The Optimistic (and Long) View of Larry A. SilversteinMay 14, 2008
Larry A. Silverstein, the New York developer, is used to being second-guessed.
“There’s no shortage of people who are always trying to tell you what you should do when it’s not their money that’s at stake, and not their property,” he said last week.
Mr. Silverstein completed the first 7 World Trade Center in early 1987, not long after the brokerage firm Drexel Burnham Lambert had run into trouble and abandoned plans to lease all 42 floors of the tower. Later that year, the stock market crashed.
As office vacancies reached their highest level in a decade, Mr. Silverstein allowed his new building to remain nearly empty rather than reduce his asking rent of $37 a square foot annually. Brokers said at the time that he could fill the building in a flash if he would lower the rent to $34. But Mr. Silverstein refused to budge. “I have the staying power and the ability to do what I need to do,” he told The New York Times in April 1988.
Two decades later, Mr. Silverstein has a new 7 World Trade Center. He finished building the luminous 52-story tower in 2006, less than five years after its predecessor was destroyed in the 2001 terrorist attack. But two years later, just as the real estate market is bracing for a significant loss of financial services jobs, no leases have been signed for the top 10 floors. The penthouse is used instead for movie shoots, fashion shows and receptions for civic groups, though Mr. Silverstein draws the line at weddings and bar mitzvahs.
Once again, real estate professionals are puzzled by Mr. Silverstein’s refusal to compromise on his annual asking rent, which now ranges from $75 to $85 a square foot for the top floor. Last summer, the law firm of Cleary Gottlieb Steen & Hamilton came close to making a deal, but Mr. Silverstein would not shave a couple of dollars off the rent.
“Our client would have loved to have moved there,” said Cleary’s broker, Barry M. Gosin, chief executive of Newmark Knight Frank.
Mr. Silverstein, who will turn 77 this month, smiled when he was reminded of the 1988 parallel. “History repeats itself, doesn’t it?” he said in an interview in his office on the 38th floor of 7 World Trade Center.
The energetic Mr. Silverstein has other reasons to smile these days. At a time when many developers around the country are being forced to pull in their reins because of the credit squeeze, Mr. Silverstein has only to look out his floor-to-ceiling windows to see a new real estate empire in the making. His private company, Silverstein Properties, has $9 billion worth of projects in the works.
To the south, the Freedom Tower, which Mr. Silverstein is developing for the Port Authority of New York and New Jersey, is rising. Work is finally under way 80 feet below street level on the foundations for two of the three towers at ground zero that Silverstein Properties will control: 3 World Trade Center, with 71 stories, and 4 World Trade Center, with 61 stories.
This summer, the Port Authority is expected to finish building the slurry wall that will allow the digging of a foundation for Mr. Silverstein’s third office building, Tower 2, with 78 stories.
After years of delay – much of it a result of often acrimonious wrangling between government officials and Mr. Silverstein, who signed a long-term lease for the World Trade Center just six weeks before it was destroyed – some 800 construction workers are now employed at the site. Many of them also participated in the rescue efforts at ground zero.
Looking east, Mr. Silverstein can monitor the demolition of 99 Church Street, a 13-story office building a block from City Hall Park that will be succeeded by an 80-story limestone tower, designed by Robert A. M. Stern, with a 175-room Four Seasons hotel and 143 condominiums.
Mr. Silverstein’s financial partner in that project is the California State Teachers Retirement System – also his partner in the recent purchase of two Midtown Manhattan office buildings; one, 1177 Avenue of the Americas, between 45th and 46th Streets, cost more than $1 billion.
Mr. Silverstein acknowledged that the team was also interested in the Midtown buildings that Harry B. Macklowe surrendered to his lenders after defaulting on billions of dollars in short-term debt.
Like Mr. Macklowe, Mr. Silverstein is a famously tough negotiator. But he is also known for his unusually optimistic personality. Within days of the terrorist attacks, he pledged that the World Trade Center would be rebuilt. The cushion on his office sofa that bears a paraphrase of a Thomas Jefferson adage: “Steer your ship with hope, leaving fear astern” Though Lower Manhattan has blossomed as a residential community, growing to more than 50,000 residents, it has nearly 30,000 fewer jobs than it had before the Sept. 11 attack. Office vacancy downtown was 6.7 percent last month, compared with 6 percent in April 2007, according to the brokerage firm of CB Richard Ellis.
Predicting that the current downturn will not last long, Mr. Silverstein said leases throughout Manhattan amounting to 60 million square feet will expire within the next four years, just when his buildings are ready to accept tenants. He is already trying to persuade Merrill Lynch to move out of its offices at the World Financial Center.
Some real estate specialists wonder if Lower Manhattan will be able to attract so many new tenants at once. “I don’t see why all the buildings are being finished at the same time,” said the developer Douglas Durst, who is active in Midtown. “That seems to me a tactical mistake.”
Others say they share Mr. Silverstein’s optimism. “The Lower Manhattan of tomorrow is really a very very different place than the Lower Manhattan of 10 years ago,” said Carl Weisbrod, the president of Trinity Real Estate, which owns commercial buildings just north of downtown. “I think Larry is totally right in betting on the future.”
Interest in 7 World Trade Center remains high, said Stephen B. Siegel, the global chairman of CB Richard Ellis, which is representing the building.
Two decades ago, the tax breaks and favorable financing Mr. Silverstein received for 7 World Trade Center eliminated pressure to fill up the building quickly.
The new $700 million parallelogram-shaped 7 World Trade Center was financed with insurance proceeds and $475 million worth of triple-tax-exempt Liberty Bonds. The building has a mix of tenants, including Moody’s Investors Services; Mansueto Ventures, a magazine publisher; and the New York Academy of Sciences. The cash flow more than covers the debt service, Mr. Siegel said.
“He’s very confident in his product, and he holds out for his number,” Mr. Siegel said. Lowering the rent by $2 a square foot would reduce his annual income by $10 million and would lower the value of the building by as much as $20 million, based on a current capitalization rate of 5 percent, he said. (That figure is a ratio of the building’s net operating income relative to the sales price.)
Mr. Silverstein said he was taking the long view to protect a family-owned asset. “When you get to be in your 70s, you look at things like this through a different lens,” he said. “It’s better to take your time and do it right.”