The new and previous owner of the World Trade Center are bracing for what might become a battle royale over more than $1 billion worth of insurance proceeds.
Whoever wins still might find themselves without enough money to cover the losses.
The insurance industry is also monitoring the Bush administration for signs that the industry could construe the destruction of the downtown area as an “act of war,” which could get insurers off the hook.
Real estate honcho Lloyd Goldman and Silverstein Properties – the family-owned business that had just leased the office portions of the towers from the Port Authority – may be out the $100 million they put up as part of a $515 million down payment. And the new owners could be responsible for ongoing lease payments of $115 million a year – even though the building doesn’t exist.
In addition, the new owners, along with Westfield America – which leased the 427,000 square feet of retail space and put down $100 million – may be responsible even for rebuilding the properties.
The companies have not been responding to repeated requests for information regarding the finances, and Port Authority officials could not be reached for comment.
The destroyed Marriott Hotel, which sits between the two towers, does have an exception in its lease that provides for the Port Authority to rebuild, if the hotel is damaged as a result of damage to the towers. That lease was written after the February 1993 bombing of the Trade Center.
Silverstein, a huge player in the real estate world, lost 13 million square feet of its portfolio in one day, including the 2-million-square-foot Seven World Trade Center. That building was worth some $500 million.
John Ford, a spokesman for Blackstone – which owns the debt on Seven WTC – declined to discuss the financing but said Tuesday’s events “may take the shine off trophy properties, that’s for sure.”
Larry Lipson, a real estate lawyer, said the insurance money would first pay off loans taken by the Silverstein Group for the purchase.
“The next monies would go to pay off the Port Authority,” he said, with Silverstein next in line.
A loan from GMAC for $563 million was securitized to a small group of lenders, with Goldman and Deutsche Bank as the co-leads. Another loan was made directly from GMAC for $200 million to fund improvements to the center.
The loan was covered by an insurance policy that does not exempt terrorism, sources said.
“It has six pages of terrorism items,” said one individual familiar with the document. “Everyone is covered unless there is a declaration of war.”
“If they pay the claim and they will be out of business, the insurance company may be more creative,” warned Alan Pomerantz of the law firm Weil Gotshal Manges.
Since President Bush said the destruction is an “act of war,” the insurance industry is watching closely for a way out of payouts.
Joe Annotti of the National Association of Independent Insurers said most terrorist acts would not be considered acts of war for the purposes of insurance policies, as such acts are usually defined as between two sovereign states.
“So a guerrilla group or radical political group not considered a sovereign state may carry out a terrorist act but it is not likely to stand up as an act of war,” Annotti said.
Pomerantz said he didn’t think the insurance company would be paying out so fast, either.
“I don’t think it’s so straightforward that GMAC is going to send in a letter and get a check,” Pomerantz said. “It would be refreshing but unlikely.”
