Silverstein's Loss is Lower Manhattan's Gain

Yesterday, developer Larry A. Silverstein lost yet another battle to collect a double insurance payment for the loss of the World Trade Center towers. Silverstein, who signed a lease for the property six fateful weeks before 9/11, argued that each airplane attack was a "separate occurrence," entitling him to a double recovery. Had that argument prevailed, Silvertstein would have been entitled to a whopping $7.0 billion payout, which he would have used to erect a glut of office space in Lower Manhattan.

The property was covered by a consortium of insurers, and the dispute has turned on which of two coverage forms, or "binders," was in effect on 9/11. It's a complex skein to unravel, because Silverstein negotiated with many insurers simultateously, and each one might have had a different understanding of what they were agreeing to cover. But one after another, courts and juries have held that Silverstein's insurance treated 9/11 as a single event.

There are still a few insurers for which the issue has yet to be decided, but even if Silverstein wins every remaining battle--which is highly unlikely given his track record thus far--the most he could collect is $4.68 billion. However, he has aleady collected $1.9 billion, of which $1.6 billion has gone to legal fees and rent payments.

The bottom line is that there will be far less insurance money to rebuild the World Trade Center than Silverstein and the Port Authority had expected. While that's undoubtedly bad news for Silverstein, it's good news for the city. As it is, Silverstein has two massive projects underway at the site: 7 World Trade Center (already under construction) and the 1,776-foot-tall Freedom Tower (to be started shortly). Neither has attracted a principal tenant. The last thing we need is for Silverstein to continue this glut of construction, as he had every intention of doing, despite the clear lack of appreciable demand.

Silverstein swears that he will continue to rebuld anyway, up to the 10 million square feet of commercial space he controlled previously. But no bank will lend Silverstein the money for more office towers until it's demonstrated he can fill them, and for the foreseeable future that seems highly unlikely.

Last year, the Port Authority bought out Westfield America, who had held the lease on the retail mall at the Trade Center. Westfield was balking at plans to build street-level retail, preferring to duplicate the subterranean mall that was on the site before 9/11. Getting rid of Westfield simplified matters for everybody. With Silverstein now losing money hand over fist in lease payments to the Port Authority, and with no chance of him rebuilding all of the lost space anytime soon, Silverstein becomes increasingly irrelevant.

I wouldn't be surprised to see him out of the picture, or with his influence severely curtailed, by year's end.