2003-01-14 17:57 (New York)

Silverstein Wins $400 Mln in Liberty Bond Financing (Update3)

New York, January 14 (Bloomberg) -- New York City real estate investor Larry Silverstein's application for $400 million in tax-exempt bond proceeds was approved by a city agency in a move to spur reconstruction at the World Trade Center site.

Silverstein plans to use the money to help pay his estimated $1.2 billion in total costs of rebuilding 7 World Trade Center, the northern extension of the office and retail complex destroyed by terrorists 16 months ago.

``It's the lower, Liberty Bond tax-exempt rates, over the long term, that enable the project to proceed now and provide a jump-start to the downtown economy,'' said Valerie Rutstein, a vice president at the New York City Economic Development Corp. The corporation's financing arm, the New York City Industrial Development Agency, would sell the bonds.

Liberty Bonds, part of an economic stimulus law signed by President George Bush in March 2002, let New York City real estate developers obtain lower borrowing rates by selling bonds in the $2 trillion municipal bond market.

The program allows New York City and state authorities to issue as much as $8 billion in bonds that pay interest that is exempt from federal taxes, as well as state and local taxes if the buyer lives in New York City.

Silverstein, who began work at the site last May, expects $796 million in insurance payments to cover the destruction of the original 7 World Trade Center. He will use part of that to pay off $489 million in debt on the old structure, leaving $300 million to cover construction costs estimated at $707 million, Rutstein said.

Liberty Bonds would make up the difference. Steve Solomon, a spokesman for Silverstein, declined to comment on the board's vote.

Cost-Benefit Analysis

The bonds are expected to be sold in several installments of about $100 million as costs of rebuilding are incurred, said Andrew Alper, chairman of the IDA and president of the EDC.

Merrill Lynch & Co. is in talks with the developer to sell the municipal bonds to investors.

During construction, the project will produce an estimated 4,000 or more jobs and city tax revenue of about $18.4 million, said Rutstein said.

On completion in December 2005, the 52-story structure will hold about 8,000 workers and generate annual city tax revenue exceeding $17 million.

The city's lost revenue from the bonds' tax-free status, while difficult to estimate, is unlikely to approach $17 million a year, Alper said. ``Even on the most conservative assumptions you can make, the benefits far outweigh the costs.''

Silverstein's project is the ``perfect use'' for the program because the investor plans to ``build this new building with no new tenants, which is a pretty bold thing,'' Alper said.

`Positive Step'

 The board will vote to approve the specific bond sales by Silverstein, and the first bond sale could happen as soon as this summer. The bonds probably will pay interest at variable rates, mature in 30 years and be backed by letters of credit from banks.

Of the entire Liberty Bond program $2 billion in bonds can be issued for commercial real estate projects outside lower Manhattan's Liberty Zone, which is below Canal Street, East Broadway and Grand Street. The rest must be used to fund projects in that area. They all must be sold before the end of next year.

``From what we see right now, we don't see demand for $6 billion'' in Liberty Bond proceeds in lower Manhattan, Alper said.

The IDA's other Liberty Bond project so far was an office tower in Brooklyn.

Separately, the agency said that starting next month it will make applications for IDA financing and related data available to the public six days before the monthly board meetings at which the applications are to be considered.

``There is still more work to be done, but it's a very positive step,'' said Bettina Damiani, project director of Good Jobs New York, a labor and consumer advocacy group that has criticized the agency for failing disclose information on bond-financed projects. ``We need to see what the IDA sees to be able to provide informed testimony and comment,'' she said.

--Ted Hampton through the New York newsroom, at (212) 318-2601 or thampton@bloomberg.net, with reporting by David Levitt in New York. Editor: Pittman.