Skip to main content

Starting at Ground Zero

In the wake of the September 11th attack on the World Trade Center in Lower Manhattan, New York State and New York City have established the Lower Manhattan Redevelopment Corporation (the "LMRC") to lead the planning effort for the redevelopment of the World Trade Center site and the revitalization of Lower Manhattan. This article outlines some of the physical, economic and political challenges facing the LMRC.

Ground Zero. The physical losses from the September 11th attack on New York City are staggering. The World Trade Center complex covered more than 17 acres, or 12 City blocks, and every inch of the area will be cleared when the clean-up is complete. The total area sustaining physical damage from the attack is more than double this size (see map on page 5). According to the New York City Partnership's "Working Together to Accelerate New York's Recovery," 15.2 million square feet of Class A office space were destroyed in the attack with an additional 14.0 million square feet damaged, representing more than 50% of Lower Manhattan's Class A inventory. More than 20 buildings in the vicinity have yet to reopen due to the extent of damage to their structural or mechanical systems. The projected opening dates for some of the damaged buildings are more than a year away, and the reopening of a few of those buildings remains in doubt.

Infrastructure losses are also dramatic. In an area where more than 90% of the workforce relies on mass transit on a daily basis, subway and mass transit systems sustained extensive damage. Two of the primary routes - the PATH train system connecting Lower Manhattan to New Jersey and the #1 Subway Line connecting Lower Manhattan to the residential neighborhoods on Manhattan's West Side - require extensive rebuilding that has yet to commence. Utilities also sustained heavy damage. Verizon Communications, the main communications provider in the area, sustained $1.9 billion of damage, including heavy damage to its main switching facility serving the area. Con Edison, the main electrical supplier, lost two primary substations, which has compromised service to the area.

Overall, it is estimated that New York City suffered capital losses of $30 billion, lost economic output of $39 billion, and a loss of 125,000 jobs. These numbers may grow.

Increased Vacancy. Despite the loss of so much office space from the attack, vacancy rates in Lower Manhattan have increased sharply, almost tripling from the approximately 5% vacancy rate of 2000. While some of this represents a general softening of the market which began before September 11th, much of the increased vacancy rate reflects decisions by major tenants not to return to Lower Manhattan following the repair of their damaged spaces and to redistribute their workforces to other areas. Recent examples are Morgan Stanley's announcement that it will not return to its 1,000,000 square foot Lower Manhattan headquarters near the World Trade Center site but will instead move its operations north of New York City to Westchester County, and Goldman Sachs' announcement that, as its leases expire, it will move its equity trading operations from Lower Manhattan to New Jersey.

Lower Manhattan Redevelopment Corporation. In hopes of coordinating a response to this personal, physical and economic tragedy, the LMRC has been formed as a subsidiary of the Empire State Development Corporation ("ESDC") - New York State's redevelopment arm - pursuant to the New York State Urban Development Corporation Act. The purpose of the LMRC is to "assume primary responsibility for the redevelopment of Lower Manhattan . . . oversee[ing] all aspects of revitalizing and rebuilding Lower Manhattan south of Houston Street, including transportation and other infrastructure improvements, the construction and development of the areas affected by the terrorist attacks and the attraction and retention of businesses throughout the area." The LMRC is governed by a 14-member board, 11 members of which were appointed by the Governor of New York and former New York City Mayor Giuliani. The remaining three members will be appointed by current New York City Mayor Bloomberg. Appointments to the board include a number of high profile individuals including the Chair of the New York Stock Exchange, the head of the Port Authority, the former City Corporation Counsel and a former CEO of Goldman Sachs.

While the LMRC has been established, the scope of the LMRC's jurisdiction and its authority has not. ESDC subsidiaries like the LMRC have the potential to possess significant powers, including powers to acquire, condemn, lease and dispose of property, to contract for and undertake construction and, if necessary or desirable, to override zoning and other local land use controls. Major developments in New York City - such as the new development in Times Square and all of Battery Park City - have been carried out by ESDC subsidiaries. Powers must be expressly delegated to the subsidiary by ESDC, however, and even if powers have been conferred, most powers must be in furtherance of a formally adopted "Project" under the Urban Development Corporation statute. At this point, a Project has not been adopted and the LMRC has not been delegated the power to adopt a Project on its own. It is unclear at this time whether ESDC plans to confer additional authority on the LMRC.

One power that the LMRC does possess in absence of a designated Project is providing "advisory, consultative, training . . . technical assistance, and advice." The federal government has just approved the issuance of $25 million to the LMRC for initial planning and design costs. Staff is being assembled to carry out this planning effort and to define the LMRC's role vis-à-vis the other interests in the area. The head of planning was recently named. It is hoped that the planning effort by LMRC will result in the framework for an economic development Project to be adopted by ESDC.

Planning and Redevelopment Challenges. While the LMRC provides a mechanism for establishing a comprehensive response to the terrorist attack, its task is complicated by a host of planning, economic, jurisdictional, political and personal issues. In addition to the current limitations on the LMRC's delegated powers, a variety of public, quasi-public and private entities hold property interests that would be affected by any redevelopment plan, and an even larger group possesses regulatory interests (including the federal government, which has committed funds to redevelopment and disaster relief). From the personal standpoint, thousands upon thousands of people have experienced the worst type of loss imaginable, and their interest in the World Trade Center site must be accommodated.

The World Trade Center site and the PATH rail lines are owned by the Port Authority of New York and New Jersey, a quasi-autonomous body created by compact of the State of New York and the State of New Jersey and authorized by the statutes of both states. The Port Authority built the World Trade Center complex and the PATH lines pursuant to a specific statutory directive to acquire property and construct a "facility of commerce consisting of one or more buildings . . . for the centralized accommodation of functions, activities and services for or incidental to the transportation of persons, the exchange, buying, selling, and transportation of commodities and other property in world trade and commerce, the promotion and protection of such trade and commerce, [and] governmental services related to the foregoing" (NYS Unconsolidated Laws §6602). In order to fulfill this purpose, the statute expressly exempts from local and state regulation, the use and development of the World Trade Center site and the PATH rail lines for so long as the Port Authority owns the facility. The only project authorized for the World Trade Center site is a project devoted to world commerce and local transportation, and it would be exempt from local and state regulation, including regulation by the LMRC. However, the Port Authority is represented on the LMRC, and, to date, is cooperating with the LMRC.

Subway lines running through the area, including those located directly under the World Trade Center site, are owned and operated by the State Metropolitan Transportation Authority (the "MTA"). As with the Port Authority, MTA properties are exempt from local control, and it is unclear that an ESDC subsidiary like the LMRC has authority to regulate the actions of a state entity.

Layered on top of the Port Authority's ownership is a 99-year ground lease to a real estate entity headed by New York developer Larry A. Silverstein. Mr. Silverstein - who is also the fee owner of 7 World Trade Center, the only office building off the World Trade Center complex that was completely destroyed - acquired his interest after a drawn-out competition among several real estate investors and developers for claim to the property. The ground lease was brand new at the time of the attack, so new that final insurance policies had yet to be issued for the properties. The ground lease remains in place and Mr. Silverstein is making payments under the ground lease. Mr. Silverstein has repeatedly expressed his desire and intention to rebuild both the World Trade Center complex and 7 World Trade Center. Unlike the Port Authority and the MTA, Mr. Silverstein's independent actions would be subject to state and local control, and the possibility of condemning his interest in the sites exists if his interests would conflict with a broader development plan.

Design Challenges. The Port Authority's statutory directive and the ownership interests in the World Trade Center site are only part of a complicated picture. As an urban design matter, the World Trade Center complex posed difficulties for the Lower Manhattan streetscape from its inception. While known outside of Lower Manhattan for its skyline profile, its effect at grade was equally significant. The World Trade Center complex replaced a complicated street grid typical of Lower Manhattan with a monolithic, elevated, superblock cutting off north-south access for both pedestrians and vehicles. The result was an isolating and isolated element within the Lower Manhattan fabric. The World Trade Center complex also presented a significant visual and physical obstacle to properties to the west, the only area of Lower Manhattan that has experienced significant development in the past two decades. This area, known as Battery Park City, contains much of the best office space in Lower Manhattan, but suffers from poor connection to the remainder of the City, including poor connection to transportation systems. Until the primary connection was destroyed in the attack, the only pedestrian connections between the main commercial buildings and the rest of Lower Manhattan were two pedestrian bridges spanning a six-lane highway and connecting the second floor of the commercial buildings and the elevated World Trade Center complex. These connections were difficult to find and awkward at best. Redevelopment provides the opportunity to reintroduce the City grid in the area by creating street level pedestrian and vehicular ways, and to provide better integration of the various neighborhoods of Lower Manhattan.

Economic Challenges. As an economic matter, it is not at all clear that the long-term interests of Lower Manhattan will be served by rebuilding a purely commercial development at the World Trade Center site. As noted above, the commercial vacancy rate in Lower Manhattan is well into the double digits, and it is unknown how long it might take to generate demand for an extensive amount of office space. More broadly, Lower Manhattan has been attempting to recast itself as a mixed-use community for more than a decade, with both new and converted space being developed for residential use. The World Trade Center site presents perhaps the best opportunity to solidify this mixed-use character, and to provide the retail and service amenities that a commercial-residential neighborhood needs to thrive. Moreover, active discussions are ongoing concerning the need and desire to bring major cultural institutions to Lower Manhattan - the New York City Opera and a Lower Manhattan branch of the Guggenheim being mentioned most often - and the World Trade Center site could accommodate this sort of use. However, the ability to think about the site in the context of broader urban planning goals is compromised by the dictates of the World Trade Center authorizing statute, which limits the permitted use of the site, and the underlying property interests.

Next Steps. While the LMRC is getting organized, other entities with interests in the area are embarking on their own planning and redevelopment efforts. The Port Authority established as its first goal the creation of a temporary PATH rail station at the World Trade Center site. The Port Authority awarded a $30 million contract in early February 2002, covering approximately one-half of the cost of the project. Construction began in late February and is expected to take approximately two years. The Port Authority has also released a proposal for a more extensive mass transit improvement that would connect a newly rebuilt PATH train terminus with additional subway lines serving Lower Manhattan by way of below-grade pathways.

The MTA has reopened several damaged subway lines and is preparing for the reconstruction of the destroyed portion of the west side line.

Mr. Silverstein has announced plans to rebuild at the site of 7 World Trade Center through insurance proceeds, with groundbreaking planned as early as June 2002. Mr. Silverstein has also engaged architects and engineers to study the redesign of the World Trade Center site.

At the federal level, $11.1 billion of relief funds have been appropriated, with more than half of these funds allocated to FEMA for disaster relief. It is expected that FEMA funds will be used to compensate the City and State for clean up of the World Trade Center site and infrastructure repair. Of the $11.1 billion, $2.7 billion has been allocated to HUD for economic revitalization programs. Of this amount, $700 million has been approved for release to the State. The HUD distribution will fund a grant and loan program for small businesses (approximately $396 million), and will fund the first part of what is expected to be a $608 million business attraction and retention program. The HUD distribution will also fund the planning work of the LMRC.

Any development of the World Trade Center site itself must incorporate a memorial, and decisions regarding the allocation of space, dollars and energy to the creation of any memorial could well present the most intractable and divisive issues for redevelopment of the site. Views range wildly as to how to balance development with proper respect for those lost in the attack, with some, like former Mayor Giuliani, arguing that the entire site should be preserved as a memorial. The current mayor is on record as supporting redevelopment of the site, and incorporating a memorial into the redevelopment. Efforts are being made by the LMRC, the City and others to create a process where the families of those lost are involved in developing a proper response, but the integration of that process with the redevelopment as a whole has yet to occur. A temporary memorial has been approved on a nearby site. This memorial, which opened on the six-month anniversary of the attack, is comprised of two shafts of light approximating the configuration of the Twin Towers.

It remains to be seen whether the LMRC will develop a comprehensive plan for Lower Manhattan in time to inform or direct individual efforts of the Port Authority, the MTA and the affected developers. Clean up of the World Trade Center site is proceeding significantly ahead of schedule, and the final clearing of the site is expected before Summer 2002. Plans are in place for rebuilding 7 World Trade Center, with the possibility of a groundbreaking in the next several months. Work on the temporary PATH station is scheduled to commence in the very short term, as is work on rebuilding the last damaged subway line.

In contrast to these efforts, the LMRC has only recently hired its executive director and head of planning, and recently announced that it would issue planning guidelines for public discussion in late Summer 2002. Authority for redevelopment will need to be placed firmly in the hands of the LMRC or another entity in very short order, or the ability to provide a comprehensive response could lose out to the competing powers of the various public and private interests.

Pillsbury Winthrop LLP is a global law firm with power and presence on both U.S. coasts and abroad, with core practice areas in: real estate, litigation, technology and intellectual property, energy, capital markets and finance. The firm has 17 offices and approximately 800 attorneys worldwide. For further information on the firm's real estate practice, please contact Jim Rishwain at or (310) 203-1111.

Copied to clipboard