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Larry Silverstein

Jury Rules WTC Destruction Was Two Separate Events 

Wall Street Journal 6dec04

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graphic by gφttlich - Larry Silverstein: Jury Rules WTC Destruction Was Two Separate Events - Wall Street Journal 6dec04

NEW YORK — A federal jury ruled Monday that the Sept. 11 attack on the World Trade Center was two occurrences for insurance purposes, meaning leaseholder Larry Silverstein stands to collect up to $2.2 billion from nine insurers.

The verdict in U.S. District Court in Manhattan was the latest twist in Mr. Silverstein's efforts to turn his $3.5 billion insurance policy on the trade center complex into a $7 billion payout.

The verdict Monday in the second trial to address the issue applied to nine insurers who covered the trade center for a total of $1.1 billion. Mr. Silverstein lost at the first trial earlier this year, which applied to 13 insurers.

The jury was asked to rule specifically whether the terrorism could be considered one or two events for nine of the trade center's 24 insurance companies. Judge Michael Mukasey thanked the jury for reaching a verdict on a complicated case.

Regardless of the insurance payout, Mr. Silverstein and redevelopment officials have promised to rebuild the trade center complex in the next decade, including 10 million square feet of office space, a memorial and cultural buildings.

The insurance companies involved in the case were: Travelers Indemnity Co., Industrial Risk Insurers, Royal Indemnity Co., Allianz Insurance Co., Tokio Marine and Fire Insurance Co., Twin City Fire Insurance Co., Tig Insurance Co., Westfield WTC LLC and Zurich American Insurance Co.

In her closing argument, lawyer Carolyn H. Williams argued on behalf of the companies that the hijacked planes were like guided missiles and that the insurance payout should not depend on whether terrorists used "one or two or 10 or 100 weapons."

On behalf of Mr. Silverstein, attorney Bernard Nussbaum said there was precedent in the insurance industry to find the terrorism was two events. A California case concluded that four separate insurance events occurred when an arsonist set four separate fires, including two six minutes apart in courthouses 200 yards apart.


Uncertainties Soar At Ground Zero

Freedom Tower Is Under Way, But Financing Plan Is Lacking For Rebuilding of Entire Site 

ALEX FRANGOS / Wall Street Journal 20oct04

 

NEW YORK — Last July 4, at Ground Zero, the cornerstone of the Freedom Tower was laid. Now, construction contracts are being handed out, and the earth is starting to move. When completed, the office skyscraper is planned to rise 1,776 feet into the air, which would make it the tallest building in the Western Hemisphere.

But whether the grand scheme for the complex, which is meant to include four other office towers, will be fully realized is uncertain. A plan to finance the project — estimated to cost more than $9 billion — is caught up in deep disagreements between Larry A. Silverstein, president of Silverstein Properties Inc., which is the developer of the office buildings, and the project's public owner, the Port Authority of New York and New Jersey.

"We're about to invest several billion dollars in a real-estate project, and we don't have a commitment at all from the developer about how we are going to be treated," says a Port Authority official, who spoke on condition of anonymity, saying he feared political retribution. The agency, which runs airports, tunnels, bridges and commercial ports, counts on the rent from the World Trade Center for about 5% of its $2 billion-plus yearly operating budget.

Mr. Silverstein refused repeated requests for comment.

Silverstein Properties and the Port Authority continue to be guided by a lease each signed six weeks before the Sept. 11, 2001, attacks. The lease stipulates that should the complex be destroyed, Silverstein must continue to pay the $120 million a year rent in order to maintain the right to rebuild. Mr. Silverstein has tried to persuade the Port Authority that his closely held company is capable of rebuilding while meeting its massive rent payments. The rent is currently being paid from insurance proceeds, draining the amount available for rebuilding.

In the fall of 2001, Mr. Silverstein sued his insurers arguing that the attacks on the two towers constituted two events, requiring double payouts on the $3.5 billion policy. The first phase of the case, ended in May, found that the majority of the insurers who share the policy are excluded from that line of argument and owe a single payment. That decision, now being appealed, left a $6 billion gap between the cost of the entire project and the cash available.

A second phase, now under way in New York federal court, involves nine insurers that were found to be open to the two-event interpretation. The jury will determine if the attacks constituted two insurable events. If the jury rules in Mr. Silverstein's favor, those nine insurers could end up paying twice the $1.1 billion in coverage they represent.

Pending the continuing litigation, between $3.6 billion and $4.6 billion will have been paid out by the insurers. But around $1.5 billion of that insurance money already has been spent on paying off creditors, legal fees in the insurance case, and the Port Authority's rent.

If Silverstein Properties fails to come up with the financing, the Port Authority could force a negotiated settlement that would require Silverstein to return some of the development rights for the remaining office towers to the agency in return for a reduction in what it pays the Port Authority each year in rent. The Port Authority could then resell those rights to other developers. Even if that happens, the construction of the towers would depend on the developers' ability to attract paying tenants, generally a precondition to secure commercial financing.

In July, Silverstein and its advisers at Morgan Stanley presented a business plan to the Port Authority on how it would finance the buildings while paying rent. The plan involves using the remaining insurance money to build the Freedom Tower, filling it with paying tenants, then borrowing against that asset to erect the next tower. Silverstein would repeat that arrangement until all five towers are built. Those at the Port Authority who have seen the plan say Silverstein uses aggressive assumptions about how quickly it can attract tenants and how much it will be able to charge.

Some Port Authority officials dispute whether Silverstein can afford to erect the Freedom Tower and the four other planned office buildings while continuing to pay the bi-state agency the rent it owes according to his July 2001 lease. That lease envisions a rent increase in August 2006 to $138 million a year.

The Port Authority and Silverstein are also battling over who will pay the $1 billion to $2 billion to construct the site's underground backbone, including delivery ramps, walkways and mechanical systems that will support both the office buildings and the site's cultural, memorial and transit functions. Those familiar with the negotiations say the sides are far from an agreement.

It's unclear when a deal could be hatched, but lack of an agreement isn't slowing the first phase of construction. There is enough insurance money and federal aid to build the first elements, including the Freedom Tower and the transit hub. But once that money is spent, the rest of the office towers' development will depend on Silverstein being able to attract tenants.

The first World Trade Center, completed in 1972, dumped millions of empty square feet of office space on a stagnant economy that couldn't absorb it. State agencies took much of the space at artificially low rents, creating a subsidy that hurt competing buildings. The result was a real-estate recession in downtown Manhattan and a financial drain on the Port Authority. It took almost three decades before the towers held enough market-rate tenants to make the complex a cash cow.

Today, some worry the current rebuilding plan will run into similar problems. "I'm puzzled about whether the Freedom Tower makes sense architecturally" to attract office tenants, says Richard Ravitch, a former chairman of the Metropolitan Transportation Authority and elder statesman of New York economic development, echoing sentiments of numerous real-estate experts, planners and people familiar with the scheme. "If rebuilding the economy of downtown is a high priority, then I don't think we are making all the intermediate decisions that are going to produce that result."

As a sign of the difficult task the development faces, at least one major tenant has passed on moving there. Goldman Sachs Group Inc. is building its own skyscraper — similarly sized in terms of square footage to the Freedom Tower — directly across the street instead. It is slated to open around the same time as the Freedom Tower, in 2009.

Goldman's reasons for not taking space in the Freedom Tower were complex, says a person familiar with the securities firm's thinking. It didn't want to subject employees to working at the site of two terrorist attacks, and the company avoids landmark addresses. Officials involved in wooing Goldman say the Freedom Tower's design kept Goldman away. Because it has a narrow base, a product of its highly symbolic architecture, it doesn't accommodate Goldman's need for wide-open trading floors.

New York Gov. George E. Pataki, who along with the governor of New Jersey selects the Port Authority's 12-member board, has strongly endorsed building the Freedom Tower and Silverstein's continuing role. Rebuilding officials and downtown Manhattan boosters point to the billions of dollars being spent to upgrade downtown's transit facilities as part of the overall plan.

"It's got to be an economic success story, that's what it's all about at the end of the day," says Kevin Rampe, president of the Lower Manhattan Development Corp., a city-state agency guiding the recovery. "Vacant buildings are not a community."

But there is no denying that the Freedom Tower is going up when acres of office space are set to flood the sluggish downtown market. Silverstein has failed to attract tenants to 7 World Trade Center, a 1.7-million-square-foot office building adjacent to the Freedom Tower plot that is slated to open in late 2005. Together, 7 World Trade Center and the Freedom Tower will give Mr. Silverstein's company 4.3 million square feet he needs to rent out — about as much space as was in one of the Twin Towers.

Profound shifts in the real-estate market also suggest that the trade center faces an uphill battle. Rae Rosen, senior economist at the Federal Reserve Bank of New York, says she doesn't see sufficient demand in financial-services job growth in the near term to fill the 30 million square feet of proposed office development in the region, including the 10 million at the trade center site. One issue she cites: "Major financial employers downtown tell us 'We can't afford to resist outsourcing of computer-programming jobs anymore. For every four jobs we add, we may do two here and two there. It's a ratio.'"

Another obstacle: The Freedom Tower's design, unlike that of most tall buildings, hasn't been guided by the regular rules of real-estate finance, but instead by the perceived need for a defiant symbol.

"Skyscrapers in general are all about economics," says Carol Willis, the founder of the Skyscraper Museum in New York. "This is different. It's not that economics haven't played any role at all. But this building transcends the simple equation — form follows finance." she says, though she remains optimistic that the building will be a success in the long run.

Freedom Tower's planned location on the site — farthest from subways and the heart of Wall Street — exemplifies how finances have taken a back seat. Architect Daniel Libeskind's plan, selected in February 2003, uses symbolic rationales to locate the tower, rather than real-estate common sense. The tower is next to the western foundation wall, which survived the attacks, to symbolize America's resolve. And its placement in relation to the four shorter buildings, creating a spiral, also holds meaning, reflecting the flowing robes of the nearby Statue of Liberty.

Silverstein's architects, Skidmore Owings & Merrill, at one point tried to move the tower to a more tenant-friendly location near the subways, but were rebuffed by Mr. Libeskind and others who supported his plan.

Some at the Port Authority have resigned themselves to the fact that the Freedom Tower may not be a revenue generator. "We've decided that the Freedom Tower is a symbol of rebuilding," an official says. "It's like building the Statue of Liberty. It's not an economic proposal. The Freedom Tower is a monument. That's what we're building." If the tenants don't materialize, the four other towers will likely not get built in the near future. In their place, the Port Authority has planned two-story placeholder buildings that would contain retail stores, a potential source of revenue for the agency.

—Kate Kelly contributed to this article.

Page B1

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Coffer Qualms 

More details on the plans for World Trade Center site development:

		Transit Hub  		 Theater  		Museum  		Retail/Hotel  

Size*  		500,000  		 250,000  		250,000  		Up to 1.6 million  

Description  	1			 2			3			4

Price  		$2 billion  		 $250-$300 million  	$250-$300 million  	Unknown  

Financing  	Federal aid as part 	 Private fundraising; 	Private fundraising; 	Not determined
		of post-9/11 assistance  some public money may	some public money may 
					 be available  		be available  
*Measured in square feet
Source: WSJ Research

Silverstein Has Another Court Loss

Jury Caps Swiss Re's Payout To an Amount Inadequate To Rebuild Trade Center 

ALEX FRANGOS and DEAN STARKMAN / Wall Street Journal 4may04

 

NEW YORK — Developer Larry Silverstein lost again in court, delivering a major blow to the rebuilding of the World Trade Center.

A jury in federal court here ruled that Mr. Silverstein, the leaseholder of the destroyed complex, is entitled to an insurance payment that will fall well short of the more than $9 billion needed to rebuild. The ruling puts Mr. Silverstein's role as the site's builder in jeopardy and could slow or derail the development of the proposed office towers.

Officials at the Port Authority of New York and New Jersey, which owns the site, are expected to seek to diminish Mr. Silverstein's role within days, according to people familiar with the situation. In a statement, Port Authority Executive Director Joseph J. Seymour indicated Mr. Silverstein still would have some role to play in the rebuilding. "Silverstein Properties is moving forward with construction of the Freedom Tower," he said, speaking of the first planned building.

One person close to the private developer said Mr. Silverstein intended to rebuild under the plan with conventional financing if need be. "Larry's not going anywhere," the person said. "Larry has an absolute right under his lease to build five office towers on five locations" as envisioned in a plan chosen in international competition last year.

Mr. Silverstein's lawyer, Herbert Wachtell, of Wachtell, Lipton, Rosen & Katz, had contended the insurers committed to an insurance form that could interpret the attacks as two occurrences, and thus be eligible for double payments.

The panel of jurors, all New Yorkers, decided Monday that Swiss Reinsurance Co. — the insurer with the single largest share of coverage, $878 million — signed onto a form that strictly defines the attacks as a single occurrence, due a single payout. The jury ruled last week in favor of most of the other insurers in the case.

Mr. Wachtell declined to comment. Barry Ostrager, lead lawyer for Swiss Re, expressed satisfaction with the jury finding.

Jacques DuBois, head of Swiss Re's U.S. unit, said he was "very gratified." He questioned why the Port Authority let Mr. Silverstein spend millions of dollars of insurance proceeds on so-called business interruption expenses, including the trial itself.

Mr. Silverstein, in a statement, said, "A defeat in the courtroom is not a defeat for rebuilding."

The nearly three-month trial produced a partial verdict Thursday that went heavily against Mr. Silverstein. In total, the jury, which deliberated for eight days, found that 12 of the 15 insurers, totaling $1.9 billion in coverage, were bound by an insurance form that interprets the attacks as a single incident, qualifying for a single payment. The remaining three insurers could be forced to pay an amount double their share of the coverage — $176 million — the jury found. A separate group of insurers, totaling around $1 billion in coverage, also are in that position but weren't part of this trial.

It isn't guaranteed that even those insurers will have to make a double disbursement. A second trial is expected to begin within weeks to determine if the attacks should be considered two occurrences under insurance law.

Should Mr. Silverstein win the second trial outright, the most he could realize is $4.68 billion. Around $1.3 billion in advance insurance payments already have been spent on lawyers fees, financing buyouts, Mr. Silverstein's fees and the return of his and his partners original investment in the deal.

The Silverstein defeat throws into question the current plan to replace, to the square foot, the vast amount of office space lost when the Twin Towers fell. Alternatives to the office space include residential, hotels, or greater retail than currently planned.

If Mr. Silverstein's role is reduced or ended, several parties have emerged as possible substitute developers, including Brookfield Properties Corp. and closely held Related Cos., both of New York. The U.S. unit of Australia's Westfield Holdings Ltd. holds a right-of-first refusal on retail rights, while Host Marriott Corp., Bethesda, Md., holds similar rights for any hotel lease. Both are former World Trade Center leaseholders. The Port has hired Jones Lang LaSalle, a Chicago real-estate services firm, to guide the process.

Stumping the jury on Swiss Re was a seemingly simple issue: Did the insurer implicitly accept an insurance form favorable to Mr. Silverstein's case simply by receiving it by e-mail, but not responding. The jury sent notes to the judge asking to clarify whether Swiss Re's "silence" implied acceptance. At midafternoon Monday, the judge sent a final clarification.

—Janet Morrissey contributed to this article.

Page A3


 

Jury's Decision Leaves Rebuilding Of World Trade Center in Turmoil

By DEAN STARKMAN and ALEX FRANGOS Staff Reporters of THE WALL STREET JOURNAL April 29, 2004 11:14 p.m.; Page A1

NEW YORK — It's time for Plan B at Ground Zero.

Larry Silverstein, the real-estate developer who holds the lease on the World Trade Center, lost a major chunk of his legal bid to double the $3.55 billion face value of the insurance coverage for the twin towers. That has thrown the rebuilding process into confusion and signals the possible end of Mr. Silverstein's role as lead developer of the highly symbolic site.

In U.S. District Court in Manhattan yesterday, the jury delivered an incomplete and split decision, but one that heavily favored the insurers. The panel found that eight of the 12 insurance companies — constituting more than $1 billion of coverage — were governed by an insurance form that defines the attacks on the World Trade Center as a single event, or "occurrence." And that means a single payout.

Mr. Silverstein had argued that all the insurers committed to forms under which the attacks of Sept. 11, 2001, would be regarded as two occurrences that entitled him to a double payment. But the jury decided in Mr. Silverstein's favor for just three of the insurers, representing only a sliver of the total policy amount, about $176 million.

The 11-member panel was unable to reach a verdict on the status of the single largest insurer, Swiss Reinsurance Co., and will continue to deliberate on that portion of the case Monday. In a note to the judge yesterday, the jury wrote, "We have focused our efforts on this one insurer for the majority of the last five days with great diligence, and in spite of our best efforts have not been able to reach a unanimous decision." Swiss Re's share of the policy is $877.5 million.

Judge Michael B. Mukasey said he would accept a partial verdict and sent the panel back to deliberate on Swiss Re. Juror No. 12, Tonya Powers, 32 years old, was dismissed from the trial following yesterday's partial decision. She requested to leave for personal reasons, and both sides agreed to the dismissal.

Whatever the final outcome of the case, yesterday's verdict leaves the 72-year-old Mr. Silverstein far short of the more than $9 billion he would need to rebuild the World Trade Center complex based on a plan chosen in a high-profile international competition. Separate from this case, Mr. Silverstein still could achieve a double payment from a group of insurers representing close to $1 billion in coverage. That will be determined in a subsequent trial.

Despite the unresolved nature of yesterday's decision, officials at the Port Authority of New York and New Jersey, which owns the 16-acre site, have already decided to try to remove Mr. Silverstein from his position of primacy as the Trade Center's developer, according to people familiar with the situation.

The Port Authority, which retained broad centers under the 99-year office leases sold to Mr. Silverstein and his investor group in July 2001, is considering allowing him to keep, at most, his spot as developer of the iconic Freedom Tower, a 1,776-foot tower scheduled to start construction later this summer, the people said.

Mr. Silverstein could even be forced to share his role — and his potential profits — in the Freedom Tower. The Port Authority plans to initiate discussions with Mr. Silverstein about his status within days of the final verdict, these people said.

Jacques DuBois, head of Swiss Re's U.S. unit, declined to comment. Lawyers for the victorious insurers said they were pleased. "We are obviously gratified," said Ken Erickson, a lawyer for a group of London insurers that represented $680 million of the coverage.

"From a financial perspective, I don't think we're looking at a major impact on the U.S. insurance industry," said Robert Hartwig, chief economist for the Insurance Information Institute, an industry trade group. "We'll have to see how the Swiss Re part plays out."

Howard Rubenstein, a spokesman for Mr. Silverstein, said: "This is a partial verdict. We are awaiting the decision with respect to Swiss Re, the largest insurer in the World Trade Center coverage. We will have no further comment while the jury continues to deliberate."

A spokesman for the Port Authority declined to comment, citing the incomplete nature of the decision.

Thus far, Ground Zero planning has been driven by Mr. Silverstein's lease with the Port Authority, which requires him to "restore" 10 million square feet of office space and make lease payments of $120 million a year. The office space was to come in the form of five skyscrapers that Mr. Silverstein promised to complete for the site by 2013. The buildings, plus related infrastructure are estimated to cost more than $9 billion. Of the total potential insurance payout, $1.3 billion has already been spent on lawyers fees, financing buyouts, and Mr. Silverstein's fees and the return of his equity.

The partial verdict leaves enough at least to build the 2.2-million-square-foot Freedom Tower. One scenario would have the Port Authority renegotiate its lease with Mr. Silverstein to allow him to retain control of the Freedom Tower and take back the centers to the rest of the site. Designed to help fill the gap in New York's skyline created when the twin towers fell, the tower has a projected cost of $1.5 billion.

But with Mr. Silverstein now almost certainly unable to fulfill the terms of his lease, the requirement for so much office space disappears. The Port Authority, which has already bought back the retail and hotel centers to the site, will now consider taking back office centers, as well, people familiar with the situation said. Undecided so far is whether to hire a single master developer or separate companies to develop individual sites.

What is clear is that the Port Authority has been quietly planning for a post-Silverstein Ground Zero for months and will now consider a mix of uses for the site, potentially making way for apartments, hotels and more retail outlets. So the jury's finding in part moves those plans along, with profound implications for Lower Manhattan, driving the area's transformation away from its storied past as a major financial center.

The Port Authority has already begun making plans for replacing the income stream, say people familiar with the situation. A less-dense, mixed-use project could be built within the site plan chosen last year of Studio Daniel Libeskind and without tampering with the memorial designed by Michael Arad and Peter Walker, the people said.

With Mr. Silverstein's position at Ground Zero weakened, the spotlight also shifts to the Port Authority's political patrons, New York's Gov. George E. Pataki and New Jersey's Gov. James E. McGreevey, who jointly control the agency's board.

Gov. Pataki, in particular, has tethered his political reputation to progress at Ground Zero, repeatedly promising that construction on the Freedom Tower would be under way by late this summer, around the time of the Republican National Convention in New York in September.

—Staff reporters Ryan Chittum and Theodore J. Francis and Janet Morrissey of Dow Jones Newswires contributed to this article.

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Major events surrounding the New York complex

1972–1973: Twin Towers completed.

2000: Port Authority solicits bids to rent WTC for 99 years.

July 24, 2001: Dark-horse entry Larry Silverstein signs $3.2 billion, 99-year lease for WTC after outbidding large public real-estate companies.

Sept. 11: WTC is destroyed.

Sept. 12: Silverstein insurance executive Robert Strachan sends single-occurrence insurance form to a Silverstein lender and the Port Authority.

October: Silverstein and insurers sue each other over Silverstein's two-occurrence claim demanding double the payout.

July 16, 2002: Initial rebuilding plans are unveiled, but are later scrapped after public criticism.

Feb. 27, 2003: Studio Daniel Libeskind plan, including 1,776-foot signature tower, wins new design competition as site master plan.

July 16: Silverstein's architect David Childs takes lead role from Libeskind in design of the iconic tower.

Jan. 14, 2004: Michael Arad's winning memorial is unveiled.

Jan. 23: Santiago Calatrava-designed $2 billion commuter-rail station unveiled.

Feb. 9: WTC insurance trial opens in New York federal court.

April 29: Silverstein loses a partial verdict against insurers in his bid to seek double the insurance payment on the complex.

Late summer 2004: Cornerstone laying of Freedom Tower scheduled to coincide with Republican National Convention in New York.

Source: WSJ research

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THE VERDICT

Jurors in the Larry Silverstein case had to answer the following for each of the insurers involved: As of Sept. 11, 2001, did the Wilprop form govern the terms of coverage in this insurance company's binder for the World Trade Center Insurance program? (Wilprop defines the attacks on the WTC as one occurrence)

			Coverage 	Jury Verdict 
Insurer			(mlns of $)  	(Yes/No)  
Sr Intl (Swiss Re)  	877.5		Undecided*  
Lloyd's Syndicate-a  	678.9  		Yes  
Great Lakes Re-a  	 38  		Yes  
Houston Casualty-a  	  2.4  		Yes  
QBE Intl  		 12.5  		Yes  
Copenhagen Re  		  4  		Yes  
Federal Insurance Co  	254.3  		Yes  
Lexington Insurance  	  5  		Yes  
Employers Insur/Wausau	 64.9  		Yes  
Zurich American  	 45.7  		No  
Royal Indemnity  	127.8  		No  
Twin City Fire  	  2.5  		No  

*deliberations continue Monday  
a-Grouped as the "London Insurers  

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