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 timebomb.
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 itself.
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 direction."
"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 locate." ...
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 properties.”
“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 state court.
“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 price down.)
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 handling.
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 space.
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 negotiations.
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 the authority.
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 million behind.
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 to go.
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 negotiating period.
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 complex.
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 na´ve,'' 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 history...
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.