Dark Side to Merrill’s ManeuverMay 27, 2008
There are two ways to look at the news that the Port Authority is giving Larry Silverstein a few months longer to finish Ground Zero’s Towers 3 and 4, so he can first try to woo Merrill Lynch to the site:
1) Nothing would be better for Ground Zero than a completed Tower 3 occupied by a Wall Street tenant from day one.
2) Nothing would be worse than yet another construction delay with nothing to show for it if Merrill doesn’t come.
Silverstein and the PA – for once acting as partners rather than as squabbling relatives – are swinging for the fences with No. 1. But the risk is that they’ll be caught looking at No. 2 in a game where they’re already way behind.
The biggest question is: Can Merrill, battered by writedowns new CEO John Thain has fought to contain, afford to buy or even lease a new, 2.5 million square-foot building that will cost nearly $2 billion to construct?
Of course, a Merrill move to the WTC site would be the best news since 9/11. But if the financial giant doesn’t bite, Silverstein and the PA will have only found another way to push back overdue reconstruction.
Just a few months ago, Silverstein and the PA declared that the 2012 dead- lines for the office towers were good as gold.
Anthony Shorris, former PA executive director, said, “By the end of 2012, as they say, it’ll all be over but the shouting.”
But now, maybe not. If you missed the news in the pre-Memorial Day exodus, the PA just gave Silverstein an additional six months to complete Tower 4, and four months more on Tower 3, before he’d have to forfeit the buildings to the PA.
The agreement gives Silverstein until mid-2013 to finish Tower 3, where Merrill Lynch is considering moving, vs. the earlier deadline of Dec. 31, 2012.
The Tower 4 extension was necessary because excavation for both foundations is being done in tandem.
The added wiggle time allows Silverstein to enlarge Tower 3’s foundation so it can accommodate a redesign of the building to suit Merrill’s needs.
(Richard Rogers’ original design is striking, but it’s basically guesswork as to what a tenant might want.)
Having redesign flexibility is necessary for Merrill to even consider moving to Tower 3 – but it does not guarantee the firm will decide to do that.
In asking the PA to extend construction deadlines, Silverstein presumably found Merrill’s interest to be sincere – not a ploy to gain leverage with its current landlord, Brookfield Properties, in talks over renewing Merrill’s World Financial Center lease, which is up in 2013.
Merrill, represented by Jones Lang LaSalle’s sure-handed Peter “Big Rig” Riguardi – who’s also an adviser to the PA – could lead Silverstein on a merry chase. The firm is already deep into talks with Brookfield to extend its WFC lease until 2018.
Besides the cost to Merrill of moving to Ground Zero, there are a lot of other “ifs” to factor in.
There’s no telling how Merrill’s inevitable request for subsidies beyond those already available to it if it moves to the WTC site will play at City Hall and in Albany.
Nor is it easy to believe that even slightly altering Tower 3’s current design won’t mess up plans for Tower 4, the new PATH terminal and the memorial – all of them linked in a Gordian knot of subterranean infrastructure.
With so many imponderables, it would not seem out of the question for Silverstein and the PA to one day declare yet another postponement beyond mid-2013. If that happens, who can guess when anything might be finished?
None of this means a Merrill Lynch deal for Tower 3 is not worth pursuing. But Silverstein and PA chiefs Anthony Coscia and Christopher Ward are going to need a lot of luck.