Why would they want to demolish the
WTC? It had been losing money for years. It's the most valuable piece of
real estate in the world, but the buildings themselves were a disaster.
Under- tenanted, beset by asbestos problems, the owner, the NY Port
Authority, had received warnings that it was sitting on a legal and financial
The claim that the WTC was losing money and a very poor buy doesn't find
much favour with leading researchers, but others still persist with it, and
the idea is sometimes cited on Internet forums as a motive for
demolition. Here's another example:
The Port Authority of New York and
New Jersey had been losing money on the towers for years because of low
tenancy. The financial loss was the real issue. There was also another
vital issue – asbestos! The towers had become an albatross sitting on the
most valuable piece of real estate in the world. The Port Authority had
three choices: sell or lease them, pay for expensive asbestos removal or
demolish them. The Authority had tried for years but were unable to sell
the buildings – after all, what fool would take on the liability of
asbestos? They couldn’t demolish it. The health hazard of asbestos powder
blanketing New York was legally unthinkable and totally out of the
question. Expensive asbestos removal seemed to be the only option.
In this version of the story, Larry
Silverstein must be a "fool" to take on something that's losing
money, and would require such "expensive asbestos
removal". But then the article goes on to tell us that actually
the WTC was a bargain:
“Silverstein Properties, Inc., and
Westfield America, Inc. will lease the Twin Towers, completed in 1972 at a
cost of $370 million, and other portions of the complex in a deal worth
approximately $3.2 billion – the city's richest real estate deal ever and
one of the largest privatization initiatives in history.” The cost of this
lease was for a fraction of their real value.
The idea that Silverstein paid only
"a fraction" of the real value for his lease, and so got the WTC
cheaply, hardly seems compatible with the suggestion that the complex was a
loss-making, asbestos-ridden white elephant. But is there any
evidence for either claim?
Let's take the idea of "low tenancy", for instance. The New
York Times didn't appear to think there were problems on May 31st 1998,
when it produced an article titled "Commercial Property/Downtown; At
the World Trade Center, Things Are Looking Up":
As the market for office space in
midtown has tightened and rental rates increased, tenants have been looking
to downtown as a cheaper alternative. Over the last year, those seeking
large blocks of space have been finding them at the trade center, which had
many vacancies as a result of the 1993 terrorist bombing and the shrinkage
of the financial industry in the early part of the decade.
''In January 1997 we had about an 80 percent occupancy rate,'' said Cherrie
Nanninga, director of real estate for the Port Authority of New York and
New Jersey, which owns the complex. Twenty percent of 10.5 million square
feet of space is 2.1 million, which would be a substantial building by
But as a result of the last year's work, Ms. Nanninga, said the complex is
over 90 percent occupied and expects to it reach the 95 percent mark by the
end of the year. That, she said, would be about as full as the center is
likely to get, since there is almost always someone moving in or out.
''Ninety-seven percent occupancy would be full,'' said Ms. Nanninga...
So there was a loss of tenants after
the 1993 bomb, however by 1998 they were reporting an increase in
occupancy, to the point where it was about as full as it could get.
Did things dip in the next year or two, though? No, they only got
better. The following is a Port Authority press release (our emphasis):
NET LEASE OF WORLD TRADE CENTER JUST
BUSINESS AS USUAL FOR PORT AUTHORITY\'S REAL ESTATE DIRECTOR -- Cherrie
Nanninga Credited with Shepherding Office, Retail Renaissance At Trade
Center, Other Port Authority Facilities
Date: February 12, 2001
Press Release Number: 16-2001
When Port Authority Real Estate Director Cherrie Nanninga enters her 88th
floor office each day, she passes a model of the World Trade Center, a
stark reminder that she is in charge of the largest real estate transaction
in New York history. The scale and complexity of the negotiations are
astonishing. The complex has 10.4 million square feet of office space, 10
percent of all of the office space in downtown Manhattan. There are 400,000
square feet of stores selling upscale clothing, books and food - enough to
keep Main Street bustling in a small town. And the world-famous landmark
has offices for 40,000 workers.
"It's a considerable challenge, and the task is comparable to the sale
of a small city," Mrs. Nanninga said of the trade center net lease. "But
fortunately, there are a lot of good people working on it. The best way to
maximize the value of the trade center is to just keep moving in the right
"Cherrie's dedication and business acumen have allowed this important
real estate transaction to remain on track," said Port Authority
Executive Director Robert E. Boyle. "Through her leadership, she has
made the World Trade Center a place where companies and retailers want to
As Real Estate Director, a position Mrs. Nanninga has held since 1996, the
occupancy rate at the trade center has risen from 78 percent to a healthy
98 percent, retail soared in the trade center's mall, and available office
space in the Newark Legal Center has nearly been filled.
Today, only about 250,000 of the 10.4 million square feet of office space
in the trade center remains vacant. And the legal center has an occupancy
rate of over 99 percent.
"The challenge to me and the staff of the World Trade Center was to
improve the service we provide to tenants, and to bolster our reputation in
the marketplace," Mrs. Nanninga said. "We've been told by our
tenants and the real estate industry that we have really turned this place
around, and we are starting to believe it. But we continue to be very
focused on our tenants' needs."
Sales at the trade center's retail mall also have risen dramatically. In
1996, the mall's retail establishments averaged approximately $500 per
square foot. Today, sales have doubled, and are expected to reach $900 per
square foot by the end of this year, which is expected to make the trade
center mall the third most profitable in the country. And major national
retailers, such as Banana Republic, Coach and Godiva have opened stores in
the trade center mall to cater to a daily audience of 40,000 employees and
thousands of visitors. Many of these retailers indicate that their trade
center stores are among their top sales producers in the country....
No signs of problems here, in fact
there seems to have been distinct improvements up to the time the towers
were sold. which is exactly what you'd expect if the Port Authority
wanted to encourage buyers, and get a decent price.
There's still the asbestos issue, of course. An article above spells
out the costs involved:
“U.S. District Judge John W. Bissell
in early February threw out the Port Authority of New York & New
Jersey's final claims in a longstanding suit against dozens of insurers
over coverage of more than $600 million in asbestos abatement costs at the
World Trade Center, New York's three major airports and other Port Authority
“Granting summary judgment for the insurers in his May 1 ruling, Judge
Bissell found among other things that the costs of removing asbestos do not
constitute ‘physical loss or damage’ triggering coverage under the Port
Authority's all-risk policies.”
“A Port Authority spokesman said the agency is reviewing the ruling and has
not decided whether to appeal.”
“The ruling ends the trial phase of a decade-long court battle that began
when the Port Authority sued its property insurers in 1991 in a New Jersey
“The suit sought recovery of the Port Authority's huge expenses of removing
asbestos from hundreds of properties ranging from the enormous World Trade
Center complex-which represented more than $200 million of the abatement
costs-to bridge and tunnel toll booths.”
This "more than $600
million" asbestos abatement figure is sometimes applied to the entire World
Trade Centre , but as you can see, the WTC costs are listed here as
"more than $200 million". Still a large sum in itself, but a
fraction of the over $3 billion value of the eventual lease. And of
course the asbestos issue was public, so it's hard to believe this wouldn't
be figured into the offer eventually made for the complex. (That is,
it would have made sense for Silverstein to use the problem to drive the
There are still those who seem to think 9/11 represented a "good
deal" for the Port Authority, though, as they escaped the need to pay
any asbestos abatement charges at all. But then, of course, the
attacks cost them plenty of money in other ways. And we're not just
talking about the enormous clearup and rebuilding costs. Their annual
report for 2001 has more
The terrorist attacks shocked an
already weakened U.S. economy into recession by sapping consumer
confidence, causing demand for air travel to deteriorate. At the three
major airports, passenger traffic, which was projected to achieve new
highs, dropped by a total 11.5 percent for the year, the largest decline in
our region’s history. Aircraft movements declined by 7.1 percent and cargo
volume fell 23 percent from the prior year. Airport parking revenues were
also down, by about 30 percent. In the wake of the terrorist attacks, more
stringent security measures at the region’s airports posed challenges as
airlines followed new federal mandates for passenger screening and baggage
At the bistate region’s interstate tunnels and bridges, annual traffic
volumes declined for the first time since 1994. Eastbound traffic for the
year 2001 totaled 121.9 million vehicles — 3.5 percent below 2000 levels.
Traffic at the Holland and Lincoln tunnels fell 10.6 percent, due primarily
to the closure of the Holland Tunnel from September 11 through October 14,
as well as by the single-occupancy vehicle restrictions at the two tunnels
following the attacks.
Before September 11, PATH ridership was projected to reach another new
record of 75.1 million passenger trips. As a result of the closure of the
World Trade Center terminal and Exchange Place station, PATH’s 2001
ridership declined to 69.8 million. Weekday ridership declined from a
pre-September 11 average of 257,967 to 202,092...
The tragic events of September 11, 2001 are unprecedented in the history of
our nation and the implications for the economy are also unparalleled.
While it is difficult to totally isolate the ensuing effects of September
11 from the already slowing national economy, the aftermath of the attacks
clearly deepened the contraction and could have been the major factor in
edging the softening economy into recession. The nation’s 10-year economic
expansion officially ended in March 2001. The events of September 11 had a
particularly damaging effect on the travel and tourism industry and
therefore significantly dampened the performance of the regional economy.
Also, most of the job reductions in the securities industry had been
postponed until the fourth quarter of the year. As a result of
deteriorating economic conditions, December 2001 employment levels in the
17-county metropolitan region had been reduced by 150,000 jobs compared to
December 2000. Thus, the full impact of the job cuts on regional activity
levels should be felt well into 2002.
Averaging employment over the entire 12 months of 2001, the New York and
New Jersey region lost 2,500 jobs. This represents a marked slowdown from
the 202,400 jobs generated in 2000. The numbers reflect the enormous damage
that the events of September 11 wreaked on the region’s economy...
The September 11, 2001 terrorist attacks have had a substantially negative
effect on air travel, which has impacted on revenues of the three major
airports operated by the Port Authority. Immediately after September 11,
2001, air traffic at the Port Authority’s three major airports declined by
approximately 38%, but has gradually been improving. The Port Authority’s
revenues are somewhat insulated against dramatic downturns in the aviation
industry, due to cost-recovery based agreements with the airlines operating
at the airports and long-term fixed rental agreements for use of terminal
buildings and other tenant-leased space. While the total amount recovered
through flight fees does not change, the fees charged to individual
airlines do vary based on the activity of such airlines. Areas having the
greatest impact from the decline in passenger traffic at the airports are
in parking fees, handling fees and consume services. However, these three
revenue sources combined provide less than 25% of the Port Authority’s
gross revenues from the airports...
There are clearly all kinds of costs
and effects here, and keep in mind this is just the 2001 report. The
Port Authority would bear further costs in subsequent years. Of course
they've received plenty of insurance payouts and federal assistance, too,
but will these really compensate for all these costs? And if the WTC
wasn't "loss making" at all, then it seems bizarre to imply that
9/11 was somehow a better alternative financially than spending "over
$200 million" on asbestos abatement.
That’s just our point of view, obviously, and there’s no reason you should
place any great value in that. But perhaps the New York Times archives
will prove more informative. Because if the buildings were an unsellable
mess, or an astonishing bargain, then the NYT would surely have at least
mentioned, that, right? So let's see:
March 20, 2001
Despite round-the-clock negotiations, the Port Authority of New York and
New Jersey failed to come to terms yesterday on a $3.25 billion deal that
would have given Vornado Realty Trust control of the World Trade Center,
the largest office complex in the country.
The bistate authority said it would now open exclusive talks with
Silverstein Properties, the second-place bidder for the 10.6
million-square-foot complex and 110-story Twin Towers.
The authority failed to complete the deal with Vornado because ''seven or
eight substantial issues'' remained unresolved yesterday, according to
several authority commissioners. One sticking point was the company's
refusal to put up $100 million in a show of good faith as the contract was
signed but before the deal closed, two commissioners said.
The authority's decision to break off talks was a blow to Vornado and its
chairman, Steven Roth, a real estate tycoon with a reputation for
bare-knuckled negotiations. By all accounts, Mr. Roth wanted an
international icon like the trade center for his company's roster of 20
Manhattan office towers, totaling more than 15 million square feet of
Mr. Roth could not be reached by telephone for comment yesterday.
''He's very disappointed,'' said a spokesman for Mr. Roth, Howard J.
Rubenstein. ''He tried very hard to make a deal.''
Some authority executives feared the turnabout would become a nightmare for
the authority, because Vornado's absence could drive down the sale price,
or at least weaken the agency's bargaining position. It did not help, they
said, that the roiling stock market served as a backdrop for the
But real estate executives said that both Silverstein and Boston Properties
still very much want to buy the lease for the trade center. With stock
prices declining sharply, they said stable, high-quality real estate assets
were actually more attractive.
''Nothing has happened that makes the World Trade Center any less
desirable,'' said Mary Ann Tighe, a vice chairwoman of Insignia/ESG, a real
estate brokerage firm. ''It's a world-class trophy. They're not going to
have trouble finding people to step up.''
The Silverstein group, which includes Westfield America, a publicly traded
real estate company, is not unknown to the authority. Larry A. Silverstein,
the developer, heads the company and owns 7 World Trade Center, a 47-story,
2 million-square-foot tower that is part of the complex but is not owned by
In 1998, Governors George E. Pataki of New York and Christie Whitman of New
Jersey decided to get out of the real estate business by selling the World
Trade Center. The Port Authority had trimmed a list of more than 30
potential buyers to 3.
The authority's decision yesterday came after some high drama,
brinksmanship and the authority's decision to extend their deadline by five
days to try to get a contract with Vornado.
Earlier this year, Vornado submitted a blockbuster $3.25 billion bid
designed to pre-empt the competition. The offer from the Silverstein team
trailed by $600 million, while Boston Properties and Brookfield were $750
Silverstein subsequently raised its bid to $3.22 billion, and the other
group pushed its offer to $3.1 billion. But the authority selected Vornado
as the winning bidder on Feb. 22. It gave Vornado 20 days to sign a
contract, or the authority would open talks with the other bidders.
Two days before the deadline expired, Vornado insisted on a 39-year lease.
The authority, which had required a 99-year lease, regarded the gambit as a
last-minute attempt to wring a concession and change what had been a
nonnegotiable item. Dissatisfied with Vornado's contract offer, the board
decided last Wednesday to begin negotiations with the second bidder. Within
an hour of being notified, Mr. Silverstein told the authority he was ready
Before Mr. Silverstein could start, Mr. Roth telephoned key officials, convincing
them that he was still seriously interested in a deal, even for 99 years.
According to authority commissioners, Mr. Roth said he would put up $100
million as a show of good faith. But on Thursday morning, according to
authority executives and commissioners, Mr. Roth told the agency that
Vornado's board was unwilling to go along with him...
Interesting points bought out in
this article, that you don't hear discussed very often, include the fact
that Silverstein's bid wasn't the best. In fact he wouldn't have got a
chance if the Vornado bid hadn't failed. It also seems there were
"more than 30" bidders in total, three of them very serious, and
each of those offering a very similar sum. All of which suggests that
the WTC was not a white elephant, or losing money: which might be why
there’s a quote in the article describing it as a "world-class
trophy". Neither does it make sense to claim that Silverstein's
offer got the lease for "a fraction of its true value", because
if that were the case then why wouldn't the other consortiums have outbid
him? This surely looks more like Silverstein paying a reasonable
market price for a desirable piece of property.
There was more the following month:
April 26th 2001
In an 11th-hour attempt to resurrect his bid for control of the World Trade
Center, a developer rushed back to the bargaining table yesterday evening,
vowing to sign a $3.22 billion deal and to put down a hefty deposit for the
10.6 million-square-foot office complex.
The developer, a group led by Larry A. Silverstein, had been negotiating with
the Port Authority of New York and New Jersey for the last 36 days over a
99-year lease for the 110-story towers and the Trade Center.
But in recent days, Port Authority officials became increasingly concerned
about the group's financial viability, especially as Mr. Silverstein
appeared to retreat on a number of issues, including reducing his $800
million down payment. The four Port Authority commissioners in charge of
the sale decided yesterday to end negotiations, but relented when Mr.
Silverstein asked for a final opportunity to complete a deal.
According to top executives at the Port Authority, Mr. Silverstein must
sign a contract and put down a $100 million deposit by this afternoon when
the Port Authority board meets, or he is out.
''They're going down there this evening in an effort to close the deal,''
Howard J. Rubenstein, a spokesman for Mr. Silverstein, said late yesterday
afternoon. ''They'll take as long as it takes to get it done.''
Mr. Silverstein's partners include GMAC; Westfield America Inc., a shopping
center developer; and Lloyd Goldman, an investor. Mr. Silverstein has long
expressed his desire to operate the World Trade Center, an office complex
he considers to be ''the prize of all prizes.'' But many real estate
executives and Port Authority executives remain skeptical that the
developer will be able to capture his prize.
The Trade Center is full and generating income of about $200 million a
year, but if the present negotiations fail, it would be a major setback for
plans to privatize the complex. In 1998, the two states hoped to get about
$1.5 billion, but a rocketing real estate market ultimately drove the
bidding over $3 billion.
Both the economy and the real estate market have cooled down significantly
in recent weeks. The Port Authority could turn to another bidder, a joint
venture of Boston Properties and Brookfield Financial Properties. The Port
Authority has lost leverage, though.
The Silverstein group would be the second bidder to collapse within sight
of the finish line. Last month, Vornado Realty Trust, which had offered
$3.25 billion for a 99-year lease, failed to sign a contract after a 20-day
On March 21, the Port Authority opened talks with the second-place bidder,
the Silverstein group. Negotiations appeared to be going well, so the Port
Authority allowed its April 14 deadline to pass without comment. According
to top Port Authority officials, Mr. Silverstein sought to reopen several
important issues, including the size of his down payment. Some officials
also questioned whether the Silverstein group had a large enough operations
group to run the Trade Center properly. They said the developer also sought
to get the Port Authority to pay for $200 million in improvements to the
That may have been a last-minute bargaining tactic, because Mr. Silverstein
appeared to have relented yesterday afternoon. The closing scenario was
reminiscent of what happened in the Vornado negotiations.
''I don't mean to sound naïve,'' said Charles A. Gargano, vice chairman of
the Port Authority, ''but it's astonishing to me that they believe they can
play a game of chicken with us.''
Note here that the Port Authority is
selling the lease to the buildings for more than twice what they reportedly
expected to get in 1998, suggesting again that the complex was not making a
loss, and Silverstein didn't get it cheaply. And from these reports
negotiations were tough: the Port Authority wasn't giving anything away.
The following day's paper reported that the deal with Silverstein
Properties had been signed. And guess what? That didn't support
the "loss making" claims, either, and for some reason there was
no mention of asbestos at all:
April 27th 2001
Despite some missteps and a last-minute snag, a developer signed a contract
yesterday to take control of the 110-story World Trade Center complex in a
deal worth $3.2 billion, the largest real estate transaction in New York
A group led by Larry A. Silverstein, a developer, and Westfield America
Inc., an owner of shopping centers, signed a 99-year lease yesterday after
working nearly 24 hours straight on the agreement. Still, the Port
Authority delayed the start of its board meeting yesterday afternoon until
the developer delivered a $100 million letter of credit, the first
installment on a $616 million down payment. The group will then make annual
rent payments to the Port Authority, manage and lease the complex and spend
$200 million on capital improvements...
''The time comes in every transaction when you have to put the pencils down
and stop negotiating,'' said Cherrie L. Nanninga, director of real estate
for the Port Authority.
In the end, she said, there were various trade-offs. The Silverstein group
lowered its down payment from $800 million to $616 million but raised its
annual rent payment. Mr. Silverstein also had to post a nonrefundable
letter of credit, which had many Port Authority executives holding their
breath until shortly after 3 p.m. yesterday...
In recent years, the complex has filled up with tenants and revenues have improved
significantly. Operating income is expected to be more than $200 million
this year and continue rising through the decade. The annual rent for Dean
Witter, which leases more than a million square feet, will jump by about
$21 million starting in May.
It took New York and New Jersey officials several years even to agree on
the decision to put the complex into private hands in 1998, when the Port
Authority's advisers estimated that a sale might bring $1.5 billion. http://query.nytimes.com/gst/fullpage.html?res=9D01E3DA1339F934A15757C0A9679C8B63&sec=&pagewanted=1
We see no evidence to suggest that
the WTC "had been losing money for years", was "a
disaster", or "under-tenanted", as the original story
claims. In fact it seems the reality was just the opposite: it was
doing very well. There's no reason to believe the asbestos problems
were unmanageable, or that the WTC was a "legal and financial
timebomb", either. So the next time someone tells you that the
towers had to be demolished because they were a white elephant, don't let
it go: ask them for supporting references, and see if their claims really
stand up to scrutiny.