521 Fifth Avenue
Silverstein Properties, Inc. is a family-owned corporation controlled by Manhattan real estate developer Larry A. Silverstein. Its portfolio in 2000 included 8.4 million square feet of space in New York City. A dynamic entrepreneur who has been described as an unquenchable optimist, Silverstein was only temporarily stunned by the September 2001 destruction of the twin towers of the World Trade Center, which he had leased just weeks before. The disaster claimed the lives of four members of his staff. A 47-story office building adjacent to the trade-center complex and owned by Silverstein Properties also collapsed as a result of the conflagration. The 70-year-old Silverstein quickly vowed to rebuild his destroyed building and submitted a plan for constructing four 50-story office buildings in place of the two 110-story towers.
Buying Manhattan Buildings: 1957-80
Larry Silverstein's father Harry was a real estate broker who made a precarious living by leasing loft space in lower Manhattan to rag-and-remnant traders in the garment business. This area, just south of Greenwich Village, would eventually become trendy SoHo after artists moved into the lofts, but at this time--the early 1950s--the pickings were slim. Larry Silverstein joined the business after earning a law degree but was able to survive only because of his wife's salary as a teacher. "I suggested to my father that the guys making all the money were the owners, not the brokers," he later told Robin Finn of the New York Times. "And he said, 'But we have nothing.' I told him about syndicators like Lawrence Wein and Harry Helmsley. I said, 'Dad, if they can buy the Empire State Building like that, why can't we?'" In 1957 Silverstein convinced his father to buy an East 23rd loft building for which he had been acting as broker. They lacked the necessary capital, but, after many failed attempts, managed to secure a $15,000 loan for a down payment from one bank and a first mortgage of $350,000 from another. By this time the firm was Harry G. Silverstein & Sons, the other "son" being Bernard Mendik, who had married Harry's daughter Annette. They raised the other $250,000 by persuading 22 tenants to invest $10,000 apiece. After this undertaking proved successful the firm bought another East Side loft building, raising more money from banks and syndicate partners.
Harry Silverstein died in 1966. Larry Silverstein and Mendik continued acquiring properties as syndicators until economic conditions worsened in 1972. Five years later, the partnership was dissolved. Silverstein later blamed the break-up on the divorce of Mendik and his sister. Mendik said that one reason for the split was that Silverstein was interested in development, which he opposed as a too risky and protracted way of making money. The two established separate partnerships for the syndicated properties, but each continued to hold interests in the properties that the other administered as managing partner. Mendik remained a power in New York real estate until he sold his holdings to Vornado Realty Trust in 1997.
Silverstein's portfolio in 1978 contained about four million square feet of floor space and included 521, 529, 530, 689, and 711 Fifth Avenue, 44 Wall Street, and a shopping center in Stamford, Connecticut. In 1980 Silverstein Properties completed a $25 million renovation of the 33-story office building at 11 West 42nd Street, in collaboration with Tishman Speyer Properties. Also that year, Silverstein made two major acquisitions in the financial district of lower Manhattan. He purchased 120 Wall Street, remodeling it extensively, and acquired the leasehold to 120 Broadway for a reported $60 million.
Big-Time Developer: 1980-2000
The aforementioned were all existing buildings, but in 1980 Silverstein Properties also won the right to build a two-million-square-foot building on the last vacant lot of the World Trade Center complex in lower Manhattan. Although connected to the Trade Center plaza by an elevated walkway, it was not part of the original six-building complex. The entrepreneur who one developer later described to Lore Coughlan of Crain's New York Business as "the most optimistic man I've ever met. ... [with] a riverboat gambler's instinct," started construction of the building--7 World Trade Center--in 1984 on speculation, having failed to sign on a major tenant. It was completed in 1986. The brokerage firm Drexel Burnham Lambert Inc. agreed to lease the entire 47-story building in 1985 but soon became snarled in an insider-trading scandal and eventually went out of business. In early 1988 the structure was still 87 percent vacant, but before the year was out Silverstein leased half the space to Salomon Brothers Inc. It was 80 percent leased by mid-1990.
In 1989 Silverstein Properties and General Electric Pension Trust agreed to construct and jointly own a 43-story Embassy Suites hotel. Located just north of Duffy Square, at the northern end of Times Square area, the building was erected in front of and above the venerable Palace Theater and included huge neon signs on part of the facade. During this period Silverstein also created, with two other developers, A & S Plaza, a million-square-foot shopping mall at Herald Square on the site of the former flagship Gimbel's department store. They also collaborated to put up the Park Avenue Court residential condominium on East 86th Street, over another former Gimbel's. By this time Silverstein controlled more than ten million square feet in 13 buildings.
The recession that gripped New York toward the end of the 1980s put a stop to further construction. Some of New York's biggest developers went bankrupt, and Silverstein's personal fortune--estimated at $375 million in 1988--began to erode. His company lost two Miami office buildings and its shares of the Embassy Suites and A&S Plaza properties to lenders. Another lender purchased the 120 Broadway office building to settle Silverstein's debt. In 1991 Silverstein Properties set aside 20 stories of the 34-floor office building at 120 Wall Street as tax-free headquarters for nonprofit groups that might otherwise leave the city. This program was only moderately successful until 1996, when nonprofits raised their participation in the building from 49,595 to 171,827 square feet. Even the loss of some Silverstein properties had its compensations, according to Croghan, who wrote, "Mr. Silverstein could have fought the lenders' moves to reclaim their buildings. But he did not. As a result, these lenders were willing to keep working with him. For instance, one of the lenders bought the outstanding loan on his building at 530 Fifth Ave., acting as his partner. Another let him continue to manage 120 Broadway, and in 1999 sold the building back to him."
By 1998 Silverstein and his backers were feeling sufficiently confident in downtown Manhattan's business climate to purchase the 52-story office building at 140 Broadway from Leona Helmsley for $191 million. The building, which dated from 1967, was 59 percent occupied at this time and needed some $60 million worth of renovation. Financing was provided by Silverstein's partner in the project, Morgan Stanley Dean Witter & Co.
During the 1980s Silverstein Properties acquired a major amount of space in a neglected area of midtown, occupied by warehouses and parking lots, west of the developed part of West 42nd Street and north of the new Javits Convention Center on West 34th Street. The slump in business activity, a necessary rezoning, and a subsequent lawsuit prevented Silverstein from developing this tract until 1999, when the company began construction of a $400 million, 1,700-unit rental residential project encompassing the entire block bounded by West 41st and 42nd streets and 11th and 12th avenues, just east of the West Side Highway and the Hudson River. Silverstein moved ahead on this project in the face of opposition by both the city and state, which for a time denied him tax-exempt financing because they wanted the site for an expansion of the convention center.
The first of the two brick-and-glass 40-story towers, 1 River Place, was completed in 2000. Designed with multiple angles and ribbon windows, it offered units with unusual layouts and unobstructed city and river views. Amenities were to include a fitness center with a gymnasium, Olympic-size swimming pool, two outdoor tennis courts, and three sun decks. By April 2001, 600 of the 921 units were rented. Silverstein smoothed his relations with the state in 2000 by agreeing to sell it most of the block between West 39th and 40th streets and 11th and 12th avenues.
The World Trade Center Disaster and Its Aftermath: 2001-02
By this time Silverstein had his eye on the millions of square feet of office and retail space in the World Trade Center complex, which its owner--the Port Authority of New York and New Jersey--was ready to lease for 99 years. Silverstein had wanted the twin towers for his own as far back as 1987, after finishing his 47-story building across the street. "I remember looking up at the towers one day," he told Croghan, "and thinking, 'That makes my building look like a peanut.'" To Finn he said, "Here I was with this beautiful ... building, but when I walked outside I realized it was totally eclipsed by the towers and thought, 'Wouldn't it be wonderful to own that, too?' It was a compulsion with me." Early in 2001, Silverstein and his partner, Los Angeles-based real estate investment trust Westfield America, made a $3.22 billion bid for the lease. They met the deadline although Silverstein was in a hospital, his pelvis broken by a drunk driver only five days earlier. Soon he learned that the bid had fallen just short of the one made by Steven Roth of Vornado Realty Trust, the biggest owner of commercial real estate in Manhattan. In May, however, the Port Authority--exasperated by Roth's notoriously hard-line negotiating tactics--awarded the lease to Silverstein.
In retrospect, the auto collision that put Silverstein into the hospital should have served as an omen. Two months after the agreement was enacted, two hijacked airplanes plowed into the twin towers--1 and 2 World Trade Center, taking several thousand lives, including four employees of a recently established Silverstein Properties management office on the 88th floor of 1 World Trade Center. (Silverstein had an appointment at his dermatologist's office; his son had just arrived downtown when the first plane struck.) Hours later, Silverstein's evacuated 7 World Trade Center building also collapsed. Mayor Rudolph Giuliani had established a $13 million emergency command center in this building, and the installation included a giant, above-ground diesel-oil tank meant to fuel generators that would supply electricity to the 23rd-floor center in case of a power failure. When the fuel was set ablaze by debris from the twin towers the fire apparently irreversibly weakened the supports that held the building together.
Nine days after the disaster, Silverstein proposed building four 50-story office buildings in place of the twin towers and said he expected to rebuild 7 World Trade Center, too. In a telephone interview reported by Alan J. Wax of Newsday, he said, "It's more economically feasible to do 50-story buildings. ... The New York City skyline would never be what it was when these towers soared to 110 stories. He said a memorial at the site "is necessary and totally appropriate," but added that not rebuilding the complex would "give a victory to these terrorists who are out to destroy our way of life."
Before long, however, Silverstein was embroiled in controversies with the insurers and with the Lower Manhattan Development Corporation, which was created to coordinate the redevelopment effort. He claimed to have a legal right to rebuild 7 World Trade Center, using the proceeds of an $861 million insurance policy and said he intended to build at about the same bulk and dimensions as the original edifice. The land beneath the building belonged to the Port Authority, however, and the insurer refused to say whether it would make the payment or take the case to court, citing the placement of the fuel tank in the building. One member of the development corporation indicated that this body preferred that Silverstein coordinate his effort with an overall plan for the area rather than break ground on the first anniversary of the terrorist attack, as he hoped to do.
Concerning the main complex, Silverstein proposed building a memorial on six acres and constructing the four office towers plus a mall, museum, and performing arts center on the other ten acres. Silverstein carried a $3.55 billion insurance policy on the twin towers but claimed to be owed twice that sum because the terrorist assault, he argued, consisted of two events rather than one. Rebuilding, he told Finn, is "a no-brainer. The World Trade Center was responsible for $47 billion in gross wages in 2000, and unless we get it back, it's going to decimate the region financially."
Principal Competitors: Boston Properties, Inc.; Brookfield Properties Corp.; Tishman Speyer Properties, L.P.; Trump Organization.