The kicker to Charles Bagli’s latest Times article on economic shenanigans surrounding development at the World Trade Center site is a brilliant one. After delving into the fighting over a $1.2 billion loan the Port Authority is considering issuing to Larry Silverstein, Bagli coaxed out a quote from Kenneth Lipper, PA commissioner and Silverstein opponent, that highlights just how far away the Port Authority is from any sort of transit-related mission.
“It’s not a question of whether to build it,” Lipper said. “We’re only talking about timing and who’s going to pay for it, the public or the private sector. I want to finance it consistent with our mission, regional transportation.”
You may pause at that quote and wonder what financing another office building near Ground Zero when the first one isn’t fully rented has to do with regional transportation. You may wonder why the Port Authority is even considering giving out a $1.2 billion loan when that money could go toward better airports, another trans-Hudson rail tunnel, traffic studies or a whole slew of transportation-oriented studies. You may wonder, in fact, just what the Port Authority’s mission is these days and when it’s going to get back to it. Good question.
Since the days of 9/11 launched the Port Authority into an endless money pit of litigation and construction and since New Jersey and New York seemingly forgot, a few years later, how to run the agency, it’s been nothing but trouble. The PA is building the world’s most expensive subway station and the world’s most expensive office building. It’s not devoting resources to the region’s needs that it’s been tasked with overseeing, and it is debating whether or not to issue another loan to Larry Silverstein for another building.
Here’s the deal in a nutshell:
Eager to get the building up, Mr. Rechler, the authority’s vice chairman, crafted a proposal with the developers’ advisers at Goldman Sachs: The Port Authority would guarantee a $1.2 billion construction loan — half the cost of the building, and double the previous commitment — for Mr. Silverstein. That essentially promises Mr. Silverstein’s lenders that the authority would pay the loan if he could not. The developer would also have the use of $1.3 billion in tax-exempt bonds, which can be attractive to investors.
In return, Mr. Silverstein would have to put up about $450 million in cash and, unlike the old deal, pay interest and fees to the authority, which would also have to right to foreclose if Mr. Silverstein defaulted on his payments for the $1.2 billion loan.
I don’t think that’s a particularly great deal for the Port Authority (though Steve Cuozzo disagrees). Maybe this loan can push 3 World Trade Center higher; maybe it can help the PA begin to reach the cap of $25 million a year in rent payments it could receive when every square foot of space in the yet-to-be-built building is rented. But maybe not.
Outside of the maybes, it’s another real estate project funded by an agency that’s not a real estate investment firm. It’s another project that takes dollars away from solving Laguardia’s physical issues, from expanding JFK’s runways, from modernizing Newark, from building out the PATH. It’s a monetary move that isn’t consistent with the Port Authority’s mission, and it’s a New York-based chit that will push New Jersey to ask for a similarly diversionary expenditure on the other side of the Hudson.
As Ted Mann reported in the Journal this past weekend, a panel will soon convene to study ways to overhaul the Port Authority. It’s a tall order, requiring cooperation across a political aisle and a wide river. As Mann reports, PA appointees want “to return the authority’s focus to its core mission of building and maintaining transportation infrastructure in the region.” Something has to give to get there, and yet another billion-dollar loan should be just the thing to go.