Date: Fri, 27 Feb 2004 16:00:43 -0500 (EST) From: Louis Epstein Subject: WTC Rebuilding #288:Deutsche Deal,Silverstein Fund Trouble,Etc The New York Times today is reporting that a deal has in fact been reached to buy the site of the Deutsche Bank (ex Bankers Trust) building at 130 Liberty Street,as desired by the planners who want to put the least of Libeskind's stunted-slant-top skyscrapers there. Better news perhaps is this Wall Street Journal article indicating the funds to build the Libeskind plan just aren't there: ---------- Forwarded message ---------- Subject: From today's Wall Street Journal Before Ground Zero Rebuilding, $1.3 Billion Has Already Been Spent By DEAN STARKMAN and ALEX FRANGOS Staff Reporters of THE WALL STREET JOURNAL NEW YORK -- About $1.3 billion in insurance money to cover the destruction of the World Trade Center has already been spent, even before major reconstruction has begun, and the main beneficiaries are lawyers, lenders and real-estate developers. Among the notable payouts, according to court documents and people familiar with the situation: the Port Authority of New York and New Jersey, which owns the 16-acre site, has quietly agreed to return all of the $125 million in equity that New York developer Larry Silverstein and his low-profile group of backers originally invested to buy the 99-year leases on the office portion of the complex in July 2001. The full details of that transaction, which closed in December, haven't been released to the public. But the deal effectively eliminates the Silverstein group's capital risk in the project, while allowing the group to retain control of 10 million square feet of office space, the people said. Another $100 million has gone to Wachtell, Lipton, Rosen & Katz, the New York law firm that has billed at a rate of about $4 million a month to press Mr. Silverstein's and the Port Authority's case against Swiss Reinsurance Co. and a dozen other insurers, the people said. Lawyers for Wachtell didn't return telephone calls seeking comment. Most of the world-wide attention on the project has focused on architecture, especially the competitions that selected Studio Daniel Libeskind's master plan for the site in February 2003, and Michael Arad's twin reflecting pools memorial last month. But just how the insurance proceeds are divvied up will have a profound effect on the size and scope of commercial space that ultimately rises at Ground Zero. DWINDLING POT Depending on the World Trade Center insurance trial outcome, insurers will provide $3.55 billion to $6.6 billion to help rebuild the 16-acre site. Of that money, $1.3 billion has already been spent. * $563 million to buy out Mr. Silverstein's lender, GMAC * $140 million to buy out retail leaseholder Westfield Properties and its lender, UBS. * $623 million for business interruption insurance. Includes: - $240 million rent to Port Authority. - $72 million to the retail leaseholder, Westfield. - $64 million interest payments to GMAC. - $20 million in legal bills to defend private law suits. - $7 million payments in lieu of taxes to New York City. - Other money used for Silverstein's lost profit, management fees, legal bills to fight insurance suit, design and engineering fees, and other miscellaneous expenses. After the Sept. 11, 2001, terrorist attacks, the insurers put $1.97 billion into an escrow account collectively controlled by Mr. Silverstein's main lender, GMAC Commercial Mortgage Corp., the Port Authority, Mr. Silverstein and Westfield America Inc., according to the people familiar with the matter. Mr. Silverstein, the Port Authority and Westfield, meanwhile, pursued their suit against the insurers. Of the $1.3 billion already spent, about $700 million could eventually be replaced by obtaining new financing or reselling leasing rights to the retail portion of the complex, which was destroyed in the terrorist attacks. But at least $623.7 million in so-called business-interruption proceeds has been paid. About half the business-interruption spending -- $300 million -- has gone to repay Mr. Silverstein's major fixed obligations: rent to the Port Authority and debt service to GMAC. The estimated cost of totally replacing the complex is staggering: $9 billion to rebuild the office and retail space, as well as the supporting underground infrastructure that was lost when the Twin Towers fell. That is in addition to the $2 billion tab for a new train terminal and $350 million for the memorial, which have separate funding sources. The amount available for rebuilding the commercial space depends on the outcome of a case under way in U.S. District Court in Manhattan. Mr. Silverstein and the Port Authority are seeking to force Swiss Re and a dozen other Trade Center insurers to pay almost twice the $3.55 billion face value of the Trade Center's insurance policy on the theory that the terrorist attacks represented two "occurrences," insurance language that would require a double payment. The trial is now in its third week. (See related article1) While some spending details about Ground Zero have surfaced in published reports, including in The Wall Street Journal, the finances of this massive public-private redevelopment effort remain surprisingly murky. The secrecy has riled civic groups. "There's never been any public explanation of why this guy has gotten back all his money, but still controls the biggest development project in New York," says Robert Yaro, head of the Regional Plan Association, a leading New York civic group. The Port Authority, a bi-state public agency that is a co-beneficiary of Trade Center insurance policies and has a say about the spending of insurance proceeds, hasn't released records related to Ground Zero finances -- or even the original leases that Mr. Silverstein signed with the authority in July 2001. A Wall Street Journal request to review the GMAC agreement and records of insurance-proceed spending is pending. A Port Authority spokesman says the agency is withholding records largely to avoid giving advantage to its adversaries in the Swiss Re litigation. A person familiar with the Port Authority's thinking says that Mr. Silverstein agreed as part of the GMAC deal to put back into the project any business-interruption proceeds in excess of expenses. That would total a minimum of $70 million as long as the Swiss Re trial is in progress and $120 million a year after the case is completed, this person said. This person also says that Mr. Silverstein agreed to set aside portions of the site -- which could have been used for office space -- for the memorial and a commuter station owned by the Port Authority, in exchange for space elsewhere to recoup the entire 10 million square feet. A spokesman for Mr. Silverstein declined to comment, citing an order by the presiding judge in the Swiss Re trial, Michael B. Mukasey, forbidding the parties to make public comments that could influence the jury. So far, Mr. Silverstein has had tremendous influence on the buildings that will eventually define Manhattan's skyline. His handpicked architect, David M. Childs of Skidmore Owings & Merrill, became the lead designer on the first new structure, the 1,776 foot Freedom Tower. That building was originally conceived as the centerpiece of Studio Daniel Libeskind's plan for the site, winner of a public design competition. But Mr. Childs changed the look of the tower, with a new shape and new exterior, and in the process made it more friendly to Mr. Silverstein's needs as a commercial office landlord. Mr. Silverstein has also hired three additional top-level architects -- Norman Foster of England, Fumihiko Maki of Japan and Jean Nouvel of France -- to design office buildings on the site. The 72-year-old Mr. Silverstein, backed by New York investor Lloyd Goldman and former entertainment-industry distributor Joseph Cayre, put up $125 million in equity for the office portion of the lease in July 2001. The group then borrowed another $563 million from GMAC -- a General Motors Corp. unit -- contributing about $465 million to the Port Authority as equity. The other $98 million was set aside for property improvements to help secure GMAC's collateral. Westfield joined the deal, taking control of the retail space. The total Trade Center deal was valued at $3.2 billion, with the office portion valued at about $2.8 billion. Here's how, in approximate terms, $623.7 million in business-interruption proceeds had been spent, according to court records and the people familiar with the situation: $240 million went to lease payments to the Port Authority; $64 million to GMAC for debt service; $72 million to Westfield for its business-interruption share; about $50 million in initial payments to Wachtell. GMAC withheld $131 million to protect its collateral. The remainder, about $66 million, went to the Silverstein group, which was entitled to lost profits, its own fees and was obliged to pay for designers, lawyers in other litigation and payments in lieu of taxes to New York City. A December deal with GMAC released the $131 million in held-up business-interruption funds and the $98 million GMAC had loaned for building improvements. The deal also released $563 million in insurance proceeds to repay GMAC and another $140 million to repay Westfield, the people said. In return, both effectively ended their major involvement in the project. ---------- End forwarded message ---------- Recall that the court cases so far have been leaning toward Silverstein's total insurance payout being for only one attack ($3.5B). This strongly implies that nothing is going to get built without new sources of financing that will take time to line up.Even as we work for the "Restoration Alternative" and against the Libeskind plan's implementation,we can seek to mobilize potential sources of funding toward funding what we want, rather than what the officials want,if we can show a better return on investment is likely. The TTT presentation of the Gardner/Belton plan shows costs and revenue projections,I'm not sure what numbers the officials are pushing (they are happy to leave Silverstein with the bills) but we need to work just as we do with the GEIS,pointing out our benefits they deny and highlighting their drawbacks they cover up. A victims'-families group contacted by Bernie Goetz has indicated that they prefer the new-Twin-Tower based Gardner/Belton plan to the Libeskind plan.We'll see if others can be brought on board in a coalition against the official mistakes. Ethan Hess announced on the NYCS that he was quitting the WTCRM and abandoning the pro-rebuilding movement...he had in fact been dropped from the WTCRM list previously because he had been spouting rhetoric declaring we could never win already.He was a prime example of mile-wide-inch-deep youthful zeal running its course. We need advocates who will remain dedicated through thick and thin, and refuse to buy the insistence of opponents that we should not fight them because,as they have groundlessly pretended since before we started,they have already won.They only CAN win if we give up. (This email list is attached to the WTCRM,but only those who specifically wish to be considered WTCRM members and are accepted are members of the WTCRM). I'm still awaiting Gelinas and Murdock columns on the "Plan of the People" and will offer pointers as soon as they are available. Restorewtc.com will be hosting Java-chats on Sunday and Monday at 8 PM Eastern (an hour before the previously usual hour). -=-=- The World Trade Center towers MUST rise again, at least as tall as before...or terror has triumphed.