Private funds eyed for WTC site

NEW YORK (CNNMoney.com) -- The government agency that owns the World Trade Center site is trying to attract private equity or hedge funds into investing in the $3 billion replacement Freedom Tower, according to a published report.

The Wall Street Journal reports that the agency, the Port Authority of New York and New Jersey, also is in talks to sell development rights to one of the five planned skyscrapers there to J.P. Morgan Chase & Co (Charts).

The Port Authority, now building replacement towers at the World Trade Center site, reportedly is hoping to attract private equity or hedge fund investment to the project.

The paper said that if the agency is able to win commitment of significant private-sector money, it would be a major advance for the development, which has struggled to advance so far by basically using only government support and insurance proceeds.

Robert Sammons, director of research for the real-estate services firm Colliers ABR Inc., told the paper there has been a recent a flood of investors - from private-equity firms to pension firms to foreign interests - looking to own a piece of Manhattan commercial real estate.

"Certainly you're not going to find a better time to try to sell that equity interest," he told the Journal. Just last week, private equity firm Blackstone Group won a bidding war for Equity Office Properties (Charts), the nation's No. 1 owner of office buildings, with a $23 billion bid.

The foundation of the Freedom Tower, the key building in the development, is now under construction, with lease commitments from the federal and New York state governments to take one million of the 2.6 million square feet of available office space.

But at a symbolic 1,776 feet tall, some worry that the tower that will be about 400 feet taller than the former twin towers and will be a terrorist target, and that it could have trouble attracting tenants worried about an attack. The first 200 feet of the tower will be taken up by a mostly unoccupied concrete structure to protect the building from possible truck bombs. It is due to be completed in 2012.

Because of those obstacles, the paper says a deal for ownership of the Freedom Tower is not imminent.

But a deal for Tower 5 of the complex could be as close as a month, the paper reports, with J.P. Morgan considering the purchase of a long-term ground lease from the Port Authority to build and occupy a 57-story, 1.6 million-square-foot office building.

Still, the paper reports there are problems with the plans being discussed for Tower 5. The plot is currently occupied by the building that formerly housed the New York offices of Deutsche Bank AG (Charts). Demolition of that building, which was seriously damaged in the attacks but remained standing, has been slowed by environmental concerns and the discovery on its roof of human remains from the attacks.

The current footprint of Tower 5 also is not big enough for the trading operations planned by JP Morgan Chase. To expand its footprint would involve encroaching on adjacent land, currently reserved for a park and to rebuild a Greek Orthodox church that was also destroyed in the attack.

Still if there are deals to develop Tower 5 and for equity investment in the Freedom Tower, the Journal reports it would be a blow for private developer Larry Silverstein, who had the lease to the former Twin Towers and is using insurance proceeds from those buildings' destruction to build three other office towers on the World Trade Center site.

Spokesmen for Silverstein and the Port Authority would not comment to the Journal.

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