Critics question the need, size of subsidies at World Trade Center
Tomorrow, a bi-state agency will vote on a controversial proposal to use tens of millions of dollars in subsidies, some provided by New York State, to faciliate a real estate deal involving two companies that are effectively controlled by Rupert Murdoch.
The agency in question — the Port Authority of New York and New Jersey — is jointly controlled by New York Gov. Andrew Cuomo and New Jersey Gov. Chris Christie.
It argues that the subsidies will enable real estate developer Larry Silverstein to kickstart construction of 2 World Trade Center, which will, in turn, unlock hundreds of millions of dollars in revenues for the agency, which manages facilities like the George Washington Bridge, the PATH train system, and the region’s airports.
After various New York State subsidies and a contribution from Silverstein are factored in, the Port Authority says it will only end up taking a $9 million hit in exchange for "at least $500 million in capital capacity."
What’s more, the deal will enable the authority to refocus on transportation, rather than spend endless time and money on the rebuilding of Ground Zero, which it controls, and where 2 World Trade Center will be built. The Murdoch-controlled companies, News Corp. and 21st Century Fox, are in negotiations to move there.
But critics question the general propriety of the endeavor, especially since in June 2014, the Port Authority promised not to use any more public dollars to subsidize 2 World Trade.
"Silverstein Properties Inc. is fully capable of securing the private financing necessary to build in this location, either from their prospective partners at News Corp. or others," wrote Ydanis Rodriguez, the chair of the City Council's transportation committee, in a letter to Port Authority executive director Pat Foye on Wednesday.
"At a time that when the city is at an all time high in jobs, when so many diferents facets of the city’s economy are booming, I don’t understand why a multi-million dollar incentive is needed to go from one part of Manhattan to another," added Center for an Urban Future executive director Jonathan Bowles, referring to the companies' prospective move from midtown to lower Manhattan.
Some real estate executives also wonder whether the Port is understating the size of the subsidy it’s giving to Silverstein, and which Silverstein is then passing along to the companies.
Silverstein Properties, which would not comment for this article, has a long-term deal to lease the site of 2 World Trade Center from the Port Authority at the northeast corner of Ground Zero.
As part of that deal, Silverstein pays rent to the Port Authority, and at certain points, that rent rises with the market.
Some of the subsidies the Port Authority is giving to Silverstein, and which he is passing along to 21st Century Fox and News Corp., come in the form of delaying by decades the date when Silverstein has to pay market rent.
According to the Port Authority, the overall cost will be $43 million. A collection of state subsidies plus a contribution from Silverstein will reduce that to $9 million.
Those numbers seem low, especially when compared to appraisals for a comparable building right next door, according to two real estate executives who spoke with POLITICO New York on background.
In 2014, a real estate firm appraised the quite similar 3 World Trade Center for Silverstein.
It determined that the tower next door to the one Murdoch has his eye on would owe the Port Authority $31.3 million a year in fair-market rent in 2020.
The Port says that if the Murdoch deal weren’t on the table, Silverstein would owe the Port $32.5 million in fair market rent in the same time period.
The Murdoch tower is 12 percent larger than the other one. Yet the Port argues its fair market value rent should only be 3.8 percent higher. Further, were the Silverstein appraisal metrics for the 2040s applied to 2 World Trade (the abatement extends that far), Silverstein would owe several million more over that time period than that which the Port maintains.
The numbers POLITICO New York is using for Tower 3 were prepared by a Silverstein consultant. “And I really can’t comment to how they came to their assumptions,” said Libby McCarthy, the Port’s chief financial officer.
“We‘ve looked at the cycles that real estate goes through and what’s a reasonable approach to that, and that’s what we embedded in this,” she added. “That being said, it’s an assumption.”