Flashback: Silverstein Recovers – Dark Horse May Win World Trade Center

New York Observer – by Andrew Rice, April 9, 2001

A little before 10 p.m. on Jan. 25, Larry Silverstein, the 69-year-old, red-haired real estate developer, was crossing East 57th Street near Madison Avenue when he was run down by a 1997 Ford sedan. His pelvis broken, he was taken to the New York University Medical Center. As Mr. Silverstein would later tell his daughter, the accident was a bad break at the worst possible time: He was one of three bidders in the running to win a 99-year lease on the World Trade Center. Mr. Silverstein faced a Jan. 31 deadline to submit his bid to the Trade Center’s current owner, the Port Authority of New York and New Jersey.  

For the next few days, business partners, advisers and acolytes lined up in chairs along the hallway outside Mr. Silverstein’s hospital room as the bid’s final details were worked out. Just five days after his brush with death, Mr. Silverstein made a blunt declaration in the New York Post : “We’re lusting after the World Trade Center, the prize of all prizes.”

Few gave Mr. Silverstein much chance of consummating what was about to become the biggest real estate deal in New York’s history. Of the Port Authority’s three finalists, “he was the dark horse,” said Michael Cohen, chief executive of the real estate brokerage GVA Williams. The conventional wisdom only seemed to be confirmed when the bids were unsealed and Vornado Realty Trust blew away the competition with a bid of $3.25 billion–$600 million more than Mr. Silverstein offered.

That’s when Mr. Silverstein showed why, through booms and busts, he has retained his reputation as one of the city’s smartest real estate minds. He brushed himself off and kept going, upping his bid to just $30 million less than Vornado’s. He waited, quietly, as negotiations between the Port Authority’s board and Vornado’s chairman, Steven Roth, broke down. Then he stepped into the breach.

Now it’s Mr. Silverstein’s turn, and this time the negotiations are going far more smoothly, according to people following the process. When asked to comment on his bid, Mr. Silverstein said: “There is nothing comparable to the World Trade Center. It is unique in magnitude, location, prominence and visibility. It has been my dream.” As recently as late March, many predicted that Mr. Silverstein would be unable to close the deal and that the complex would go to the third-place bidder, a partnership between Mortimer Zuckerman’s Boston Properties and Brookfield Financial Properties. Now, however, there is a growing consensus that Mr . Silverstein will win his prize.

Then again, hardly anything has gone as predicted so far in the Port Authority’s topsy-turvy auction. Though Mr. Silverstein’s personal style is to wheedle and charm, people who have dealt with him say he can be just as tough a negotiator as Mr. Roth. “You think you’re finished,” recalled one bruised survivor of a negotiation with him. “You’re never finished.”

Lewis Eisenberg, the Port Authority’s chairman, said he doubted the deal would be done by April 5, the next scheduled meeting of the authority’s board of directors. Still, he said, “everything’s going well.” Mr. Eisenberg has reason to be happy: According to people involved with the process, Mr. Silverstein has been willing to go along with conditions on the lease that Vornado balked at. Vornado, a publicly traded company, wanted a shorter lease in order to show less debt on its balance sheet (not an issue for Mr. Silverstein’s private company), and also assurances that Vornado would not be on the hook if, as expected, the city sues to make the developer pick up close to $100 million a year in real estate taxes on the property.

Mr. Silverstein’s allies attribute the relative comity to his years of friendly coexistence with the Port Authority, which is his landlord at 7 World Trade Center, an office building he developed in the late 1980’s on Port Authority land. When the Twin Towers were bombed on Friday, Feb. 26, 1993, former Port Authority chief financial officer Barry Weintrob remembers, Mr. Silverstein immediately offered free space in his building to the Port Authority’s staff. “By Monday, the staff was back to work,” he said.

It can’t hurt either that when Mr. Silverstein sits at the bargaining table, he sees some familiar faces on the other side–Ben Needell, for one. Mr. Needell, a lawyer at Skadden, Arps, Slate, Meagher and Flom, is one of the attorneys negotiating the deal for the Port Authority. Normally, he’s Mr. Silverstein’s lawyer. “All I’ll tell you is, Larry’s a great guy,” Mr. Needell said.

Another constant presence in the negotiations is Tim Ryan, an executive at J.P. Morgan Chase, which has been advising the Port Authority on the sale. A division of J.P. Morgan Chase also owns the old Equitable Building at 120 Broadway, which Mr. Silverstein manages and holds an option to buy for $200 million.

Mr. Silverstein is also a friend of Governor George Pataki, who appoints half the authority’s board, and other Albany Republicans. Mr. Silverstein gave $15,000 to the Governor’s campaign committee last November, just as the bidding for the Trade Center was heating up. Mr. Silverstein gave $35,000 to the Senate G.O.P. and to majority leader Joseph Bruno last year.

A Tangled World

Such relationships are par for the course in the incestuous world of Manhattan real estate. But as the World Trade Center deal unfolded, it’s brought together a remarkable assemblage of New York’s legal, development and political elite. There’s Mr. Roth, Manhattan’s largest commercial landlord; Mr. Zuckerman, the owner of the Daily News ; John Zuccotti, the deputy mayor turned developer, who now heads Brookfield. Howard Milstein, the real estate scion (once represented by Mr. Zuccotti), is advising the Port Authority’s board, where Mr. Eisenberg, a real estate investor, is paying close heed to board member Peter Kalikow, a developer and onetime owner of the New York Post who is also Mr. Pataki’s choice to be the new head of the Metropolitan Transportation Authority. One or another of the developers bidding for the World Trade Center lease is employing nearly every hotshot real estate lawyer in town. And so far, Mr. Silverstein has managed to outmaneuver them all.

And he keeps on maneuvering. As The Wall Street Journal reported on March 28, Mr. Silverstein has taken on a partner, real estate investor Lloyd Goldman. A source close to Mr. Goldman says that he will be contributing a substantial portion of the $150 million or so Mr. Silverstein needs to raise in order to secure financing for an $800 million down payment; GMAC is lending Mr. Silverstein’s group the rest. (The rest of the $3.22 billion would be spread out over 99 years of payments.)

Mr. Goldman will join Westfield America Inc., a publicly traded shopping-center developer that wants the center’s subterranean mall, as Mr. Silverstein’s partner on the deal. Mr. Silverstein is said to be trolling for still more investors; one real estate source said it wouldn’t be surprising, when the deal is finally done, if Mr. Silverstein invests none of his own money in buying the World Trade Center.

Then again, no one ever questioned Mr. Silverstein’s deal-making ability. From the time the Port Authority released its list of finalists for the Trade Center, he was considered an underdog simply because he lacked the money and organizational heft of his competitors. The money he’s close to securing. Now the question for many is: If he wins his prize, what will he do with it?

There are also questions about the long term. According to an analysis of the complex’s cash flow by the magazine Grid , whoever wins the Trade Center can expect a relatively paltry stream of cash for some time, until the long-term leases are up. This means that whoever buys the complex will be in it for years before seeing a profit.

Risk Factor

But Mr. Silverstein has never been terribly daunted by risk. He started out in the 1950’s, just out of New York University, working for his father’s brokerage company. The real money, he soon realized, was in owning buildings, not renting them.

He attended N.Y.U.’s law school at night, where he befriended another young comer, Bernie Mendik. Mr. Silverstein brought his friend into the family business, introduced him to his sister, and soon Mr. Mendik married into the family.

They bought a building at 305 East 47th Street from the legendary partners Harry Helmsley and Larry Wien. Messrs. Silverstein and Mendik came to model themselves after Helmsley and Wien, studying and imitating the way they used pools of many small investors to finance big purchases.

Business was good, but in the late 1970’s Mr. Mendik and Mr. Silverstein’s sister divorced, and Mr. Silverstein and Mr. Mendik soon split up themselves. They hired another young developer then just making his name, Jerry Speyer, to help divide the assets.

In the 1980’s, Mr. Speyer, Mr. Mendik and Mr. Silverstein formed the core of a cadre of developers who would buy and build offices to accommodate the Koch-era boom. They were fiercely competitive, each trying to top the other with ever-more-ambitious deals. “The money wasn’t really the point,” Mr. Mendik told Tom Schachtman, author of Skyscraper Dreams: The Great Real Estate Dynasties of New York . “It was just a way of keeping score.”

Mr. Silverstein was scoring plenty during the 1980’s boom. He owned 13 buildings, which comprised 10 million square feet of Manhattan office space; he struck a lucrative financial partnership with J.P. Morgan; and he entertained on his yacht and, along with his wife Klara, became a prolific fund-raiser for Jewish charities. Through it all, Mr. Silverstein kept a high public profile, chairing the Real Estate Board of New York for several years, helping to transform the organization from a staid networking group into a political force. And he helped to endow a new Real Estate Institute at New York University. Mr. Silverstein teaches a course there every semester; his lectures are always standing room only.

“It’s Socratic,” said Ken Patton, a former president of the Real Estate Board, who holds the institute’s Larry and Klara Silverstein Chair. In a typical lecture, he said, Mr. Silverstein will present a quandary–a difficult lease or a sticky zoning situation–and ask the students to work their way out of it.

Mr. Silverstein has had to work himself out of his own share of real-life jams. In 1981, he announced an ambitious gamble to build 7 World Trade Center, a two-million-square-foot office tower on Vesey Street, between West Broadway and Washington Street, without a tenant lined up to lease the building. In 1986, in a full-page newspaper ad that pictured the slight Mr. Silverstein as a football player crossing into the end zone, the identity of the tenant was revealed. It was a big one, too–the investment bank Drexel Burnham Lambert.

But Mr. Silverstein’s luck changed when Drexel collapsed beneath a load of scandal and bad debt. Seven World Trade Center was left nearly 90 percent vacant. Mr. Silverstein eventually found another brokerage firm, Salomon Brothers, to lease the space, but had to pay so much to refit the building that the pension fund which owned the mortgage was hit up for extra money in return for a large chunk of his profits.

The cash crunch soon hit other parts of his holdings as well. A shopping mall on 34th Street was abandoned. A residential development at 42nd Street and 12th Avenue was put on hold, and ownership of 120 Broadway was turned over to his lender, J.P. Morgan. Since Mr. Silverstein’s company is privately held, no one outside it knows for sure how badly he was hurt. But real estate sources say Mr. Silverstein was forced to turn over many of his buildings to his lenders, staying on to manage them.

By 1998, however, Mr. Silverstein was back in the acquisition game. He bought an office building at 140 Broadway from Leona Helmsley. The far-west 42nd Street project, which had languished for years, finally got done.

In the meantime, Mr. Silverstein started grooming a son, Roger, and a daughter, Lisa, to take over the company one day. Ms. Silverstein was recently the subject of a lengthy New York Times story on “developer daughters,” in which she first told the story of Mr. Silverstein’s car accident. “Am I going to be taking more responsibility from him? Yes,” she said.

Nevertheless, people who have seen him say that Mr. Silverstein is still spry and recovering well from his accident. “Larry’s a young 69,” said James Kuhn, an executive at the real estate brokerage Newmark and Company.

Over the last decade, Mr. Silverstein watched as Mr. Speyer bought Rockefeller Center and the Chrysler Building, and as Mr. Mendik sold his company for $656 million–to, ironically enough, Steve Roth.

Now it’s his turn. “If Larry gets it,” one man who knows both Mr. Silverstein and Mr. Mendik said of the World Trade Center deal, “Bernie’s not going to be able to look in the mirror.”

Read more at http://observer.com/2001/04/silverstein-recovers-dark-horse-may-win-world-trade-center/#ixzz3LLVQ09qz
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