Waiting to see what develops downtown

Posted On Friday, 26 July 2002 02:00 Published by
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Insurers have cast Larry Silverstein as a villain but the owner of the World Trade Center site tells Holly Yeager and Adrian Michaels he wants what is best for New Yor
Larry Silverstein is in the midst of a multi-billion-dollar battle with his insurers over their cover for the World Trade Center.

He is also in the middle of an intense public debate about what should be built where the twin towers once stood.

But the property magnate is already at work replacing one of the office towers destroyed by the September 11 terrorist attacks.

Standing in his Fifth Avenue office, Mr Silverstein is eager to review plans for Seven World Trade Center, the 47-storey building that crumbled to the ground a few hours after the twin towers fell.

The structure, which Mr Silverstein expects to see completed late in 2005, will be 52 storeys tall, he says, pointing to plans that have been tacked to the wall.

The old building disrupted lower Manhattan?s grid system, stopping traffic along Greenwich Street - something Mr Silverstein says the public would like to see changed.

He has done just that in the designs but restricting construction to one side of the street has cut the amount of space on which he will be able to collect rent.

The office space will amount to 1.6m sq ft, down from 2m. ''The ramifications are very significant,'' says the 71-year-old executive.

For Mr Silverstein, who took over the lease for the twin towers just a year ago, the decision to rebuild the nearby building quickly, but at a reduced size, marks an important element of a careful public relations strategy.

As he pursues a complicated series of negotiations with insurers and government officials, while facing a public that expects to play a role in shaping the reconstruction of lower Manhattan, he is eager to show a willingness to compromise.

Mr Silverstein says he wants to restore all 10m sq ft of floor space he previously controlled at the twin towers. But he acknowledges growing public concern that plans for the site are overly commercial. ''In the end, we?ll do what is best for New York,'' he says.

Mr Silverstein is a powerful force in the New York property market. He got his start 50 years ago and made his mark by buying run-down offices in prime locations across the city and renovating them.

Silverstein Properties, his property company, owns, manages and has developed more than 20m sq ft of office, residential and retail space, primarily in downtown Manhattan and along Fifth Avenue in midtown. Two of his three children work for the firm.

Mr Silverstein describes himself as a ''dedicated New Yorker'' and, as he battles against his insurers over the trade centre attack, has lost no opportunity to wrap himself in the flag, implying that the insurers are impediments to what is best for America.

He is seeking to double the insurers' liabilities to more than 7bn (£4.5bn), arguing that because the two aircraft were each flown into a separate building, he can make two claims and recover twice his 3.55bn cover.

Swiss Re has the largest liability in a consortium of more than 20 insurers, which are all suing to cap their losses. Mr Silverstein has already settled with two Bermudan insurers. The fight over insurance, unsurprisingly given the amount of money involved, has been ugly.

The insurers have cast Mr Silverstein as a greedy villain, standing in the way of speedy redevelopment. ''Swiss Re believes that Silverstein should abandon his overreaching efforts in the interest of letting New York and the Port Authority go about the business of rebuilding lower Manhattan,'' Jacques Dubois, head of Swiss Re in America, said recently.

Mr Silverstein?s lawyers believe their insurance argument is made by a 1959 case - Arthur Johnson Corporation vs Indemnity Insurance - in which a rainstorm caused the collapse of separate walls of separate buildings. An appeals court ruled that the rain was not the catastrophe but rather the collapse of the walls and two claims were agreed.

The trade centre argument could have been settled easily had there been an insurance policy in place on September 11. But, not unusually for commercial property, details of the cover were still being finalised.

Swiss Re, for its part, has insisted September 11 was one insurable event. ''Silverstein must accept the fact that, aided by his own sophisticated and experienced internal and external advisers, he intentionally and willingly underinsured the World Trade Center against the possibility of a total loss,'' Mr Dubois has said.

Mr Silverstein?s company has accused Swiss Re of a ''shameless attempt to mischaracterise and distort what?s really going on''. And his lawyer, Herb Wachtel, says Swiss Re has not been interested in negotiating over a schedule for possible pay-outs.
 
A judge has set an August 8 deadline for the insurers and Mr Silverstein to present a settlement proposal. If that fails, there will be a jury trial.

A decision by Mr Silverstein to develop less than the 10m sq ft of office space in lower Manhattan he previously controlled would affect the dynamics of the insurance dispute, a fact that is undoubtedly complicating negotiations.

Mr Wachtel says settlement talks with Swiss Re will be affected, a hint that, behind the nasty public rhetoric, a deal may be agreed. ''The drivers are what is realistically needed for rebuilding and an assessment of how strong the legal case is,'' Mr Wachtel says.

Mr Silverstein is passionate about the need to rebuild the 16-acre site and has enlisted powerful support from George Pataki, governor of New York state, and Charles Schumer, who represents New York in the US Senate. ''There will be a need for this space,'' the developer says.

''If we don?t build it, New Jersey and others will.''

While some have questioned the need to build offices while the city has a glut of space and there is no speculative construction, Mr Silverstein says he is confident the space will be used.

New York has a stock of 350m sq ft of office space and has traditionally absorbed 10m sq ft of new space per year, he says. ''All we?re doing is rebuilding what was there.''

Mr Silverstein says he plans to restore his 10m sq ft to the city over about a decade, with the first of these buildings to open at the end of 2007.

The public has reacted coolly to early site proposals from the Lower Manhattan Development Corporation, the city-state agency charged with overseeing reconstruction. Some critics have complained that designs for the site have been limited by Mr Silverstein?s intention to restore all his space - a right he holds under the terms of his lease.

But Mr Silverstein says it would be possible to build 10m sq feet while accomplishing several public priorities, including creating a transport hub, restoring the street grid throughout the neighbourhood, adding cultural institutions and establishing a memorial to the 2,800 people who died in the attacks.

Several family members of victims of the attacks have called for the ''footprints'' of the towers to be left as open space. While Mr Silverstein says he opposes commercial building over the footprints, he does not rule out constructing a museum and other civic institutions there.

He recalls that the stark twin towers - designed in the 1960s - were not well received when they were built. ''This time around, we can do a vastly superior job.''

Financial Times


Publisher: Financial Times
Source: Financial Times

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