As Finance Offices Empty, Developers Rethink Ground Zero

By CHARLES V. BAGLI - Published: April 15, 2009 - http://www.nytimes.com/2009/04/15/nyregion/15develop.html?th&emc=th

Merrill Lynch, an investment bank now owned by Bank of America, has started moving the first of thousands of employees to Midtown from Lower Manhattan, a departure that will ultimately leave floor after floor of empty office space at the World Financial Center. Goldman Sachs will leave vacant 1.3 million square feet in four aging buildings in the financial district after it begins moving to its new headquarters in Battery Park City late this year. American International Group, the troubled insurance giant, is also a shrinking presence downtown, real estate brokers say, while Depository Trust is considering a move to New Jersey.

And just as companies are leaving downtown, more commercial space is being built there. Under current plans for the redevelopment of ground zero, the developer Larry A. Silverstein will add three massive skyscrapers with a total of 7.57 million square feet by 2013. It adds up to hundreds of acres of vacant space in Lower Manhattan at a time of recession and restructuring of the financial industry.

For that reason, Mr. Silverstein and the owner of the 16-acre ground zero site, the Port Authority of New York and New Jersey, are once again locked in negotiations over how and when the office towers get built. The talks are further complicated by the fact that the utilities and entryways for the nearby $3.2 billion transit center and the Sept. 11 memorial are woven into the base and underground portions of Mr. Silverstein’s three towers.

Given the restructuring of the financial services industry, there is a “need to reconsider the original plan for 10 million square feet of office space at ground zero,” said Mitchell L. Moss, a professor of urban policy and planning at New York University. The two sides are reluctant to discuss the details of negotiations because of confidentiality agreements. But executives who have spoken to both parties outlined their positions.

...

The Bloomberg administration has remained neutral so far as to whether Mr. Silverstein should build one or two towers in the next couple of years. Mr. Silverstein is not without leverage. He can insist on adhering to the current development agreement. So far, the Port Authority has paid nearly $90 million in penalties for failing to turn over Mr. Silverstein’s construction sites in a timely manner. If the impasse continues, it could jeopardize the authority’s promise to open the memorial in 2011.

“What Larry did is take out all his equity at the beginning, so he really doesn’t have a lot of skin in the game,” Mayor Michael R. Bloomberg said last month. “He has an enormous amount of upside potential, which doesn’t leave the Port Authority with a lot of negotiating ability, because they’re the ones who have to put up the money.”

...