JANUARY 30, 2012

Tower Rises, And So Does Its Price Tag

Building at World Trade Center Site To Cost Public Agency $3.8 Billion

• By ELIOT BROWN

Associated Press

One World Trade Center, 90 floors up so far and scheduled for completion in 2013, rises above the lower Manhattan skyline and the Hudson River.

The price tag for One World Trade Center, the signature skyscraper under construction at Ground Zero in New York, has risen to more than $3.8 billion, making it by far the world's most expensive new office tower, according to people familiar with the matter.
The new figure, up $700 million from the latest public estimate, marks another twist in the rebuilding of the site of the Sept. 11, 2001, terrorist attacks. The process has been marked by thorny political challenges and ever-lengthening construction delays.
One World Trade Center is being built by the Port Authority of New York and New Jersey, the regional transportation agency that owns the 16-acre World Trade Center site. A series of cost increases at the site, totaling billions over the years, has been reverberating in the area's economy in the form of higher bridge and tunnel tolls and reduced spending on transportation infrastructure.
Continuing delays also have caused the site in the middle of Lower Manhattan to be boarded up for more than 10 years.
Driving the latest increase: construction-cost overruns and a decision by the Port Authority to now include leasing expenses in its public estimates. Those leasing costs are higher than the Port Authority had privately anticipated, people familiar with the matter said. The higher number is expected to be released as early as this week in an audit by the agency.
One World Trade Center's construction is vastly more expensive than a traditional office tower, in large part due to security costs associated with building the tallest building in North America on a site that has been the target of two separate terrorist attacks (the site was also bombed in 1993). Once known as the Freedom Tower, the 1,776-foot skyscraper sits atop a heavily reinforced, windowless podium. It also has a thick core of concrete and steel around its elevator shafts.
By comparison, other-high profile buildings around the world have been far less expensive. The developer of the Burj Khalifa, the world's tallest tower, in Dubai, has put its cost at $1.5 billion.
The Port Authority long ago gave up hope that One World Trade would be a profitable investment in the short- or mid-term. In 2010, when the agency sold a minority stake in the tower to the Durst Organization, a major developer in New York, the agency pegged the tower's value at $2 billion.
While political wars have mired the redevelopment of the World Trade Center site for most of the past decade, construction there is proceeding.
A memorial plaza opened on the 10-year anniversary of the Sept. 11 attacks. Construction of One World Trade Center has reached 90 stories, and 4 World Trade Center, a 72-story office tower being built by private developer Larry Silverstein, has risen 61 stories. Both are slated to finish construction at the end of 2013.
The costs for the overall site, which includes two buildings, rights for two more towers, a memorial and museum and a $3.4 billion transportation hub, have largely been borne by the Port Authority, which is funded by both airports and toll payers of the region's bridges and tunnels. The agency has been forced to divert resources away from transportation projects that have long been planned. Those include redevelopments of aging and crowded airport terminals.
This summer, the Port Authority approved a plan to boost its bridge and tunnel tolls 56% gradually through 2015. The agency cited a need for additional revenue—in part due to costs at the World Trade Center site.
The Port Authority's new executive director, Patrick Foye, in a speech last week called the focus on rebuilding "mission drift." Calling for a return to infrastructure and economic development as the site nears completion, he said, "I believe the agency must refocus on its core mission."
The Port Authority has previously put the price tag for rebuilding the public portions of the World Trade Center site—everything but the Silverstein project—at more than $11 billion, which includes some federal funds and insurance proceeds. That figure is expected to rise higher with the new audit.
When first proposed, One World Trade was expected to cost about $2 billion. The most recent public estimate, from 2008, was $3.1 billion.
From the early days of rebuilding, One World Trade Center was driven by symbolism and a desire to rebuild, rather than by its soundness as a real-estate investment.
"It was as much about making a political statement as it was an economic decision," said Robert Yaro, president of the Regional Plan Association, a nonprofit organization focused on planning and infrastructure around New York. "This is not a project that's standing on its own—it was never intended to be."
Of the $700 million in additional costs, about $350 million comes from costs associated with leasing such as money given to tenants to build out their offices and commissions for brokers, the people said. That figure assumes the building would be nearly fully occupied.
Other increases come from unexpected construction costs, financing costs, fees to consultants and the Durst Organization, and other contingencies.
Leasing at One World Trade has been going well. Publisher Condé Nast has signed a lease for one million square feet. The federal government and a Chinese real-estate firm have committed to take space as well, bringing the building up to about 50% leased. To lure Condé Nast, the Port Authority agreed to cover the final years of its lease at the publisher's current Midtown location. The amount of this expense—tens of millions of dollars—is included in the $700 million of additional costs.
Write to Eliot Brown at eliot.brown@wsj.com  COPY online.wsj.com/