Jones Lang LaSalle


Freedom Tower puts downtown in bind
Feud over least viable offices points to economic issues for Silverstein, city
By Julie Satow
Published on February 20, 2006

The planned Freedom Tower, designed by famed architect Daniel Libeskind to reach the symbolic height of 1,776 feet, has served for the past two years as the emblem of the rebirth of New York after the Sept. 11 terrorist attacks.

Now a growing number of downtown business leaders are complaining that the building has emerged as the major impediment to the redevelopment of Ground Zero. The critics argue that the enormous building, which is slated to put 2.6 million square feet of office space on the market, will be exceedingly difficult to lease. Some of them are even saying that construction of the Freedom Tower should be postponed to make way for more commercially viable buildings on the five-tower site.

"There are many people who think it makes sense to accelerate development of the other buildings, which will clearly be easier to develop and rent," says Kathryn Wylde, president of the Partnership for New York City, a network of business leaders. The Freedom Tower "presents the biggest challenge from the standpoint of size, cost and concerns about security."

The Freedom Tower's groundbreaking is slated for April, and with Gov. George Pataki firmly committed to the project, it's not likely that the business community's concerns will produce a substantive change in direction. But the growing dispute over the Freedom Tower helps illuminate the tug-of-war between developer Larry Silverstein and his landlord, the Port Authority of New York & New Jersey.

Mr. Silverstein--who holds the lease for the entire 16-acre Ground Zero site--and the Port Authority are being pressured by Mr. Pataki to hammer out the details necessary to finalize plans for the area's redevelopment. Mr. Pataki, who controls $1.67 billion in tax-exempt Liberty Bonds that Mr. Silverstein needs to finance construction, has set a March 14 deadline.
In recent talks, the Port Authority has proposed that Mr. Silverstein develop the Freedom Tower and a second building known as Tower 2. The Port Authority would agree to reduce Mr. Silverstein's rent--he is paying about $120 million a year for property that is currently producing no revenue for him. In exchange, he would give up his development rights to two other planned skyscrapers, Tower 3 and Tower 4.

That's where the Freedom Tower factors into the controversy. Difficulty in leasing the building could make the property an economic albatross for Mr. Silverstein. Meanwhile, Tower 3 and Tower 4 are universally considered to be the most marketable towers on the site.

Filling Freedom Tower

"The Freedom Tower is not where any rational person would start, and it is probably a loser financially," says one business leader. "Towers 3 and 4 are the most valuable."
Real estate experts say that prospective tenants will be scared away from the Freedom Tower because it is an obvious target for terrorists. One of the issues on the table in the talks between the Port Authority and Mr. Silverstein is whether the agency will move into the Freedom Tower or to another tower on the site. The agency, which had its headquarters at the World Trade Center, lost employees in the Sept. 11 attacks and would likely face internal resistance to a plan to move into the tower.

The Freedom Tower is handicapped by its location as well: Of the five planned towers, it will be the farthest from the transportation hub being built on Church Street. It will also lack stores, which are a draw for many commercial tenants, and it will be the largest and priciest tower to construct.

Tower 3 and Tower 4, on the other hand, are situated between the new rail station and Wall Street, and they offer prime spots for ground-floor retail development. They will be designed to offer 40,000-square-foot floorplates that are ideal for office tenants.

Master plan

Silverstein Properties is sticking to its game plan for developing the trade center site. John Lieber, the firm's project coordinator, says Mr. Silverstein is "proceeding pursuant to the master plan" for the site's redevelopment and is on course to break ground for the Freedom Tower in April.

While a strong economic case can be made for the swift development of Tower 3 and Tower 4, the Freedom Tower is propelled by powerful political forces. "We are absolutely, firmly committed to fulfilling the vision of the city and this nation in building the Freedom Tower," says John Cahill, Mr. Pataki's downtown czar. "It is one of the most important symbols of freedom in the world. There will be absolutely no retrenchment."

Comments? JSatow@crain.com