New York City, 9/11, and its aftermath

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Wednesday, October 1, 2008

7 World Trade Center

by Saul Bloodworth

7 World Trade Center, the new office tower adjacent to Ground Zero has lost a major tenant due to the current financial crisis, the Hong Kong and Shanghai Banking Corporation. 7 WTC, we remember, was the building that had housed banks (mainly Citibank-subsidiary Smith Barney), offices of the SEC, the Secret Service, the IRS, the DoD, the CIA, and Rudy Giuliani's bunker. It collapsed in the afternoon of 9-11.

The reason for the collapse are somewhat disputed, to put it mildly. In the beginning, the official theory was that the diesel tanks had caught fire (on a personal note: I've visited a similar emergency building in Miami, and the owners assured me that diesel tanks cannot, under no circumstances, go up in flames). A newer theory is that it burned down because debris fell on it.

Be that as it may — it is undisputed that the new building has troubles finding tenants. Here is the deal: The building is called 7 World Trade Center, but for one reason only: It was built right next to the actual twin towers, by Larry Silverstein, in 1986, long after the twin towers had gone up. In addition, Silverstein had leased the actual World Trade Center from the Port Authority of New York and New Jersey, but only in July 2001.

Why is this important? Because Silverstein did not manage to get the WTC insured. He only had a preliminarely agreement which left the twin towers, in effect, underinsured. 7 WTC, however, is a totally different matter. This building was fully insured, Silverstein got the money and has used it to replace the skyscraper. On top of that, the city allowed him to top it with five additional floors at practically no costs.

It market terms, Silverstein should have found a lot of tenants a long time ago. So maybe, just maybe, tenants are afraid to move into a building called 7 World Trade Center?

Well, at least Silverstein won't have these troubles with the Freedom Tower, the replacement for the twin towers. This building is exclusively build and being paid for by the Port Authority, aka the taxpayer. Silverstein is just getting a "consulting fee".

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