http://www.observer.com/2010/real-estate...back-silverstein-give-45-days-make-peace
WTC Arbitrators Push Back on Silverstein, Give 45 Days to Make Peace
By Eliot Brown
January 27, 2010
A panel of arbitrators has ruled against developer Larry Silverstein on a number of key points in arbitration over the future of the World Trade Center redevelopment.
The panel, which issued the ruling last night, is giving Mr. Silverstein and the site's owner, the Port Authority, 45 days to agree on a new path forward at the World Trade Center, or else the panel itself will be able to dictate a new development plan.
The decision was on a contentious arbitration over a major impasse over the site's redevelopment, a process that has dragged on since the early fall. The ruling denied the most potent of Mr. Silverstein's requests, including a request for immediate rent abatement and a ruling that the Port Authority was in "material breach" of contract.
The two parties have been at an impasse for nearly a year, fighting to work out a development and financing plan that works in today's economic climate. Sites for two of Mr. Silverstein's planned towers have remained empty and inactive (a third, Tower 4, is built to above street level), a delay that threatens the functionality of the site given the interdependence of all the components.
In denying the "material breach" claim, the three-person panel rejected a request that would have permitted Mr. Silverstein to come back and sue for monetary damages, threatening to let the impasse drag on significantly longer.
The panel also ruled against Mr. Silverstein on his request for rent abatement, not denying the concept outright but rather saying that now was not the appropriate time given the uncertainty surrounding the site's redevelopment. "SPI's request for a rent abatement at this time is denied, without prejudice to a later claim when the relevant circumstances can be established with sufficient certainty," the ruling said.
In addition to leaving the door open for damages further down the road, the panel did grant Mr. Silverstein a key point: the elimination of the "cross-default," which held that Mr. Silverstein had to build all three of his towers within five years or all three properties would be forfeited.
The ruling also rejected a request by the Port Authority to mandate that Mr. Silverstein start construction on all his towers.
The key question now is whether the ruling will be enough of a push to get Mr. Silverstein and the Port Authority to hammer out a new financial agreement and schedule--a tough agreement that has proven impossible to reach despite a year of talks and public attention to the matter. Mr. Silverstein has been trying to get the Port Authority to back financing on two of his towers, saying that the Port owes it to him as a form of compensation for its significant delays at the site. The Port Authority has resisted, saying the money would come at the sacrifice of transportation projects, and it has offered a plan to finance one tower, or a portion of the costs for two (Mr. Silverstein has said the two-tower offer is unfinancable).
Neither side has moved its position much in the past few months, with both sides perhaps awaiting momentum from a favorable arbitration ruling. Now with that ruling in hand--and a 45 day-window to put together a new framework--one wonders how both sides will adjust their positions.
Key in whatever accord is (or is not) created may be the Bloomberg administration, as the mayor and his staff have sought to play the role of mediator between the two parties. In a statement, the mayor called now a "critical moment" to strike a new resolution:
"[O]ne thing is clear from the ruling: there is a deal to be made. This is a critical moment to move forward with the long-term development of the site. The parties cannot let it pass without progress."
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Update 5:30 p.m.
Here's the full decision, in which the panel dissects the arguments of the Port Authority and Silverstein.
Toward the end, the decision seems to be pleading for a resolution:
"[P]resent circumstances cry out for the parties to agree to modify the development plan so as to reschedule and re-sequence construction of the Towers, and to do so with a fair and realistic regard for the interests of both parties ... The parties' submissions in this arbitration have demonstrated attempts extending over many months to agree to "a detailed construction coordination plan and development schedule", but so far, those efforts have been unfruitful. The Panel hesitates, however, to resolve this Dispute without giving the parties one final chance to arrive at a solution mutually acceptable to them."
A few other tidbits from the decision:
-The Port Authority said this fall that the streets at the site would not be completed until 2016, up four years from the initial dates back in 2012 (The agency has previously said Greenwich Street would be finished by 2012)
-The panel gets a bit existential, asking many questions to determine how much the Port Authority's delays actually hurt Mr. Silverstein given the economic meltdown that made borrowing near-impossible. The answers? The panel said they could be determined in a future arbitration at a later date: "[G]iven the credit freeze and financing difficulties, if in fact the PA had timely started and completed all of the infrastructure activities on its part to be performed, would SPI have been able to timely proceed with and ultimately complete the construction of the Towers? If not, can it be said that SPI has been harmed by the PA's delays on the infrastructure? Moreover, does SPI's inability to obtain financing constitute unavoidable delay, as urged by the PA, and if so, does that, in turn, extend not only SPI's performance times, but also those of the PA? These are questions that may have to be explored and determined, if SPI proceeds with the next arbitration, as it has indicated it may do."
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Next time I sign a lease remind me to get a clause stating that if the property I'm leasing gets destroyed, I no longer have to make payments.
about sums it up.
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