Carl Glassman / Tribeca Trib

A view of the World Trade Center site, looking east along what will one day be a completed Fulton Street, where developer Larry Silverstein is to build three massive office towers. Silverstein admitted last year that he was having difficulty securing loans for the towers in a tightened credit market.

Locked in a months-long stalemate over construction funding, Silverstein Properties and the Port Authority of New York and New Jersey appear to be no closer to ending their feud. But Gov. David Paterson intervened on Monday, saying he would become "directly involved" in the talks, and Silverstein has agreed to postpone turning to court-appointed arbitrators to settle the conflict.

"For the last six weeks, there’s been negotiation, but I’ve been somewhat distracted by the problems in Albany," Paterson said during a conference call with reporters on July 20. "What I have asked is that we spend at least a couple of weeks with me directly involved to see if perhaps we can get somewhere, and if we can’t then we’ll just go to binding arbitration."

Paterson, who controls the Port Authority along with New Jersey Gov. Jon Corzine, did not set a date by which his talks with Silverstein would end. The governor insisted that he and Silverstein Properties arrived mutually at the decision to postpone arbitration–a process that, he said, could take up to nine months.

"There was a consensus that the binding arbitration process presents an unlimited waste of time," Paterson said. "We didn’t want to be at each other’s throats, which is where binding arbitration always begins."

Larry Silverstein, whose Towers 2, 3 and 4 are threatened by his inability to secure construction loans in a sluggish credit market, formally rejected the Authority’s latest offer to build at least one of the towers, calling the proposal “a step backwards.”

“The [Port Authority’s] proposal would make the project unfinanceable and would make it highly unlikely that office towers, retail and other important components of the World Trade Center would be built any time soon,” Silverstein said in a June 16 letter to the Authority. Earlier in the month, Silverstein announced he wanted arbitrators to step in to the stalled negotiations if a solution couldn’t be reached by July 20. The deadline arrived, but after a two-and-a-half-hour meeting with Gov. David Paterson, Silverstein agreed to postpone the hearings and continue negotiatiating.

Silverstein has been pressing the bi-state agency to back loans for construction of Towers 2 and 4. The Authority, which is building 1 World Trade Center and the new transportation hub, has balked at the idea of risking its own portfolio of projects to build office towers it does not believe Silverstein will be able to fill with tenants.

In response to Silverstein's arbitration notice, the Authority offered to guarantee $1.2 billion in financing for construction of the developer’s Tower 2—on top of its previous offer to back almost $1 billion in loans for his Tower 4—if he could come up with $625 million in financing on his own.

Carl Glassman / Tribeca Trib

Port Authority Executive Director Christopher Ward (left) and developer Larry Silverstein, seen here at a 2008 hearing convened by Assembly Speaker Sheldon Silver, have been arguing for months over construction financing at the World Trade Center site.

The day after Silverstein rejected the offer, the Port Authority's executive director Christopher Ward and its chairman Anthony Coscia wrote a letter to him, saying his insistence upon building two office towers with loans backed by public money was “unrealistic.”

“It is disappointing that [Silverstein] dismisses the Port Authority’s latest proposal while offering no new counteroffer, choosing instead to cover the same ground that has been well tread in past discussions,” Ward and Coscia wrote in their letter, repeating its position that the Authority would not agree to any deal that places other projects planned for the region at risk.

“It is not going to happen,” Ward and Coscia said in the letter, “not when the region has so many pressing transportation needs and when our revenues continue to be impacted by the severe economic recession.”

Mayor Michael Bloomberg and State Assembly Speaker Sheldon Silver have both repeatedly supported Silverstein. Until this week, Gov. Paterson had said little about the negotiations, but on Monday July 20 he was unequivocal in his support of the Authority’s position.

“Where private money is eschewing the opportunity [to build private office space], public money should not be used either,” Gov. Paterson said. “The public dollar is just as important as anyone else’s. We cannot finance anyone else’s project.”

These recent events came on the heels of an unusually candid appearance by Janno Lieber, Silverstein’s executive in charge of World Trade Center construction, on July 13. Lieber told a Community Board 1 committee that the company would ask for a “significant damage award” from the Port Authority if the two parties enter into arbitration later this month.

“It’s not about just what’s best for [Silverstein Properties] or what’s best for the Port Authority, but what’s necessary for the project to move forward,” Lieber said.

Lieber told the CB1 committee that the company would look to recover at least some of the $2.75 billion in ground rent Silverstein has paid to the Authority since Sept. 11, 2001, when the site was destroyed. Silverstein signed a 99-year lease on the property just six weeks prior to the 9/11 terrorist attacks.

“If we can't make a new deal, we have to find a way to get the money back [from the Port Authority] so we can build some buildings,” Lieber said. “We've been paying rent as if the Twin Towers were still standing and full of tenants. At some point, given the delays that have taken place in the redevelopment of the site, that stops being fair."