By: Daniel Geiger | Crain's New York Business
The Port Authority of New York and New Jersey's board unanimously approved a plan to help finance the construction of 3 World Trade Center by tapping $159 million in insurance proceeds from the Sept. 11 attacks.
The Port Authority's executive director, Pat Foye, the agency's top New York staff member, said the money would allow construction on the 80-story, 2.5 million-square-foot tower to proceed as the building's developer, Silverstein Properties, raises the remaining $1.2 billion necessary to build the over $2 billion spire.
Mr. Foye said that Silverstein Properties would be able to borrow the $1.2 billion through the municipal bond market. He revealed that Goldman Sachs and J.P. Morgan Chase, which are acting as advisers to Silverstein Properties, had expressed confidence that such a debt offering for the tower would be successful. Mr. Foye's statements were the most optimistic yet that funding for 3 World Trade Center's costly construction could be secured privately after the Port Authority declined to use its balance sheet to back the building a little over a month ago.
"The municipal bond markets have improved," Mr. Foye said. "These improved conditions set the backdrop... [and] will allow them to move forward with the private financing."
Mr. Foye also said that interest has picked up in real estate investment in lower Manhattan as the leasing market there has improved.
"Leasing activity in May was more than double the five-year monthly average," Mr. Foye said.
Silverstein Properties will now try to borrow the money for the tower by issuing Liberty Bonds. Those bonds will potentially allow Silverstein Properties a lower borrowing cost because they offer tax-free proceeds to the investors who buy them—and who can therefore accept a lower interest rate.
The $159 million is part of $4.5 billion of insurance money that was collected by Silverstein Properties as compensation for the 9/11 terrorist attacks that destroyed the World Trade Center site. The $159 million originally had been slated for the construction of 2 World Trade Center, an as-yet unbuilt tower at the site.
They were transferred to 3 World Trade Center as part of a 2010 agreement between Silverstein Properties and the Port Authority, and were to be used as contingency funds for cost overruns on the construction of the tower.
Mr. Foye however said that the risk for cost overruns had largely passed since the building's trickiest sections—its below-grade space and its lower, above-ground floors—have already been completed on budget.
The release of the $159 million requires Silverstein Properties to use $80 million of a $390 million package of guarantees from the Port Authority, the city and the state that was arranged in 2010 to now be used to cover overruns at the site. Fully $50 million of the $159 million will be released immediately, while the remaining $109 million will be given to Silverstein Properties once it successfully raises the municipal financing.
Getting the tower up sooner will benefit the Port Authority by accelerating the rental payments that Silverstein Properties must pay at the site and also allow the Port Authority to sell the building's valuable retail space for $230 million to Westfield, the real estate operator that bought the World Trade Center site's retail space for, paying over $1 billion.
Though the $159 million will only allow construction to continue temporarily without the bigger municipal funding package, it is being treated by both Silverstein Properties and the Port Authority as a way to demonstrate progress to GroupM, the media company that has agreed to become the tower's anchor tenant by leasing 515,000 square feet. GroupM has the right to cancel its lease beginning in July, but is expected to remain committed to the lease if it appears that a financing package for the building can be put together.
"We remain confident that we will nail down a construction financing package that will allow us to complete the project and create an ideal environment for GroupM employees, and other dynamic, creative companies who are making their home at the new World Trade Center," Larry Silverstein, the chairman of Silverstein Properties, said in a statement.