The Rebuilding of Ground Zero, Part 31

Things continue to slog along at the Deutsche Bank building, as yet another piece of equipment fell off the building and slammed into the ground 20+ stories below. This time, it was a four pound disc that fell from a hoist 22 stories. Work at the site was halted once again.

Meanwhile, the Port Authority is trying to weasel its way out of having to pay Larry Silverstein millions of dollars owed to Silverstein for delays in getting the site prepared for Silverstein to build upon.

It is unlikely the Port Authority will be able to meet the June 30 deadline to turn over a building site at ground zero to Silverstein Properties, which controls a lease on the property. When a development deal was signed in September 2006, the Port Authority agreed to pay the developer a late fee of $300,000 a day until it could hand over cleared building sites.

In February, six weeks after a similar deadline, the Port Authority owed Silverstein Properties about $14 million in late fees because it failed to prepare another building site by the agreed-upon deadline. Now, the Port Authority is said to be negotiating with Silverstein Properties to waive the late fees in exchange for several possible concessions, including altering the floor plates of the future office building known as Tower 3. Enlarging the floor plates would make the office space more amenable to major financial service companies, which need open space to accommodate trading floors. Mr. Silverstein is said to be attempting to lure Merrill Lynch to be an anchor tenant in one of its towers.

One possible use that is being negotiated, according to a source with knowledge of the talks, is an expanded or even multilevel trading floor — an idea that had been floated by Mr. Silverstein in the past. It would be in keeping with his stated goal of turning the World Trade Center site into a new financial center that would rival Midtown.

The Port Authority continues to run behind in its construction schedules, and each delay has a cumulative effect, both in terms of time and cost. Construction costs continue climbing, which makes every delay more costly. It's a vicious cycle, and the Port Authority appears incapable of getting the work prepared on time.

The Port Authority is running into a similar problem with Goldman Sachs, which is building an office building across from Ground Zero, and was promised that certain infrastructure would be in place so that its workforce would not be inconvenienced. Well, the work isn't done, and Goldman Sachs is looking to cash in on those penalties - some $320 million worth.

The hefty fines would include free rent - 64 years of it - as well as other subsidies.

Gov. George Pataki and the Bloomberg administration agreed to the penalties in 2005 because they were desperate to prevent Goldman from moving to New Jersey.

Now, it looks like major components of the World Trade Center won't be ready by the end of next year, as originally agreed.

But, sources close to the deal say the city and state are asking Goldman to either push back the deadline, or lower the penalties. Mayor Michael Bloomberg thinks the issue will eventually be resolved without any cost to the city.

If I were Goldman Sachs, I wouldn't settle for anything less than the penalties under the original contract. Even though Sachs got a sweetheart deal, it is a contract, and it is enforceable. The city, state, and Port Authority are responsible for the delays and failures to have site work done, and should be held accountable for their delays. It's an expensive lesson, but one that must be imposed.

I suspect, however, that there will be some accommodation and the city and state wont be hit up for all those costs, but there will likely be a further abatement of taxes or fees paid by Sachs.