Port Authority Weighs Risk of $1.2B WTC Loan Guarantee

The Port Authority of New York and New Jersey, operating under increased public scrutiny after the "bridgegate" scandal, is weighing the risk of providing a $1.2 billion loan guarantee for the developer of Three World Trade Center.

Some board members expressed concern at a meeting this week that a default by the developer could undermine the finances of the authority, which has $19 billion in bonds outstanding, according to Standard & Poor's.

That total does not include $1.2 billion in Liberty revenue bonds issued to finance Four World Trade Center.

Silverstein Properties, which is developing Three World Trade Center, has asked the Port Authority to guarantee the $1.2 billion in loans it hopes to take out to construct the building.

The authority's consideration of the guarantee took place in a swirl of controversy, as federal and state authorities investigate whether a lane closure last year at the George Washington Bridge, was part of a deliberate effort to create a traffic jam as political retribution on behalf of N.J. Gov. Chris Christie against a New Jersey borough mayor.

The authority moved to conduct its business more openly after critics said the incident showed that authority has become too politicized in its decision making.

Three World Trade Center is anticipated to cost $2.3 billion to build, have 63 floors and be completed in 2015.

At Wednesday's Port Authority board meeting, three members explicitly stated opposition to the deal, which the authority's staff was developing with Silverstein. One member spoke in favor of the deal, while several of the remaining five seemed to be leaning toward supporting it.

Commission Chairman Scott Rechler, asking commission members for their thoughts on the proposal, said the commission had been working on the deal for seven months and that the staff was very near to reaching an agreement that could be put up for a board vote.

In a 2010 agreement, the authority agreed to provide up to $600 million in equity and loan guarantees for Three World Trade Center if Silverstein leased at least 400,000 square feet of the planned 2.5 million square foot building and if Silverstein provided $300 million.

In December Silverstein got the advertising company GroupM to lease 516,000 square feet in the planned building. However, the developer has been unable to get a private sector loan of $300 million and is seeking the guarantee to help secure the financing.

Commissioners David Steiner, Kenneth Lipper and William "Pat" Schuber indicated they were opposed to the deal in its current form.

Lipper said that all the commissioners wanted Three World Trade Center to be built, but the question was who should advance the money and who should take the financial risk.

Lipper questioned the wisdom of putting pressing capital needs of he Port Authority Bus Station and John F. Kennedy Airport on the back burner to build a building that would probably be empty.

Lipper also said private sector debt markets were reluctant to finance the building New York'sdowntown offices have a 13% vacancy rate, which he said was as high as it was during the early months after the Sept. 11, 2011 attacks. JPMorgan Chase & Co. is planning to leave the former Chase Manhattan building in the downtown financial district, further adding to the excess, he said.

Building Three World Trade Center at this time would only add to the problem, he said, arguing that the deal was tantamount to requiring the commuters who pay the authority's tolls to subsidize a multi-billionaire developer.

In the event of a foreclosure, the authority would have to put up $1.2 billion, a tremendous diversion of the authority's funds, Lipper said.

The authority would then also have to pay for the staff to maintain the building, he said.

The board heard comments from nine members of the public in favor of the deal, and two who spoke against it.

Government officials have promised to complete the rebuilding of the World Trade Center, said Jessica Lappin, president of the Alliance for Downtown New York, arguing that "A promise made must be a promise kept." She said providing the guarantee would help heal the wounds of Sept. 11.

Other members of the public said the construction was likely to provide jobs.

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