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Round and round they go at hole in downtown's heart.

When the Port Authority and Silverstein Properties failed to come to an agreement over how to divvy up the World Trade Center site during their first round of talks last March--a dispute they ironed out the next month--Port Authority executives emerged from the discussions fuming that Silverstein's hard bargaining over the various components of the deal's financial structure amounted to nothing more than greed.

From the tone of the officials' complaints, it was hinted that the symbolic importance and moral obligation for rebuilding transcended, in some capacity, the economics of what was slated for development on the site.

"This is not a traditional real estate project. This is a project where thousands of people lost their lives," the BBC quoted the Port Authority's vice chairman, Charles Gargano, as saying at the time. "It is time for Silverstein Properties to temper its individual interests and focus on what's best for New York City."

Having constructed in the weeks prior an in depth report making the somewhat compelling argument that Silverstein Properties, acting alone, did not have the financial wherewithal to rebuild the site, the city joined the Port Authority in chiding Silverstein for negotiating in "bad faith"--a term the public was left to interpret as the act of being more absorbed with dollars and cents and securing concessions than the tremendously important task of filling the bathtub with development.

"In order for Lower Manhattan to continue to grow as one of the world's pre-eminent business centers, it is essential that the World Trade Center site be built out correctly, completely and as quickly as possible," Mayor Bloomberg was quoted as saying in a New York Times article. "It is time for Silverstein Properties to temper its individual interests and focus on what's best for New York City." Yet if the various points that Silverstein was said to have originally negotiated in bad faith became concessions that he agreed to in the deal that he struck roughly a month later with the Port Authority, one can hardly blame him for wanting to sit and nitpick at the negotiating table all night long the first time around.

Silverstein wound up handing over to the Port Authority what amounts to an equity interest in the three towers he has the right to construct on the site. He will continue to pay a stiff lease payment for the land he retained and he allocated to the Port Authority a nearly $1 billion portion of the insurance proceeds he won in court.

These are of no small economic significance and are points that any real estate developer would likely seek to vigorously negotiate.

Given the revelation last week that the Port Authority may not be able to build the Freedom Tower because of problems securing the necessary pre-leases with government tenants, the various city and state officials involved in the rebuilding of Ground Zero might have been wise to have scrutinized the financial structure of the site's development projects as carefully as Silverstein.

After all, the World Trade Center site seems plagued by a consistent theme of disregard for the significance economic factors have on the development of its various planned projects.

The Calatrava Station for instance, while under construction as promised, is anticipated to cost over $2 billion, but has very little commercial space. Retail space, while bringing back to the site a component that has been sorely missed since the WTC mall's demise, could have effectively reduced the station's cost, perhaps allowing more money to be diverted to the memorial--another project for which the costs of construction never seemed to factor prominently into its design.

But now, with the Freedom Tower's potential unraveling, some observers have voiced conjecture that the Port Authority's agreement with Silverstein may unravel also. If the Port Authority can't round up tenants for its own building, how is it supposed to meet its commitment to fill hundreds of thousands of square feet in Silverstein's Towel" 4? And if it can't fill Silverstein's space, shouldn't Silverstein be granted some kind of other concession in return? Such changes could upset the delicate balance of concessions between the parties, for which there isn't even a binding contract. Because. as David Dyssegaard Kallick, a senior fellow at the Fiscal Policy Institute, pointed out, the agreement between Silverstein Properties and the Port Authority really isn't anything more than an agreement to agree.

"When September comes around, either Silverstein or the Port Authority could just back out of this deal," Kallick said. "There is no formal deal here that compels them to stick with the terms of what they agreed to."

2006 seemed like it could be a turning point for the World Trade Center site. Instead, it threatens to be just another frustrating chapter in its ongoing stagnancy.
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Author:Geiger, Daniel
Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Jun 21, 2006
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