Carl Glassman / Tribeca Trib

A view of the World Trade Center site, looking east along what will be a reconstructed Fulton Street.

Mayor Michael Bloomberg's efforts to end the bitter struggle between World Trade Center developer Larry Silverstein and the Port Authority of New York and New Jersey failed publicly Monday with the announcement by Silverstein that he will likely seek arbitration in the dispute.

For months, Silverstein and the Port Authority have been locked in tense negotiations over construction financing at the World Trade Center site. Silverstein filed a “notice of dispute” letter Monday, July 6, claiming that the stalled negotiations, as well as construction delays on the site, have had “major financial and logistical consequences of these failures on the Silverstein organization’s ability to rebuild.”

“Today’s action is designed to inject a renewed sense of urgency to these discussions,” Silverstein said in a statement. “One way or another, we must take any and all steps necessary to resolve, once and for all, the disputes that have arisen as a result of the Port Authority’s continued and admitted delays.”

In a statement issued Monday aimed squarely at the Port Authority, Bloomberg disputed the agency's position that guaranteeing loans for the completion of two Silverstein towers would be too risky, placing its other projects in jeopardy.

"Unfortunately, not everyone worked as hard as necessary to find a solution." Bloomberg said. "No one disputes that the Port Authority is engaged in many projects important to our region, but pitting those projects against the development of the World Trade Center site creates a false choice."

Assembly Speaker Sheldon Silver also condemned the Port Authority, saying in a statement that the Port Authority's "intransience"  could set back the site's already long-delayed development by months.

"That the Port is willing to accept yet another standstill at the World Trade Center site nearly seven years and ten months after the attacks is an embarrassment to our city, our state and to the nation," Silver said.

Port Authority executive director Christopher Ward issued a statement of his own later in the day, blaming Silverstein for walking away from negotiations, saying the public "has been unwilling to sacrifice critical transportation projects to subsidize private, speculative office space."

"A resolution to these issues can only be accomplished through good faith negotiations, not a legal fight," Ward said, adding that the Authority has already offered "several different proposals that would give Mr. Silverstein the ability to build a rational amount of office space while protecting scarce public resources."

Silverstein’s notice triggers a 10-day limit for the negotiations.  If the two sides can’t agree by July 20, either party will have the right to call for an impartial panel of experts to resolve the dispute through arbitration.

The two sides have been squabbling for months over construction financing for Silverstein’s three proposed office towers along Church Street, and the prolonged impasse now threatens a near halt of work on the site. Silverstein, unable to secure loans to fund construction of three massive office towers, wants the Port Authority to back financing for his Towers 2 and 4. The Authority, which is building 1 World Trade Center and the new transportation hub, has balked at the idea, and instead offered to invest close to $1 billion in the construction of Tower 4 in exchange for a share of the building’s rent revenue.

Silverstein Properties

A rendering of the completed World Trade Center site. At right, along Church Street and a reconstructed Greenwich Street, are Larry Silverstein's three proposed office towers.

If a deal is not reached soon, progress on the much-delayed site as a whole could again slow to a crawl. At Bloomberg’s invitation, all of the major stakeholders in the site’s reconstruction—including Silverstein,  Silver, New York and New Jersey Governors David Paterson and Jon Corzine, and the Port Authority’s chairman Anthony Coscia and executive director Christopher Ward—met on May 21 after Silver said in a speech that he was “fed up” with the stalemate between Silverstein and the Port Authority. The parties agreed to strike a new deal by June 11, but missed the deadline, and now seem deadlocked almost a month later.

"We are one step closer to stalemate today, but a solution does exist, and we will not stop working until we get there," Bloomberg said.

A source familiar with the negotiations said the two sides have spent much of their time since the May “summit” arguing over whether Tower 2 ought to be built immediately or put on hold until the commercial real estate market in Lower Manhattan recovers. Last month, Silverstein offered to pay for much of the below-ground infrastructure work on the eastern part of the site, work that the Port Authority is years behind in completing. In exchange, the Authority would agree to serve as a guarantor for construction loans for Towers 2 and 4, and build a six-story mall-type “podium” at the site of Tower 3.

In May, the Authority offered to help fund Tower 2, but only if Silverstein committed $370 million of his own money—and another $430 million in insurance money he received for the destroyed World Trade Center—and agreed to surrender entirely the site for Tower 3, a source familiar with the negotiations said. Silverstein would also have to agree to stop charging the Authority the $300,000-a-day fee he collects for the late delivery of the sites for Towers 2 and 3, and give back the money he’s already received.

Another offer from the Port Authority would have the agency build the first few floors of Towers 2 and 3, allowing it to complete infrastructure work needed for the memorial museum and transit center. Those above-ground buildings would be outfitted with retail tenants while construction of the towers remained on hold until the commercial rental market recovers. Ward has said repeatedly that backing financing for Silverstein’s office towers before demand for office space Downtown resurges would destabilize the market.

"That is why the Port Authority has offered several different proposals that would give Mr. Silverstein the ability to build a rational amount of office space while protecting scarce public resources," Ward said in his July 7 release. "We continue to urge [him] to accept any one of these multiple proposals."

The Port Authority seems to be alone in its opinion that the real estate market will not be strong enough to support three new office towers—Silverstein’s Towers 2 and 4 and the Authority’s 1 World Trade Center—among the reconstruction leaders participating in the negotiations. However, Govs. Paterson and Corzine—who ultimately control the Authority—have both said they are reluctant to inject public money into the private developments. Both Bloomberg and Silver have both said publicly that they are confident Lower Manhattan’s real estate market will turn around by the time Silverstein’s towers are completed.