GlobeSt.com EXCLUSIVE: Local Leaders Foresee Shortfall on World Trade Center Rebuild

NEW YORK CITY-The smoke hasn’t cleared on the partial verdict handed down last Thursday at the World Trade Center insurance trial. And until a complete decision is rendered, encompassing Swiss Re’s portion of the claim, many local experts are hesitant to go on the record with their take on the outcome. This includes spokespeople for Silverstein’s camp who, not surprisingly, won’t speak to the press until a full verdict comes in. But a handful of major players in the Manhattan commercial market were willing to step to the plate to outline the struggles that major leaseholder Larry Silverstein faces as a result of the court’s past and future rulings.It has been Silverstein’s claim all along that the terrorist invasion of Sept. 11, 2001 that brought down his newly master-leased Twin Towers was actually two incidents. That strategy would have basically doubled his insurance coverage from $3.5 billion to $7 billion. The jury came back with a one-incident ruling for all but one insurer–Swiss Re. Short of appeal–and an appeal is expected by most local experts–the most that Silverstein can be awarded is $5.5 billion. And a decision for Silverstein is doubtful.”I’d be surprised if it’s not the same outcome,” says one local executive who requested anonymity. He says that the $7-billion claim was a long-shot at best. “But it doesn’t make a difference whether they get two attacks or one. It’s not going to be enough to hang onto his interest in the trade center.”In many respects, it’s only the beginning, he continues: “It’s not over. They had to go through this process to get everyone serious about reaching a settlement, and everybody has a right to appeal. Now the insurance companies, the Port and Silverstein will all have to get at the table and figure out a deal.” But a lot of the steam has been taken out of that process since, with a verdict on their side, “the insurance companies will not be as incentivized as they would have been before.”"Even if he got the $7 billion, that alone won’t be enough to rebuild,” says William M. Shanahan, EVP and partner at CB Richard Ellis. “It’s not. And now, he’s going to have a greater reliance on third-party financing, Liberty Bonds and additional sources of capital. He had to rely on that to begin with, but now there will be more control in the capital markets than there had been before.”Some parties have even floated the idea that the Port might cut a check for Silverstein to have him walk away. While that’s a possibility, say sources, it’s unlikely. “The burn rate for the fee holder is more than $100 million a year,” says Shanahan. “If this goes on for five years, that’s $500 million.”Another source sees a slightly different scenario coming together for Silverstein, although it’s still grounded in the shortfall of capital to rebuild. “Larry will get something out of this,” he says. “My view has always been that they would get through the trial, sit down at the table and cut a deal where Larry builds the Freedom Tower and gets the Port as a tenant in it, and the Port gets the rest. They’ll do some sort of a favorable deal on the one building for him. He’ll get more than just a check on this.