Friday, June 12, 2009

Goldman May Get $321 Million on Missed Trade Center Deadlines

By David M. Levitt

June 12 (Bloomberg) -- Goldman Sachs Group Inc., the Wall Street firm that earned $2.3 billion last year, stands to get up to $321 million if the state and city fail to meet construction and security deadlines at the World Trade Center site.

Goldman Sachs is entitled to as much as $160 million if the state doesn’t fulfill obligations on eight projects, including a transit hub and the Trade Center memorial, by Dec. 31, according to the 2005 lease. The firm also can recover another $161 million in rent on the headquarters it’s building downtown under the terms of the lease.

The 16-acre Trade Center parcel remains a construction pit almost eight years after the Sept. 11 terrorist attacks and is the focus of a financial dispute between developer Larry Silverstein and the Port Authority of New York and New Jersey over development of three office buildings. Goldman Sachs would get the money in addition to an estimated $390 million state and city incentive package that the New York-based company received to build the $2.4 billion skyscraper adjacent to the site.

“While we were aggressive, I think everybody who was involved in the discussions with Goldman Sachs downtown at that point firmly believed that 2009 was a realistic time frame to achieve those deadlines,” John Cahill, who was former Governor George Pataki’s chief of staff and chief negotiator with Goldman Sachs, said in an interview.

Almost none of the projects named in the 392-page ground lease will be done by Dec. 31, according to projections by the Port Authority. The lease allows an extension to March 31, 2010. Goldman Sachs’s rent deferral will only be awarded if a security plan for the area isn’t in place by year-end, according to the lease.

Security Deadline

Andrea Raphael, a Goldman Sachs spokeswoman, and Marissa Shorenstein, a spokesman for Governor David Paterson, declined to comment.

The city is confident it will meet the lease’s security provisions by Dec. 31 and avoid the loss of $161 million, said David Lombino, a spokesman for the New York City Economic Development Corp.

Last year the city opened a Lower Manhattan Security Coordination Center on Broadway to screen for potential terrorist threats. The center uses closed circuit street monitoring, license plate readers, and chemical, biological, radiological and nuclear detectors.

“Goldman Sachs made a monumental investment in lower Manhattan at a critical juncture,” Lombino said. “Obviously everybody’s frustrated with the pace of progress. I don’t think it’s the city’s place to comment at this stage on projects that are not in our control.”

More Talks

The city is in discussions with Goldman Sachs over the terms of the lease, Lombino said. He declined to be more specific.

Goldman Sachs is entitled to receive up to $160 million of sales tax exemptions for qualified headquarters expenses until June 30, 2028, under the terms of its lease with the state- controlled Battery Park City Authority, said Leticia Remauro, an authority spokeswoman. The firm can claim the exemption on materials acquired for the “core and shell of the building and the fit-out of the building,” according to the lease. Those items include room dividers and flooring.

“The language in the lease is written in mandatory terms,” said Shelby Green, director of the real estate law program at Pace University School of Law in White Plains, New York, who examined the documents. “It says the tenants will have no further obligations to make any sales tax escrow payments after” Dec. 31, she said.

Deutsche Building Fire

The city and state can avoid paying Goldman Sachs by claiming “force majeure,” a legal concept that means unexpected events prevented them from meeting their obligations.

An August 2007 fire at the former Deutsche Bank AG building, south of the trade center site, may qualify as such an event, Green said.

The fire, which occurred amid demolition of the building, has slowed construction at Ground Zero, said George Sweeting, deputy director of city’s Independent Budget Office, who has analyzed the lease.

The Port Authority plans to open the Sept. 11 Memorial on the 10th anniversary of the terrorist attacks. The memorial museum, which has to be constructed up to at least the sidewalk under the Goldman Sachs lease, is scheduled to be completed by 2013. The memorial plaza will be completed to grade by the second quarter of next year, the Port Authority said in an October 2008 report.

The Santiago Calatrava-designed transit hub is scheduled to be done by mid-2014. The authority oversees both projects as well as the construction of Greenwich Street and the vehicle security center. Those projects may be completed by the second half of 2012, according to the report.

New Tower

Goldman Sachs plans to move from its current headquarters at 85 Broad St. and other downtown locations into the new 43- story headquarters on West Street by next year.

The sales tax agreement was one of several the company negotiated to assure that the neighborhood would be safe and secure when it moves in.

Goldman Sachs withdrew from an agreement in April 2005 to build on the Battery Park City site because of uncertainty about the development of the area. City and state leaders worked to get Goldman Sachs to change its mind. The state agreed four months later to raise the company’s Liberty Bond entitlement to $1.65 billion from $1 billion, and included up to $115 million of city and state tax breaks and energy savings.

“Goldman got the largest retention package in the history of New York City, as far as I know,” said Jonathan Bowles, director of the Center of an Urban Future, a New York-based policy group funded by foundations and labor organizations. “I’m not ruling out the idea that maybe some incentive package was worth considering for Goldman Sachs, but it seemed like we gave away the store.”

To contact the reporter on this story: David M. Levitt in New York at

Last Updated: June 12, 2009 00:01 EDT

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