Developer Larry Silverstein is on the lookout for roughly $1.2bn in financing to complete 3 World Trade Center now that an agreement brings new life to the stalled tower.
After months of negotiations, Silverstein and The Port Authority of New York and New Jersey reached an agreement this week that immediately frees up $159m in insurance proceeds to resume construction on the tower, which is located within the new World Trade Center complex in downtown Manhattan.
“[The agreement] permits us to immediately jumpstart vertical construction, employ 3,000 construction workers and stay on target for an early 2018 completion,” Silverstein said in a statement.
Tweaks to an existing 2010 agreement allow Silverstein to use the $159m of remaining cash from a $4.6bn insurance payout from the 9/11 attacks, and $50m of that can be used immediately to resume construction on the tower – which stalled at around eight (of 80) stories in the face of slow leasing.
But because the new agreement does not include a $1.2bn PA loan guarantee Silverstein had pushed for, he seeks to raise $300m in mezzanine debt and/or private equity and $1.2bn to $1.3bn of senior fixed-rate bonds.
“We remain confident that we will nail down a construction financing package that will allow us to complete the project,” he said.
Silverstein Properties CEO Martin Burger will lead the search for financing. He could seek an equity partner, pension fund, or perhaps look to the reinsurance market to execute the backstop the PA has refused to grant, sources said.
Silverstein was originally unable to secure the financing through the private markets and sought to restructure the 2010 agreement and add to it the PA’s support through the loan guarantee that would have backed the $2.3bn project, offering certain concessions in return.
After months of behind-the-scenes wrangling a raucous public debate began to unfold at the PA in April as Silverstein pushed ahead with his request for the guarantee. Critics within the PA cited slow leasing at the tower as cause for concern, noting that the risky guarantee would threaten the agency’s credit rating and was best left to the private sector, leading to its ultimate exclusion.
Sources said that Silverstein may need to solidify financing in relatively short order if he intends on keeping the stalled site’s anchor tenant, GroupM, on board. The advertising company agreed to lease about 515,000 square feet of the building in December at a cost of more than $75 per square foot, but it reportedly has a June 30 opt-out clause built into its lease.
Because the building is just 20 percent preleased, and with even that uncertain, it could make it harder to obtain a favorable interest rate; but the rebirth of downtown, upticks in leasing and greater commitments at the other Trade Center towers are creating “a cautious optimism that the private sector can support this,” a source familiar with the dealing said.
The modified agreement ensures the Port Authority more than $300 million in World Trade Center site revenue, and $14m in cost savings from a Silverstein concession, through which he will take back two floors from the PA’s lease at neighboring 4 World Trade Center.
The agreement approved by the Board of Commissioners “minimizes the Port Authority’s financial risk and increases private sector participation in the World Trade Center site,” said PA executive director Pat Foye, in a statement released after the agreement was made. “The modified financial agreement is consistent with the objective we have had over the last two years to ensure financial discipline and improve the Port Authority’s financial standing.”
Silverstein signed a 99-year lease for the original twin towers just weeks before they were destroyed. He is the developer for 2, 3 and 4 World Trade Center, while the PA developed 1 World Trade Center and has the rights to develop 5 WTC.