Tuesday, March 14, 2006

The Battle For Ground Zero, Part 104

While some families continue their protest over the Memorial, Mayor Bloomberg had this to say:
"My sympathies are with those who aren't happy with the design, but I think it is, of the designs submitted, a good one. You could keep asking for designs for the next 20, 30 years and get different ones."
Quite true that we could continue to request different designs and never come to a consensus, but the notion that the current memorial design is a good one may be overreaching - by quite a bit.

Of course, the design was predicated on a Libeskind's master plan, which was panned at the outset, and only been ripped to shreds by pundits and developers ever since. And that master plan was based on design recommendations from the LMDC and Gov. Pataki. Therein lies the rub.

While today is a deadline between Silverstein and the Port Authority on a plan for the rest of the site, everything could be up for reconsideration in November when Pataki exits stage left and a new governor comes in and takes charge.

Right now, that appears to be Eliot Spitzer. What's his take on the WTC rebuilding and would he continue with the master plan or scrap everything in favor of something new? Spitzer is playing his cards on this quite close to the vest.

Nicole Gelinas notes that the site redevelopment comes down to educated guesses between billionaires. Do we take Silverstein's guess on the real estate market or that of Bloomberg?
Silverstein's plan for what he'd do with the bond money is straightforward: He says he wants to use those funds, along with his own insurance money from the 9/11 attack, to rebuild 10 million square feet of office space in four new towers at Ground Zero - thereby fulfilling the obligations of the 99-year lease he signed with the Port Authority six weeks before 9/11.

The mayor's objection is equally straightforward: Bloomberg says he's studied the economics of Silverstein's blueprint, and determined that the plan is impossible.

Bloomberg claims that it is a financial certainty that Silverstein will run out of money after building just two towers, and walk away from the rest of the project - irrevocably harming Downtown's recovery. Since this walkout is inevitable, argues the mayor, the city must use the one tool at its disposal (its control over half the Liberty Bonds) to try to force the Port Authority and Silverstein to restructure their lease now to prevent that from happening.

The mayor has released cash-flow charts and graphs to support his claim; Silverstein disputes that analysis. But the math is really all smoke and mirrors. The dispute comes down to the same question that must be answered in any real-estate venture, or any investment, for that matter: How much will the project cost, and is it worth that much?
Considering that Silverstein wants to build commercial and Bloomberg wants a mix of commercial and residential, both rely on forecasts of where the market is going to go. Both have to make predictions, and both can be wrong. Bloomberg's proposals would spread the risk to multiple developers to rebuild, even though they would still be constrained by the same market predictions. Pushing the site back into the hands of the Port Authority wouldn't make the market behave differently - it would only foist the costs of rebuilding on the Port Authority instead of a private developer.

Senator Chuck Schumer weighs in and complains about how the office space may end up going to the Port Authority and other government agencies. Well, history reminds us that the original WTC was similarly occupied in the early days before the market picked up and occupancy rates grew to nearly full occupancy of the towers.
While full office buildings are almost always good news, the limited supply will lead to prohibitively high rents throughout the city. CB Richard Ellis predicts that, if our growth stays on course, commercial vacancy rates could drop below 5 percent by 2008, and below 3 percent by 2009. And - in the trend of the last last 30 years - for every percentage-point drop in vacancy rates below 5 percent, rents rise 15.5 percent.

With rapidly rising rents, businesses will be hard pressed to stay in New York - and our prospects for attracting new industries will shrink.

We need to build office space for the future, and there is no better place to begin meeting this demand than at the World Trade Center site.

This site represents the last ready-to-build commercial project in Lower Manhattan. With the Calatrava transit hub and an impressive retail component, the new World Trade Center will be some of the most attractive office space in New York City. Furthermore, Downtown is likely to remain an affordable alternative to other business districts - new office space in Lower Manhattan is renting for around half the price of comparable Midtown space.

Instead of giving over the best parts of Ground Zero to government and luxury apartments, we need to build office buildings. When we build them, businesses will come. Yet we are at a logjam in the rebuilding process, with myriad new "solutions" that may pull us off this course.

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