Silverstein wins 99-year WTC net-lease.

After months of negotiations that came down to the wire, Silverstein Properties Inc. and Westfield America Inc. reached a $3.21 billion agreement on a long-term lease for the 110-story World Trade Center.

"This is a dream come true," said Larry Silverstein. "We will be in control of a prized asset. There is nothing like it in the world."

The 99-year lease deal, struck late last week with the Port Authority of New York and New Jersey, is being called the largest real estate transaction in New York City's history. The net lease covers four buildings at the 10.6 million SF complex, including the twin towers and the retail mall. Westfield, which owns several shopping centers, will handle 427,448 SF of retail space under the agreement.

The agreement ends months of speculating over the fate of the world-famous property, including a failed attempt by the Port Authority to reach an agreement with Vornado Realty Trust and reports that negotiations with Silverstein were on the verge of collapsing. It also ends a three-year effort by the Gov. George Pataki and the Port Authority to put the World Trade Center into private hands. With a net lease, the agency can get out of the real estate business but still maintain the revenue stream from the building.

"This is the largest real estate transaction in New York City and one of the largest privatizations ever of a government asset," Pataki said. "This agreement al lows the private sector to bring its expertise to managing this landmark, and it frees the Port Authority re sources for improvements in airports, tunnels and bridges."

A group led by Silverstein reportedly worked 24 hours straight to hammer out details of the 1,000-page agreement. Silverstein and his partners signed over a $100 million letter of credit, the first installment of a $616 million down payment. GMAC Commercial Mortgage Corp. is reportedly providing an $800 million loan to Silverstein and his partners.

The Port Authority had originally wanted an $800 million down payment but reduced the amount in exchange for slightly higher annual rent payments. Silverstein and Westfield are scheduled to close the deal in July, though they have the option of pushing out the closing another 30 days.

Silverstein and Westfield will make annual rent payments to the Port Authority and reportedly spend $200 million on capital improvements. The amount of the rent payments was not disclosed although Port Authority real estate director Cherrie Nanninga has said they are more than "nine figures per year."

With the agreement, Silverstein will add the twin towers at One and Two World Trade Center and two 9-story office buildings at Four and Five World Trade Center to its 5.5 million SF portfolio, which currently includes Seven World Trade Center.

One detail that has not yet been resolved pertains to taxes. Last year, the World Trade Center paid $29 million in payments in lieu of taxes under a long-time agreement between the city and the Port Authority. Mayor Rudolph Giuliani has insisted, however, that the new owners must pay full property taxes for the property, equal to about $100 million per year.

The Port Authority currently occupies 900,000 SF of the complex but will reduce occupancy to about 720,000 SF. Silverstein said rents under old leases are between $30 to $33 per SF -- about 20 percent below market. About 300,000 SF are vacant, he said.

"During the last decade, the Port Authority has vastly increased the value of this public asset through effective management and by emphasizing service to tenants," said Port Authority executive director Neil Levin. "Occupancy, at about 97 percent, is at an historic high. Asking rents for offices and retail shops have doubled in the last five years."

The World Trade Center was built more than 30 years ago as a way to stimulate economic development downtown. When it opened its doors in 1970, many called it a white elephant. In the years that followed, the World Trade Center developed an international reputation and is now viewed as a cultural icon. In recent years occupancy and revenues have soared, with many forecasting a rosy future for the complex. More than 430 companies from 28 countries lease space in the complex. An estimated 40,000 people work in the World Trade Center, and another 140,000 visit the complex daily.

In 1998, New York and New Jersey agreed to put the building on the auction block hoping to attract bids of $1.5 billion or more. More than 30 bidders vied for the complex, with the list being narrowed to three -- Vornado Realty Trust, which bid $3.25 billion, Silverstein and Westfield, which bid $3.22 billion, and a joint venture of Brookfield Financial Properties and Boston Properties, which bid $3.1 billion.

"It's extraordinary in every sense and we will seek to develop its potential, raising it to new and greater heights," Silverstein said.