ticks on city's Liberty Bonds.

Allocated for both residential and commercial development after 9/11, tax exempt Liberty Bonds have only recently caught fire in the commercial sector.

While the $1.6 billion of Liberty Bonds allotted for residential development was quickly snatched up--before any of the commercial portion was even touched--Liberty Bonds dedicated for commercial projects, which enjoyed a much more sizable $6.4 billion apportion, have lagged.

Only now, when the bonds' December sunset is fast approaching, have enough projects accumulated to make a dent in the vast tax-free financing opportunity.

Among the most prominent projects utilizing the bonds are Goldman Sachs' $1.8 billion headquarters at Site 26 in the Downtown, the first new headquarters building in Lower Manhattan in 16 years. Larry Silverstein plans to harness them for his $1.5 billion Freedom Tower. 7 World Trade Center will receive $400 million in Liberty Bonds, which in combination with $796 million in insurance proceeds from the original tower's collapse, is just enough to meet the project's $1.2 billion price tag.

But not all Liberty Bond projects are located in the Liberty Zone, the area in Lower Manhattan where the city and state hoped to encourage revitalization after the devastation wreaked by 9/11.

The $1 billion Bank of America Tower at One Bryant Park, which broke ground in early August, has been granted $400 million in Liberty Bonds and was a key project in broadening the geographic boundaries in which the bonds can be utilized. There have been further proposals to use Liberty Bonds in Brooklyn and Queens.

Expansion of where Liberty Bond projects can be built seemed necessary to finding a home for the bonds and also for encouraging citywide development, both of which are indicative according to financial experts of a more fundamental problem: a still sputtering economy. Even the bonds' sizable 30% savings in interest on the financing for a project hasn't been enough to entice rampant development, no matter the location.

"Lower Manhattan is in a down cycle right now," said Richard Bassuk, president of Singer & Bassuk, one of the city's largest intermediaries and a major player in securing Liberty Bond financing for numerous residential development projects. "You're not going to put up a new office building while there's not a lot of job creation and demand for new space."

But according to Bassuk, outside of the program's original vision, projects like the Bank of America Tower have a trickledown effect in line with the bonds' spirit of revitalization of jobs and the economy," he said. "And the Bank of America Tower will certainly do that. That's the way it's Midtown location was justified. Anytime you have substantial new construction and job creation, there is a fallout of benefit to entire city."

A hiccupping economy and recent see-sawing job reports, as well as slowly climbing interest rates aren't the only thing stymieing development and, consequently, use of Liberty Bonds.

Robert Dailey, managing director in the public finance group at JP Morgan, offered a far more innocuous explanation for Liberty Bonds' slow start and why they are finally being snatched up almost three years after originally being issued.

"My sense of it is that it takes a long time to line up these kinds of big commercial projects," he said. "That's what took a long time for this thing to get going. The development process is a long-term process and to qualify for Liberty Bonds is rigorous. You can't just go to the city and say that you have a plan for a project. The project basically has to be ready to go to get approval for these bonds."

Because more projects important to the city's revitalization are emerging and a portion of the original $6.4 billion allocation remains, Liberty Bonds may be extended for another five years. Currently a bill is floating in both the House of Representatives and Senate for the extension and according Dailey, many in financial industry expect the measure to be approved.

Not every project that has qualified for Liberty Bonds has been in the billion-dollar range. The tax-free bonds have made possible some far smaller but more colorful developments that the city and state feel deserve merit for their cultural contribution. Such projects include the National Sports Museum, which will be constructed in 26 Broadway in lower Manhattan and also a $38 million 83-room luxury hotel in Tribeca, which will be built by actor and restaurateur Robert DeNiro.

"Liberty Bonds are what made the National Sports Museum possible," said Philip Schwalb, National Sports Museum founder and CEO.

"Robert De Niro and Philip Schwalb are unique," Dailey said. "But I'm assuming that there's going to be other projects looking to add to the culture of New York that are going to be seeking Liberty Bond financing down the road."