The Remarkable Larry Silverstein Story

How the FT (and others) were had by a huckster

First of two articles

We here at The Audit understand the constraints under which the business press operates, and we’re particularly sensitive to the access problem. Business is hard to report on because its officials, by and large, don’t have to talk to reporters. We get that.

This is particularly true of closely held businesses, and triply true of real estate companies. Commercial real estate is secretive to begin with. In fact, that’s part of its charm.

And we’ll even concede that ground zero—the site of the former World Trade Center—presents its own difficulties.

Even so, there is no excuse—none at all—for the Financial Times story that ran last month under the headline, “Cometh the Tower, Cometh the Man,” a regrettable profile of World Trade Center leaseholder Larry Silverstein.

We’re not out to embarrass anyone, so we’ll leave off the byline. But this piece isn’t just valueless; it seriously detracts from the public’s already shaky understanding of the world’s most important real estate development. To those who watched with their own eyes the World Trade Center fall, the money grab at ground zero and the attendant failure to rebuild has been heartbreaking enough. The subsequent press failure to hold the leading actors accountable has been like salt in the wound.

And while the business press isn’t to blame for that seventeen-acre hole in the middle of the financial district—that would be the fault of ex-New York Governor Pataki, followed closely by Silverstein himself—it is certainly to blame for the public’s continuing confusion surrounding the project.

The fact is, some outlets, particularly the FT, the New York Post, and Esquire magazine, have been played like a circus organ by Silverstein’s public-relations man, Howard Rubenstein. Meanwhile, The New York Times and The Wall Street Journal have been disappointingly inconsistent, considering that, for the Times, this is a hometown story close to the hearts of all New Yorkers; and that, for the Journal, the Trade Center, besides representing a story of international significance, just about landed in its newsroom.

The highly-overrated Rubenstein, by the way, is a PR craftsman with but a single tool—a screwdriver—and he wields it crudely. He controls access to Silverstein, and that’s it. But the truth is, Silverstein has had nothing new to say for years. By the looks of the coverage, no one took the scary but liberating step of disregarding either man to tell the story what has become of ground zero, any fair rendering of which would name Silverstein and his shadowy financial backers as a leading reason why there is no iconic Freedom Tower or anything else over there.

In any event, the hypocrisy and general b.s. surrounding that project has to stop, and we’ll use the FT story as an opportunity to review press coverage of the failure at ground zero and Silverstein’s role in that failure.

The FT’s story, it turns out, is only the latest and worst example in a galling genre: the profile of Silverstein as gutsy underdog, the can-do developer in a hurry who would have had the World Trade Center rebuilt by now if not for evil, foreign insurance companies, bungling bureaucrats, and unnamed powers that be. He is a man on a quest with a dream/vision. He is a man who does not buy green bananas because at his age, seventy (seventy-one, seventy-two, seventy-three, seventy-four, seventy-five, seventy-six), he has no time for them ripen.

And while the headline, “Cometh the Tower, Cometh the Man,” is intergallactically stupid, the subhead shows that the premise of the story is fatally flawed.

Larry Silverstein overcame all the odds to buy the Twin Towers in July 2001. Six weeks later, they were rubble. But before he could rebuild, he had to persuade America he was worthy of the task.

Readers struggling to understand what’s happening on Liberty Street must have wondered if they had read this story before, and in fact, the premise is wildly dated. Many news outlets have described Silverstein’s struggle to win the lease over larger competitors. These stories came out at the time of the deal, in the days after 9/11, and then regularly until the present. Peter Grant and Jim VandeHei provide an early example, full of detail, in The Wall Street Journal on November 2, 2001.

Grant and VandeHei related a nice anecdote in which Silverstein, after being hit by a car, negotiates from a hospital bed.

But Mr. Silverstein proved relentless. When he was struck by a car and broke his hip shortly before one of the bidding deadlines in January, he continued working from his hospital bed.

The detail is repeated by The Washington Post the next year, 2002:

The accident left him in such pain he required morphine in the hospital. But he couldn’t think, being so drugged. And he needed desperately to be sharp.

‘So I asked the doctors to lower the dose of morphine and get my guys into the hospital so they could sit there and frame this final bid, which we did. And that was no fun, but that ultimately led to the success of the bid and the culmination of the process.’(1)

The New York Times in 2003:

From his hospital bed, he told his doctors to cut off the morphine so he could meet with his advisers to hammer out his $3.2 billion bid. (2)

The Engineering News Record(?!) (3), in 2004:

The impact sent him flying, and he landed hard, fracturing his hip in 16 places. Despite the pain, he asked that the morphine be cut so that he would be clear-headed when discussing the deal on the telephone from his hospital room.

NYT, back to you, 2006. What about that morphine thing?

‘Right away, I called the doctor and I said, “Kill the morphine. I got to think.’(4)

And the Journal. Again. Last May:

It struck him, sending him flying through the air and breaking his pelvis in 12 places.(5)

Here’s last month’s version, in the FT; the breaks are back up to sixteen in that hip/pelvis (a new body part):

The impact sent him flying, and he landed hard, fracturing his hip in 16 places. Despite the pain, he asked that the morphine be cut so that he would be clear-headed when discussing the deal on the telephone from his hospital room.

At a certain point, this becomes offensive.

This is not about missing a clip or two on Factiva. (We’ll leave that sad gotcha game to The This is about the business press being led around by the nose by a PR hack. Readers have every right to feel betrayed, and not only because some stale story is being presented to them—annually—as though it were original.

No, far more gravely, the misframing of the ground zero story has been a major cause of the project’s failure.

The gritty underdog story has always had a dark side: Silverstein is and always was seriously undercapitalized, under-staffed and inexperienced in this kind of mega-mixed-use development. He was in no position to rebuild should something seriously go wrong.

What the FT, and Esquire, which we’ll get to, fail to understand is that Silverstein is a real estate developer, which is the same thing as saying he is a salesman. It is not a bad thing to be a salesman. And Silverstein and Rubenstein are practitioners of the hardest of hard sells. Ron Popeil has nothing on them. But for the press to buy the same pelvis-a-matic at this date is a shame.

Silverstein had to sell the public, and the Port Authority, that he was properly capitalized, equipped, insured and experienced to rebuild ground zero —when he was in fact none of those things. An inability to rebuild is, and always was, grounds for default on his lease.

The FT fails to mention that Silverstein bought the $3.2 billion towers with a sliver of equity—$125 million, a whopping 4 percent down—most of it from silent partner Lloyd Goldman, whose behind-the-scenes role has never been adequately explained. Silverstein then borrowed equity—if that’s possible—from bondholders, layering on debt like a teetering Dagwood sandwich.

Then, he underinsured the property by more than half in a slapdash process that left the paperwork undone by the time the towers fell, creating the need for his dog-and-pony suit against Swiss Re and other insurers that author Steven Brill predicted, correctly, as early as April 2003, that Silverstein would lose (which he did, but only after years and hundreds of millions of dollars—enough to build something—was wasted on the legal fight).

This suit created the illusion that Silverstein could obtain $7 billion and would therefore be able to fulfill the rebuilding requirements of his lease. Without this doomed attempt to force insurers to fund the redevelopment project, Silverstein’s financial shortfall would have been obvious for the world to see. But the Port Authority, the site’s owner, supported the legal action.

Then, Silverstein somehow convinced the George Pataki-controlled Port to refund his group’s $125 million in equity while retaining control over the site, to the stupefaction of civic groups and all sensible people.

Finally, last year, Mr. No Money Down pulled off another negotiating coup in the waning days of the Pataki administration in which he walks away with the three best parcels, leaving the Port with the two worst ones, including the un-rentable Freedom Tower.

And all along in fact it has been Silverstein’s very presence—hasn’t it?—that has necessitated plans that include millions of square feet of unneeded office space and useless bickering over what the Freedom Tower should look like.

But the FT writes:

While there will be debates over Silverstein’s vision long after the buildings have been completed, the man has presented a strong case that no one could have handled the project more efficiently. It is a remarkable achievement.

Remarkable indeed.

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Elinore Longobardi is a Fellow and staff writer of The Audit, the business-press section of Columbia Journalism Review.