Silverstein Properties

Larry A. Silverstein (born 1932) is an American billionaire real estate investor and developer in New York City. Silverstein was born in Brooklyn, and became involved in real estate, together with his father, establishing Silverstein Properties. Silverstein separated from his partner, Bernard Mendik, in 1977, and bought a number of large office buildings in Midtown and Lower Manhattan in the late 1970s. In 1980, Silverstein won a bid from the Port Authority of New York and New Jersey to construct 7 World Trade Center, to the north of the World Trade Center. Silverstein was interested in acquiring the entire World Trade Center complex, and put in a bid when the Port Authority put it up for lease in 2000. Silverstein won the bid when a deal between the initial winner and the Port Authority fell through, and he signed the lease on July 24, 2001, only weeks before the towers were destroyed in the September 11 attacks.

Soon after the September 11 attacks, Silverstein declared his intent to rebuild, though ran into dispute with his insurers over whether the attacks constituted one or two occurrences. A settlement was reached in 2004, with insurers agreeing to pay out $4.55 billion, which was more than the $3.4 billion per occurrence, but was not as much as Silverstein sought. Silverstein also ran into dispute with other parties in the rebuilding effort, including the Port Authority. In an agreement reached in April 2006, Silverstein retained rights to build three office towers (150 Greenwich Street, 175 Greenwich Street, and 200 Greenwich Street), while the Freedom Tower will be owned by the Port Authority as well as Tower Five which may be leased out to another private developer and redesigned as a residential building.1

Contents

Background

Silverstein was born in Bedford-Stuyvesant, in Brooklyn in 1932.2 Growing up, Silverstein enjoyed classical music and played the piano. He attended the High School of Music and Art in New York, and then New York University, graduating in 1952. During college, Silverstein worked at a summer camp, where he met his wife, Klara. The couple married in 1956, and had three children: Lisa, Roger and Sharon. His wife worked as a school teacher, supporting the family on her salary for the first few years of their marriage while Silverstein attended classes at Brooklyn Law School.3

Silverstein became involved in real estate, together with his late father, Harry G. Silverstein, and then friend and brother-in-law, the late Bernard Mendik, buying buildings in Manhattan. In 1957, they established Silverstein Properties, as Harry G. Silverstein & Sons, and bought their first building. Mendik and Silverstein continued the business after Harry's death in 1966. In 1977, Mendik divorced Annette Mendik Silverstein, with the business partnership also splitting up at that time.4 Mendik also cited disagreements over real estate strategies, with Mendik wanting to buy buildings while Silverstein wanted to build.5

Silverstein Properties

After splitting with Mendik, both remained involved in the real estate industry, but in separate firms. By 1978, Silverstein owned five buildings on Fifth Avenue, as well as 44 Wall Street, and a shopping center in Stamford, Connecticut. In 1980, he renovated the building at 11 West 42nd Street, and acquired the lease for the Equitable Building at 120 Broadway.4 In 1983, Silverstein sold the building at 711 Fifth Avenue to Coca-Cola for $57.6 million, having bought the building in 1977 for $11.5 million.6

Also in 1980, Silverstein bought the building at 120 Wall Street, which was constructed in 1930.7 In 1991, Silverstein set aside 20 floors of 120 Wall Street to be leased by non-profit organizations, as an Association Center, with tax incentives for the tenants and bonds for Silverstein to undertake building renovations.89 By 1994, Silverstein had signed up 14 nonprofit tenants for 120 Wall Street,10 and the building was nearly at capacity by 1997, with 38 nonprofit tenants including the National Urban League.11

In 1980, Larry Silverstein won a bid to lease and develop the last undeveloped parcel from the Port Authority of New York and New Jersey to build the 47-story 7 World Trade Center.

World Trade Center

During the 1990s, New York was suffering from the effects of the 1987 stock market crash, which led to high vacancy rates at the World Trade Center. George Pataki became Governor of New York in 1995 on a campaign of cutting costs, including privatizing the World Trade Center. A sale of the property was considered too complex, so it was decided by the Port Authority to open a 99-year lease to competitive bidding.12

In January 2001, Silverstein, via Silverstein Properties and Westfield America, made a $3.2 billion bid for the lease to the World Trade Center. Silverstein was outbid by $50 million by Vornado Realty, with Boston Properties and Brookfield Properties also competing for the lease. However, Vornado withdrew and Silverstein's bid for the lease to the World Trade Center was accepted on July 24, 2001.13 This was the first time in the building's 31-year history that the complex had changed management.

The lease agreement applied to One, Two, Four, and Five World Trade Center, and about 425,000 square feet (39,500 m2) of retail space. Silverstein put up $14 million of his own money to secure the deal.14 The terms of the lease gave Silverstein, as leaseholder, the right to rebuild the structures should they be destroyed and should he comply with the onerous financial obligations of the lease.15

Upon leasing the World Trade Center towers, along with 4 World Trade Center and 5 World Trade Center, Silverstein insured the buildings. The insurance policies on these four buildings were underwritten by 24 insurance companies for a combined total of $3.55 billion per occurrence in property damage coverage.

September 11 attacks

The insurance policy obtained for the World Trade Center buildings leased in July 2001 was for $3.55 billion, though after the damage sustained on September 11, 2001, $4.55 billion was collected from the insurers in a settlement.16 The money is being used to rebuild the World Trade Center, and the Silverstein properties lease has continued without change.

Insurance dispute

Following the September 11, 2001 attacks, Silverstein sought to collect double the face amount of that coverage (~$7.1 billion) because, he contended, the two separate airplane strikes constituted two occurrences within the meaning of the policies. The insurance companies took the opposite view. Because some of the policies contained certain limiting language and some did not, the court split the insurers into two groups for jury trials on the question of whether their policies were subject to the “one occurrence” interpretation or the “two occurrence” interpretation.

The first trial resulted in a verdict on April 29, 2004, that 10 of the insurers in this group were subject to the “one occurrence” interpretation, so their liability was limited to the face value of those policies, and 3 insurers were added to the second trial group.1718 The jury was unable to reach a verdict on one insurer, Swiss Reinsurance, at that time, but did so several days later on May 3, 2004, finding that this company was also subject to the “one occurrence” interpretation.19 Silverstein appealed the Swiss Re decision, but lost that appeal on October 19, 2004.20 The second trial resulted in a verdict on December 6, 2004, that 9 insurers were subject to the “two occurrences” interpretation and, therefore, liable for a maximum of double the face value of those particular policies ($2.2 billion).21 The total potential payout, therefore, was capped at $4.577 billion for buildings 1, 2, 4, and 5.22

In 2007, Silverstein and the Port Authority of New York and New Jersey filed a lawsuit against some of its insurers for failure to pay out insurance proceeds following the 2004 verdicts, and that litigation was settled in late May, 2007.23242526 Silverstein's lease with the Port Authority for the World Trade Center requires him to continue paying $102 million annually in base rent.27 He is applying insurance payments toward the redevelopment of the World Trade Center site.22

Rebuilding

7 World Trade Center

As leaseholder of buildings One, Two, Four and Five, Silverstein had the legal right to rebuild the buildings, including the Freedom Tower at the World Trade Center site which would later be designated as building One, and while the site remains unoccupied, he continues to pay $10 million per month in rent to the Port Authority of New York and New Jersey.

After the September 11 attacks, the United States Congress approved $8 billion in tax-exempt Liberty Bonds to fund development in the private sector at lower-than-market interest rates. $3.4 billion remained unallocated in March 2006 designated for Lower Manhattan, with about half of the funds under the control of Mayor Michael Bloomberg and the other half under the control of former Governor George Pataki.

In April 2006, after several months of negotiation aimed toward permitting reconstruction to commence, Silverstein yielded some of his rights back to the Port Authority, in order to facilitate rebuilding at the site. Those negotiations resulted in Silverstein ceding his rights to building One (and its pro-rata share of the above-noted Liberty Bond funds) to the Port Authority, and allocating a portion of the insurance proceeds to the rebuilding of building One in favor of the Port Authority. In return, the remaining pro-rata shares of the Liberty Bond funds were allocated to Silverstein Properties for purposes of rebuilding the remaining buildings, and government agencies are expected to be among the tenants in those buildings.

Ground was broken on the construction of the Freedom Tower on April 27, 2006.28 Lack of financing had prevented construction from commencing earlier. The proceeds of the insurance policies arising from the destruction of the previous buildings were insufficient to cover the cost of rebuilding all the insured buildings.

In March 2007 Silverstein appeared at a rally of construction workers and public officials outside of an insurance industry conference to highlight what he describes as the failures of insurers Allianz & Royal and Sun Alliance to pay $800 million in claims related to the attacks. Insurers cite an agreement to split payments between Mr. Silverstein and the Port Authority as a cause for concern.29

Other projects

While Silverstein is most famous for his involvement at the World Trade Center, his real estate holdings include many other buildings in New York City, including 575 Lexington Avenue, 1177 Avenue of the Americas, 529 Fifth Avenue, and 570 Seventh Avenue. Residential projects developed by Silverstein include One River Place (42nd Street west of 11th Avenue), Silver Towers, and 30 Park Place.30 Silverstein was also involved as a developer of the Ronald Reagan Building in Washington, D.C..31

In November 2006, Silverstein agreed to buy the building at 99 Church Street from Moody's for $170 million.32 Moody's is slated to move its headquarters into 7 World Trade Center in 2007. 99 Church Street, built in 1951, contains 441,000 square feet (41,000 m2) of space.33 Depending on market demands, the building may continue to be used as office space or as a mixed-use structure, which would also include apartments.33

In 1989 Silverstein proposed to members of the Israeli government that a Free-Trade zone should be created within the Negev region of Israel. The project ultimately failed, however it enjoyed popular support amongst leading Israeli political figures.6

Philanthropy

Silverstein has been involved in his alma mater, as founder and chairman emeritus New York University's Real Estate Institute, and as a trustee of the New York University Medical Center and Health System. Silverstein also has served as chairman of the United Jewish Appeal in New York, the Realty Foundation, trustee of the Museum of Jewish Heritage, and treasurer of the National Jewish Medical and Research Center in Denver. Silverstein is also a governor of The Real Estate Board of New York.34

References

  1. ^ Gelinas, Nicole (Autumn 2006). "Freeing us from Freedom Tower", City Journal. 
  2. ^ Schuerman, Matthew (2005-12-18). "Larry Silverstein", New York Observer. Retrieved on 11 November 2008. 
  3. ^ "One On 1: Developer Larry Silverstein", NY1 (2006-07-31). Retrieved on 11 November 2008. 
  4. ^ a b "Silverstein Properties, Inc. - Company History". Fundinguniverse.com.
  5. ^ Salmans, Sandra (1985-01-28). "Putting Together City's Biggest Apartment Deal", New York Times. Retrieved on 11 November 2008. 
  6. ^ a b Leibovich-Dar, Sara. "Up In Smoke", Haaretz. Retrieved on 11 November 2008. 
  7. ^ "Silverstein Buys 120 Wall St.", The New York Times (1980-09-28). 
  8. ^ Dunlap, David W. (1991-10-27). "Commercial Property: Nonprofit Tenants; Wall Street Tower as a Site for a Service Association", The New York Times. Retrieved on 11 November 2008. 
  9. ^ "120 Wall Gets Profitable; Tenants Exiting", New York Observer (2007-03-20). Retrieved on 11 November 2008. 
  10. ^ Dunlap, David W. (1994-08-07). "Shift by Nonprofits Leaves Space Behind", The New York Times. Retrieved on 11 November 2008. 
  11. ^ Rothstein, Mervyn (1997-09-03). "Nonprofits' Wall St. Home Filling Up", The New York Times. Retrieved on 11 November 2008. 
  12. ^ Goldberger, Paul (2004). Up From Ground Zero. New York: Random House, p.28. ISBN 1-4000-6017-6. 
  13. ^ Port Authority of New York and New Jersey (2001-07-24). "Governor Pataki, Acting Governor Difrancesco Laud Historic Port Authority Agreement To Privatize World Trade Center". Press release.
  14. ^ Frankel, Alison (2002-09-03). "Double Indemnity: Was the WTC disaster one incident or two?", The American Lawyer. 
  15. ^ Goldberger, Paul (2002-05-20). Groundwork: How the future of Ground Zero is being resolved, The New York York, http://www.paulgoldberger.com/article.php?art=groundwork. 
  16. ^ Litigation Settled, Bloomberg, May 23, 2007
  17. ^ Hamblett, Mark. "Jurors Deal World Trade Center Leaseholder Major Setback", New York Law Journal / Law.com. 
  18. ^ Starkman, Dean (2004-04-30). "Jury's Decision Leaves Rebuilding of World Trade Center in Turmoil", Wall Street Journal, p. A1. 
  19. ^ Parekh, Rupal (2006-10-18). "Appeals court rules for Swiss Re in WTC dispute", Business Insurance. 
  20. ^ Hamblett, Mark (2006-10-19). "Circuit Resolves Distribution Of 9/11 Insurance Proceeds", New York Law Journal. 
  21. ^ Starkman, Dean (2004-12-07). "Jury Rules for Silverstein on Trade Center Insurance", Wall Street Journal, p. A11. 
  22. ^ a b WTC Developer to Get Additional $12.5M Payment from Insurer TIG, Commercial Property News, Barbra Murray, March, 2007
  23. ^ Levitt, David M. (2007-05-23). "Litigation Settled", Bloomberg. Retrieved on 11 November 2008. 
  24. ^ Westfeldt, Amy (2007-05-23). "$2B Settlement Ends Trade Center Litigation", USA Today / Associated Press. Retrieved on 11 November 2008. 
  25. ^ "Circuit Resolves Distribution Of 9/11 Insurance Proceeds", The New York Law Journal (2006-10-19). 
  26. ^ Jenkins, Jr., Holman (2002-03-06). "The Importance of Being Larry", Wall Street Journal, p. A17. 
  27. ^ "2001 Annual Report" (PDF). PANY (2002, April 23).
  28. ^ Westfeldt, Amy (2006-04-28). "Construction Begins at Ground Zero", Washington Post / Associated Press. Retrieved on 11 November 2008. 
  29. ^ "Silverstein Lashes Out Against WTC Insurers", New York Sun (2007-03-13). 
  30. ^ "Properties". Silverstein Properties. Retrieved on 2008-11-11.
  31. ^ Moore, Elizabeth (2006-10-10). "Silverstein's shopping on Long Island", Newsday (New York). 
  32. ^ Hess, Diane (November 21, 2006). "Moody's to sell headquarters to Silverstein", New York Business. 
  33. ^ a b "In Brief", Newsday (November 22, 2006). 
  34. ^ "Speakers - Larry Silverstein". Global Conference 2007. Retrieved on 2008-11-11.

External links

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World Trade Center

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