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Why Larry Silverstein can’t get it up

Posted in the database on Tuesday, March 21st, 2006 @ 18:46:55 MST (3979 views)
by Jerry Mazza    Online Journal  

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No, it’s not a job for Viagra, trust me. But some good fresh investors would help. Governor Pataki and Mayor Bloomberg have told Silverstein to get up the $2.3 billion Freedom Tower, at least make a start, by next month or “move out of the way.”

This means Silverstein, who holds the lease for the World Trade Center site, would have to turn over control of building the new tower and a second building to the Port Authority of New York and New Jersey, the site’s owners. After all, it’s been more than four years and Larry hasn’t gotten it up. Que pasa?

On the other hand, he’s gotten up his new Tower 7, to replace the old one he had actually owned. But this T 7 is bigger and better than ever, 52 floors not 47. You know, sometimes you just have to be in the mood.

Larry actually ordered his original Tower 7 “pulled” seven hours after Towers 1and 2 came down. He claimed there was so much fire damage in this redundant, steel-framed 47-floor building that before it fell and caused any more pain, he would “pull it.” And so it was done.

The trouble is you don’t just “pull it.” It takes weeks to rig a building with charges and heavy explosives at all the vital structural points. Then, you can “pull it” and POW! It’ll come down in 10 seconds, just like the redundant steel-framed Towers 1 and 2, and at the speed of gravity, into a neat footprint of its free-fall.

Tower 7 also left molten steel and somewhat evaporated steel members, although the fire was nothing compared to Towers 1 and 2. Maybe it wasn’t fire that melted them, but high power explosives. Ya never know, as we say in New York.

Also Tower 7 happened to house the Secret Service’s largest field office, over 200 employees and as Michael Ruppert suggests some of the devices that guided the liners into the buildings. 7 also housed the IRS, the SEC (with thousands of Wall Street scam case files in it), the FBI, CIA, and Rudy Giuliani’s Control Center. They were evacuated for the most part.

Tower 7 did take with it oft-stymied Osama hunter John O’Neill, the ex-Terror Head who quit the FBI after 30 yeas in disgust. He was the same John O’Neil just appointed head of WTC security. Aren’t these amazing coincidences, one right after another, like cutter charges, boom boom boom boom boom, as the firemen described occurring in Towers 1 and 2, along with two huge explosions each, one from the basement, and one from the top of each tower?

But I digress. Lucky Larry and the Silverstein Group leased the WTC from the PA for $3.2 billion for 99 years, a sweetheart deal if ever. They also had the prescience to ramp the insurance to $3.55 billion just weeks before 9/11, including coverage for terror attacks. After the catastrophe, Silverstein’s lawyers had the bright idea to ask for $7.1 billion, saying the two hits (within minutes of each other) constituted two separate acts. What beauties.

In fact, Larry was joyful at the thought of rebuilding under these terms. That was his thing. And he would get the WTC up bigger and better than ever, with a $9 billion tab.

Trouble In Silverstein City

Where things start to come apart for Larry-boy is with those pesky insurance companies, who barely like to pay what they owe you, let alone what you’re padding. After two years of Larry’s Silverstein group haggling in court with multiple insurers, spending a million bucks on lawyers, the judge turned and said, sorry fellas, it was one hit, you get 3.5 billion, period. Now, get outa here!

Some $700 million got cut off the top for one of Larry’s lenders, GMAC, the retail leaseholder. Then there’s a $125 million rent tab coming up from the Port of Authority in July. And money was spent on cleaning things up plus infrastructure costs. Net net, he’s left with some $2.9 billion, maybe even less, who knows for sure. I mean, poor baby, he’s not hurting like all those people who lost their jobs or worse lost their lives, but he’s gotta get it up, $2.3 billion and the Freedom Tower. And people are saying he doesn’t have the jack.

Also, the Port of Authority would like a chunk of the insurance money. So Larry is scrambling to put things together. He sounds like an angst-ridden Woody Allen in a double-breasted suit, with a slicked-back parted haircut. Yet inside, the guy’s pure steel, like one of the Towers.

When he finally had a deal with the Port of Authority, he threw a set of new demands on the table that scuttled the bargaining. Larry assumed he had Pataki “over a barrel” because he holds the lease. But George, like his namesake, is an ambitious man with his eye on the White House. He doesn’t want to leave a mess behind in New York. Negotiations stopped. It’s get it up or get out.

The Dark Past of the World Trade Center

An equally dark history shadows the old World Trade Center. In a brilliant article “The Process of Creating a Ruin,” from Business Week, there’s an excerpt from Eric Darton’s book Divided We Stand. The excerpt is called, “What the Twin Trade Towers Stood For.” In it, Darton describes the difficulties of the World Trade Center after the first bombing in 1993, a story in and of itself. In fact, I’ve always been amazed that the immense blast happened at 12:18 local time in the Secret Service's section of the car park under New York's tallest. That aside, Darton says . . .

“From an economic standpoint, the trade center -- subsidized since its inception -- has never functioned, nor was it intended to function, unprotected in the rough-and-tumble real estate marketplace. And in the thirty years since it was built, the social forces of which it remains so highly visible an artifact have definitively realigned.”

Darton goes on to say that the WTC in 1993 at 20 years old had really just begun cranking out enough income to meet the ongoing losses the Port of Authority incurred to run the PATH commuter line. WTC office space had topped out price-wise. A new generation of cyber-smart buildings, with bigger built-in electrical capacity, had quietly surpassed it.

Also, with the bombing came a $700 million hit for repairs. But the Port Authority, unlike a commercial landlord, did have a $2.6 billion annual budget and the right to generate cash through bonds, tolls, fares, and airport tariffs. The PA could afford to rebuild the WTC and do needed renovations. But then there’s another assault on the institution’s integrity. Darton points out that, in the 1990s, “Privatization emerged as one of the key political strategies of the early Pataki, Whitman, and Giuliani administrations as they faced widening budget gaps, shrinking federal assistance, and reduced local tax revenues.

”Imitating their corporate counterparts, they embraced the belief that governmental functions should be reduced to a series of inexorable bottom lines. This new standard became the basis for a sweeping reevaluation of public agencies. They would be judged not by their objective performance level or their contribution to the public good but according to whether their disassembled parts might profitably be sold, merged, or eliminated.

“Discussing the disposition of the Port Authority's bus terminal, Charles Gargano, Governor Pataki's appointee to the PA's vice chairmanship and the head of New York State's economic development agency, put the issue succinctly when he asked, 'Why not let private industry in to develop what is clearly an extremely valuable property?'"

So it’s the wolf howl of the free marketer, privatization. Where have I heard that before? Don’t analyze, criticize, amortize, socialize -- just privatize! It’s like the privatization model Darton describes as designed for the District of Columbia, referring to residents and visitors as “customers,” and government duties split into “wholesale” and “retail” categories.

It’s like that senior editor writing in the 1998 Wall Street Journal who urged the Republican Party to “view itself very much like, let’s say, a corporation, A Daimler-Benz, A Chrysler . . . to change its corporate culture [and] go through a wrenching transformation, because the cars are coming back from the lot unsold.”

In short, the World Trade Center was now a piece of meat on the free market selling block.

And the Port of Authority stopped being a public institution designed to meet the New York region’s socio-economic needs. The PA turns into an amalgam of assets to be cut up according to market’s appetites. “Capturing” the maximum value of each piece is based simply on “dismembering the whole.” Badaboom! I can hear them now.

WTC Needed Repair in 2001

Larry Silverstein and friends knew all this. Especially that the Towers needed some $200 million in renovations and improvements, mostly related to removal and/or replacement of building materials declared health hazards since the Towers were built. WTC was labeled an “asbestos bombshell.”

In fact, the Port Authority thought of WTC as a dinosaur, trying several times to get permits to demolish the buildings for liability reasons. The PA was turned down. The asbestos problem was no secret. The sole reason the complex was still up till 9/11 was the cost of taking the Twin Towers down floor by floor. Especially since the PA was prohibited by law from demolishing the buildings. Got that? Demolishing prohibited by law but doable by an act of god or godlessness.

Other developers had gone broke by the mandated renovations. Two hundred million dollars were an entire year’s revenue from the Trade Towers. So the 9/11 collapse of the Twin Towers was the final solution, so to speak.

The November 22, 2003, New York Times reported that under a pending agreement a developer and his investors will get back most of the down payment that they made to lease the World Trade Center just six weeks before a terrorist attack destroyed the twin towers. Developer Larry Silverstein and investors Lloyd Goldman and Joseph Cayre are nearing a deal that would give them about $98 million of their original investment of $125 million. That's a helluva refund.

September 11 reduced renovation to Ground Zero. So now Silverstein could rebuild funded by insurance coverage that miraculously covered acts of terrorism. Filing two claims was the capper.

But, as the CIA would say, there was a little blowback. Larry only got back the one-hit payola, with a lot of expenses, though still considerable profit, but obviously leaving a shortfall for the $2.3 billion tower, not to mention the $9 billion complex. But hey, that’s privatization for you, the old unseen hand scraping the skin off somebody’s back for a buck, in this case Larry’s. It’s no wonder he can’t get it up. He’s got a lot on his mind, not to mention 2,700 lost souls.

Jerry Mazza is a freelance writing and native New Yorker. Reach him at gvmaz@verizon.net.



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