Owners Silverstein, Westfield America Face World Trade Center Destruction

Wall Street Journal ^ | 9/12/01 | Peter Grant

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9/12/01

Owners Silverstein, Westfield America Face World Trade Center Destruction

By PETER GRANT

Staff Reporter of THE WALL STREET JOURNAL

The cataclysmic destruction of the World Trade Center came less than two months after control of the famed complex passed into private hands for the first time in its 30-year history.

A group led by New York developer Larry Silverstein and Westfield America Inc. acquired a 99-year lease of the 11 million square-foot complex from the Port Authority of New York and New Jersey. The value of the deal was put at $3.2 billion, making it one of the biggest real-estate deals ever.

Spokesmen for Mr. Silverstein and Westfield, a leading shopping-center company, couldn't be reached for comment.

The deal was the crowing achievement of Mr. Silverstein's 50-year history as a New York real-estate investor and developer, capping his comeback from financial problems in the early 1990s. He triumphed over much larger public companies thanks in part to his experience in dealing with the Port Authority as the owner of 7 World Trade Center.

He developed that tower, which also collapsed in Tuesday's disaster, in the 1980s on land leased from the Port Authority.

One person familiar with the financing said the World Trade Center was insured in case of a terrorist bombing, but not insured if it was destroyed as an act of war. He said the risk was spread among many different insurance companies.

The Port Authority developed the complex in the 1970s in an effort to revitalize lower Manhattan and boost trade. It was led in part by David Rockefeller, who, as head of Chase Manhattan Bank, was worried about the migration of businesses to Midtown.

The Twin Towers, which for a short time were the tallest buildings in the world, became one of the symbols of New York City. Its Windows on the World restaurant and observation deck were popular tourist attractions.

But the property had a mixed leasing history, and its management by the Port Authority bureaucracy was often criticized as being inefficient. It also was the scene of a terrorist bombing in 1993, which shut part of the complex for months. In the mid-1990s the governors of New York and New Jersey agreed to privatize the complex and return the Port Authority to its core mission of transportation.

For years, bickering between the two states stalled a decision to proceed with a sale or a long-term lease. But, as it turned out, that delay worked in the Port Authority's favor, because as the years ticked by the real-estate market improved. The $3.2 billion value of the Silverstein group deal was more than twice what the Port Authority expected to get in 1998.

The bidding for the center began heating up a year ago when Silverstein Properties and seven other companies submitted bids. Mr. Silverstein made it into the final round of four companies by forming a venture with Westfield, which dazzled Port Authority officials with its plans for retail business in the complex.

Mr. Silverstein, who is now 70 years old, also strengthened his position by cutting a deal with General Motors Corp.'s GMAC Commercial Mortgage Corp., which agreed to lend him most of the down payment. Mr. Silverstein also brought into the deal Lloyd Goldman, the head of another New York real-estate family. Mr. Goldman, 43, put together a group of family members and others that contributed two-thirds of the equity in the deal.

In exchange, Mr. Silverstein gave Mr. Goldman a role in running the property, especially in the future.

Mr. Silverstein proved indefatigable during the bidding process. At one point, he told the New York Post that he and Westfield "were lusting" after the complex. After he was hit by a car and broke his hips shortly before a bidding deadline, he simply continued his work from his hospital room.

Mr. Silverstein also came close to losing the deal when the Port Authority initially selected Vornado Realty Trust as the winning bidder. But he was ready to jump back in the fray when Vornado and the Port failed to conclude a deal.

Even after the Port Authority selected Mr. Silverstein, it was touch-and-go until he and Westfield finally signed the contract with the Port Authority on April 26. He and his partners didn't decide to go forward with the highly leveraged deal until just a few hours before the Port's deadline. They rushed down to the World Trade Center and put down their $100 million deposit.

When they closed the deal in July, the Silverstein group paid another $563 million, which they borrowed from GMAC. GMAC raised that money through an issue of commercial mortgage-backed securities in August, which was a major success thanks to the prominence of the property. The rest of the $3.2 billion value of the deal was to come from rent payments starting at about $100 million a year.

Mr. Silverstein finally had his moment in the sun in late July when he accepted the keys from the governors of the two states in a ceremony under the Twin Towers. At the ceremony, he told the story of meeting the leadership of China in the 1993 and how they recognized the complex.

"It identifies New York," he said.

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I found this ironic that it had just changed hands in July.

What's truly most important and the saddest aspect of this is the horrendous loss of life. The loss of life is the heart of the tragedy. Money can't replace these people.