By Kerry Lutz, Special for USDR
Two weeks ago was my law school reunion. Hard to believe how quickly 30 years goes by, but if you’re over 20 you know that. It was great reconnecting with my fellow grads. The law school is located in lower Manhattan, just a stone’s throw from the World Trade Center site. I have many fond memories of the Twin Towers, drinks at Windows on the World and time spent looking out from the Observatory. The rebuilding is well underway, but it’s 13 years later and lower Manhattan is still a slow moving labyrinth of street construction and security stops. The Freedom Tower is nearing completion. We received a private tour of the memorial and a close-up of the new buildings.
It gave me an opportunity to reflect upon the history of the original towers and their replacements. I was deeply touched by 9/11. Several of town’s resident’s perished in the attacks and a few of my closest friends witnessed the terror and were deeply scarred. I write this review with the utmost sensitivity towards those who lost friends and loved ones on that fateful day. In writing this piece, I’m just trying to help put it all into a proper economic perspective. I think it’s particularly important to examine the faulty economic theory that led to the Trade Center’s initial construction, as well as the flawed reasoning that has led to its reconstruction.
The World Trade Center’s inception can be traced back to the heady post-World War Two era. The idea was kicked around from the late 1940’s until the early 1960’s; New York’s then Governor Nelson Rockefeller seized upon the idea. When it came to legacies, Rockefeller couldn’t have too many monuments. He needed New Jersey’s consent, since he wanted the flush Port of New York and New Jersey Authority (It owned and managed NY/NJ’s bridges, tunnels, airports and ports) to finance the development. Ever the dealmaker, he dangled the carrot of having the Authority take over the bankrupt Hudson and Manhattan Railroad a/k/a The Tubes (which transported hundreds of thousands of New Jerseyans into New York City daily) before New Jersey’s governor. Governor Miner and then Governor Hughes jumped at the bait and the deal was done. The Port Authority took over the money losing Tubes and it was renamed the PATH (Port Authority Trans-Hudson Rail Line).
There were hundreds of encroaching small businesses that were forcibly evicted from the site. Not a problem for Rockefeller, newly expansive eminent domain doctrine was used to force them out with just compensation. Once the little guys were stripped of their property rights, the game was on. Construction began in 1967 and was completed in 1973, in just six short years. The original cost for everything is hard to pin down, but it is estimated at around $1.5 billion. For a brief period of time they were the tallest buildings in the world, until the Sears Tower was erected in Chicago.
The downtown Manhattan real estate market had lost its place as the commercial center of the City, years before the center moved to midtown. Upon completion, the Towers were constituted a White Elephant and remained partially vacant for many years. To mitigate this situation, numerous city and state agencies were placed in the towers where they stayed until the attacks. With millions of square feet dumped into a weakened office market, lower Manhattan rents were depressed for decades. But, inflation worked its magic and so did a revitalized New York City. Eventually, the Port Authority looked to raise cash and sold (using a 99 year lease) the towers to Lawrence Silverstein, closing just weeks prior to September 11, 2001.
Therefore, it should be clear that no private market for the Towers’ office space ever existed. Left to its own devices, the private sector would never have constructed a development anywhere near the scale of the World Trade Center.
After the Trade Center came down, an economic analysis was never conducted to determine the wisdom of rebuilding the center, or what should have been built in its place. The politicians just went full speed ahead with its replacement. The aftermath has been nothing short of shocking. Corruption, inefficiency and incompetence have taken place on a monumental scale.
The only bright spot has been 7 World Trade Center. The last building to fall on 9/11, it was the first to be rebuilt. Construction began in 2002 and was completed in 2006. If only the rest of the project went so smoothly. Most of the $4.55 billion dollar insurance recovery that Silverstein received has been spent on lease/purchase payments to the Port Authority, in large part due to the interminable delays in starting the rebuilding.
One World Trade Center’s (The Freedom Tower) cost has risen drastically, from $1.7 billion to $3.8 billion, making it (according to the Wall Street Journal) the world’s most expensive new office building. Bridge and tunnel tolls now cost $11 and will keep increasing to subsidize the project. Motorists will be paying the costs of this boondoggle for decades to come.
1 and 4 WTC are being financed by Tax-Exempt Liberty Bonds. The Santiago Calatrava designed PATH Transportation Center’s price has risen to a cool $4 billion. The architect is as famous for his breakthrough designs as he is for leaving a trail of cost overruns around the globe. The recently opened West Hallway cost $225 million dollars and requires a 24/7 cleaning crew due to the use of an exotic marble floor that is easily stained by just a few drops of water. The Fulton Street Transit Center, which has been under construction for over a decade, will come in almost double its original price tag at $1.4 billion. The fate of 2 and 3 World Trade Center will depend upon elusive future leasing demand.
The 9/11 Museum and two memorial waterfall fountains are quite stunning. They cost $700 million and will require $60 million annually to operate. By comparison, Arlington Nation Cemetery and the USS Arizona cost just $45 and $3.6 million annually.
Much of the delay and problems in getting all this together was attributable to allowing the families of those who died on 9/11 input into the design of the buildings, museum and monument. Also you had New York and New Jersey’s sordid governors in on the act, the Port Authority’s commissioners and Lawrence Silverstein along with a host of other competing real estate developers, including the eventual winning developer—the Durst Organization.
This is no way to run a city, a state or a country. A simple monument park and museum could have been privately built and operated. The site should have been divided up, a simplified new Path station built and the remaining lots sold off to the highest bidders. Thus the drama and costly delays could have been eliminated and the free market, as free as it can be in a socialist utopia such as New York City, could have been allowed to function.
In the 13 years since 9/11, the neighborhood around the Trade Center fidi (short for Financial District) has evolved, independent of government intervention. Once the financial hub of the free world, it is now a major residential center. Many of financial firms once located there either folded after the 2008 Crash or had the good sense to flee the outrageous New York City tax burden. For them there’s no reason to be downtown any longer. The stock exchanges are just Hollywood Backdrops; the real trading takes place electronically in New Jersey. Can you spell Flash Boys?
So did we really need another WTC? Most decidedly not! That land was and is extremely valuable and the market would have found a higher and best use for it. Now we’ll never know what might have been. That’s just the way things work in the workers’ paradise called New York City.