Jury Assures Two New Office Buildings at Ground Zero
Commercial Property News
January 1, 2005

By: Therese Fitzgerald, Editor/Ancillary Products

Two down, eight to go. After a jury found nine of Larry Silverstein's insurers must pay on two occurrences, the developer recouped another $1.1 billion, guaranteeing two of the 10 office buildings planned for Ground Zero will be built. Silverstein broke ground on the first office building on July 4.

"People like to be near people," said Shirley Jaffe, vice president of economic development for The Alliance for Downtown New York. "One tower sitting there lonely may be less appealing than a collection."

Jaffe also noted that, since Silverstein will not have to go to the capital markets to finance the first two buildings, rents in those buildings can be more competitive.

The jury's decision lifted Silverstein's rebuilding capital from $3.5 billion to $4.6 billion. Following the decision, the developer issued a statement that the $4.6 billion, combined with tax-exempt Liberty Bond financing, would "ensure a timely and complete rebuild."

Liberty Bond financing--which would help Silverstein build the third, fourth and fifth buildings--has been little applied for Downtown commercial projects, while residential developers and converters have frequently tapped the funds set aside for residential projects. Silverstein accessed about $750 million worth of Liberty Bond financing to help fund the construction of 7 World Trade Center, and he is all but guaranteed to get the funds he is seeking for Ground Zero.

"If he needs the funds, he will get them," said Richard Bassuk, president of The Singer & Bassuk Organization. "It goes to the very heart of rebuilding Downtown."

Still, it helps his case even further that Lower Manhattan Development Corp. president Kevin Rampe publicly said he thinks Silverstein should get the balance of the $3.5 billion available for commercial projects.

While the jury decision was a victory for Silverstein, it should probably not be viewed as a victory for all property owners. The jury was asked to interpret specific policy language in the context of very specific circumstances, according to Terence Cummings, an attorney and insurance regulation specialist at Ohrenstein & Brown.

Instead, Cummings explained, the Silverstein verdict will probably lead insurers to examine their policy language more closely to protect against paying on losses twice, and it will probably lead to an increase in property insurance rates and terrorism insurance. "This loss will be factored into the industry data from which all rates are drawn," he said.