After three years of legal wrangling, a federal jury has ruled that the 9/11 attacks on the World Trade Center (WTC) were in fact "two occurrences." That ruling means that WTC leaseholder Larry Silverstein can collect up to $4.6 billion worth of insurance on the property—or $1.1 billion more than the original policy’s $3.55 billion face value.
Only six weeks prior to the 9/11 attacks, Manhattan real estate investor Silverstein bought the 99-year lease to the World Trade Center from the Port Authority of New York and New Jersey. After the attacks, Silverstein began a protracted legal battle against insurers who ardently denied that the attacks were two separate events.
"I strongly felt, and the jury agreed, that the destruction of the Twin Towers by two separate airplanes at two separate times was two separate occurrences and that these insurers have an obligation to pay for their fair share to help make Lower Manhattan whole again," said Silverstein in a written statement.
The verdict doesn’t guarantee that the ambitious rebuilding program will proceed as planned because many of the insurers are expected to appeal the ruling. But it’s certainly a vote of confidence in that plan, which aims to build five new office buildings around Ground Zero.
Silverstein is almost finished rebuilding 7 World Trade Center, a 52-story office tower located north of Ground Zero. That tower will come to market in mid-2005. The other office towers planned for the site would not be completed until 2009 at the earliest.
The Lower Manhattan office market is reeling from a spate of tenant departures in recent months. Real estate brokerage Newmark & Co. reports that office vacancy in Lower Manhattan hit nearly 16% in November, well above the vacancy rate in Midtown. The addition of 7 World Trade Center — with 1.7 million sq. ft. of office space — will only exacerbate that problem: most of the space in that tower is not pre-leased.
Still, Kent Swig, principal of real estate investment firm Swig Burris Equities, believes that these new office buildings will help narrow the competitive gap between midtown and downtown. "This area really needs large blocks of space with huge floor plates to capture those large tenants," says Swig, one of the largest commercial office landlords in lower Manhattan.
"And many of those tenants are going to Midtown, which has more brand new office towers. Once these new buildings hit the market, I believe tenants will want to lease space in Lower Manhattan at a much lower cost."
Class-A, triple net asking rents in Midtown are running around $50 per sq. ft. on average, says Swig, while similar space downtown can be leased for $30 per sq. ft.