Property developer Larry Silverstein on the recovery of Lower Manhattan

Property developer Larry Silverstein on the recovery of Lower Manhattan

By Andrew Edgecliffe-Johnson | Financial Times

Reporters have been reading too much into executives’ offices since before Larry Silverstein had an office. Yet, in the 87-year-old developer’s case, a theatrical set director could not have staged his better. There is the oil painting of a ship cutting through storm-tossed waters, the cushion grousing that “No good deed goes unpunished” and the Lucite trophies recording triumphant deals, grateful charities and vindicating headlines such as “Insurers agree to pay billions at Ground Zero”.

And there, outside the 10th-floor window of 7 World Trade Center, are the twin reflecting pools that memorialise the buildings on which the Brooklyn-born billionaire acquired a 99-year lease in July 2001. Six weeks after he signed New York’s largest property deal, the towers fell, killing almost 3,000 people including four Silverstein Properties employees.

 

The cascading water in the 9/11 memorial draws the visitor’s eye, but Silverstein’s focus is on an 80-storey skyscraper to its east, which he will open this month in the latest twist in New York property’s most tortuous tale. Cutting the ribbon at 3 World Trade Center will be “the realisation of an effort that started 17 years ago, right after 9/11,” he says, and “very gratifying”.

 

Gratification has not come quickly, or easily, for Silverstein. For years after 9/11, he insisted on rebuilding the 10m sq ft of office space that was destroyed, battled with the Port Authority to which he was paying rent for non-existent buildings and sued his insurers, arguing that they should pay double the $3.5bn insurance he had taken out because the attacks on the two towers should count as separate events.

His stance put him at odds with politicians, partners and victims’ families who were not thinking in square feet. Some wanted the entire site turned into a memorial; others portrayed him as a greedy billionaire delaying the recovery of Lower Manhattan.

 

Silverstein says he found the process extremely painful, “but after a while I realised that the job needed to be done and that I had to steel myself in an effort to get it done, thicken my skin . . . and get on with it”.

 

In 2006, he surrendered the right to develop the site’s largest skyscraper, now the 1,776ft landmark known as One World Trade Center. But that year he completed a new tower at 7 WTC, replacing a 1980s building he owned that also fell on September 11. His company was the only tenant when the new 7 WTC opened and no politician would attend the ribbon-cutting ceremony.

It is now fully leased, as is 4 WTC, a shimmering tower designed by Fumihiko Maki, the Japanese architect. For that opening, in 2013, Silverstein was flanked by a dozen dignitaries. As if to underscore how his former foes have come around, the building’s tenants include Zurich, one of the insurers he had sued.

With Group M, McKinsey and IEX signed up for 37 per cent of the space in 3 WTC, that just leaves 2 WTC, an address into which News Corp and 21st Century Fox were meant to move. After Silverstein’s deal with Rupert Murdoch, the media mogul, fell through, Deutsche Bank was reportedly interested, but the German lender has chosen Midtown instead.

Spotify is moving in to 4 WTC this year, where the 69th floor is filled with art works including a cartoon version of Silverstein.

Silverstein declines to tally the combined cost of his new towers but says it has been “totally, totally beyond” the $4.6bn the insurers eventually paid out. He has been much helped by a New York development agency’s tax-exempt bonds, but is he making a return on his investment yet? “We’re not there yet,” he laughs. “But ultimately we hope to make something.”

Good quality new buildings always get occupied. There’s this constant trickle up

A $200m bond offering in Israel in May gave a glimpse into how much he is making. Silverstein Properties reported net operating income of $118m from revenue of $210m in 2017. The portfolio of properties against which the bond was secured was valued at $5.2bn.

The offering was heavily oversubscribed, but Silverstein is not alone in trying to fill towers in New York. Sam Zell, the Chicago property billionaire, warned in May of “a tsunami of supply” approaching the US property market: in Manhattan alone, Brookfield’s Manhattan West towers and Related Companies’ Hudson Yards development are adding a combined 5.7m sq ft of office space.

 

In Silverstein’s downtown neighbourhood, office leasing activity dipped in the first quarter of 2018 and available space is already near its 2012 peak, according to CBRE, though the broker has forecast a “solid” year for the Manhattan market.

While Silverstein sees a “significant oversupply” of luxury apartments, he claims to be unworried by the office market, particularly at the top end. In a city where the average office building is 60 years old, the ever-growing technology needs of large companies almost force them to move to “class A” new properties, he argues. “Sometimes it takes a little longer but good quality new buildings always get occupied. There’s this constant trickle up.”

Silverstein did not grow up with wealth. His family lived in a seventh floor walk-up apartment in Bedford-Stuyvesant, a Brooklyn neighbourhood that was falling out of favour in the 1930s. He trained as a musician and a lawyer, and followed his classical pianist father into property brokerage, renting lofts to garment traders in Lower Manhattan for 50 cents per square foot.

It was an “excruciatingly difficult” way to make a living, he says, even if it taught him the art of negotiation, the value of space and how to compromise to get a deal done. Realising that more money was being made by property owners, he persuaded his father in 1957 to borrow to buy their first building.

Silverstein says he has always been comfortable with risk and he was soon borrowing millions, then billions, to fund speculative developments. At times, the risk looked like it would catch up with him. New York’s property cycles can be brutal and while Silverstein jokes that he goes back to the Panic of 1893, referring to the serious economic depression in the US, he lost several buildings to lenders in the property collapse of the late 1980s — though he gained other properties seized by the US government at bargain prices.

His gains in the 1990s were one reason he felt confident to bid for the World Trade Center lease, he says, as he retells the familiar story of how, five days before final bids were due, a drunk driver broke his pelvis in 12 places. His decision to refuse morphine so he could be clear-headed enough to complete the deal has become part of Silverstein lore, but he was younger then. Now, would he take the painkillers and leave the details to Marty Burger, his chief executive since 2014? He laughs again and says he is no longer making every decision, but the adrenaline makes him fully involved in the consequential ones. “It’s my life; that doesn’t change, and it’s the family capital so I watch it closely.”

Silverstein Properties may be the source of the family’s wealth, but its chairman chose a non-family chief executive, hailing Burger as “a consummate closer”. Silverstein’s son Roger, his daughter Lisa and his son-in-law Tal Kerret all have roles in the company and he says he finds watching them running the business “very satiating”.

The family members are also “totally involved” in each other’s philanthropic interests, Silverstein says. He and Klara, his wife since 1956, have focused on causes with clear personal connections: their alma maters, New York University and Hunter College; the New York Philharmonic; and Jewish charities. Silverstein’s giving has included $5.25m to endow medical scholarships at NYU and $5m to Hunter as a birthday surprise to Klara, but the family’s board roles have been as important as its donations, he says. “It’s not just about writing cheques. Giving your input, providing your leadership and showing your direct involvement is something that’s transformative.”

Silverstein says he and Klara discuss everything, from philanthropy to business. He also credits her with making him keep a dermatology appointment on the morning of 9/11, sparing him from the carnage in the twin towers. In April, spurred by seeing some friends’ redevelopment of their apartment, the couple moved downtown after 34 years in a Park Avenue condominium overlooking Central Park. From their new $32.6m penthouse at 30 Park Place, a $1bn residential tower he developed a short distance from his office, he can survey his entire World Trade Center project.

 

It was not a vote of no-confidence in Midtown, he says, but he likes the proliferation of skateboards and strollers on his short walk to work. “I’m only 87, Klara’s only 85. We want to be with young people.”

Whatever billionaire investor Sam Zell may say, Silverstein, the perennial optimist, is already excited about his next deal. He will not confirm reports that he has signed a $1bn-plus contract to buy the headquarters of Disney’s ABC television unit on Manhattan’s Upper West Side, but says he has been deeply involved in the opportunity to purchase a “magnificent” piece of land.

“We’re looking forward to developing that over the next 10 years,” he says. “Life goes on. You have to be able to take the long view and hang in there until you accomplish your goals.”

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