Rebuilding the World Trade Center, Interview with Robin Panovka

Rebuilding the World Trade Center by Larry A. Silverstein, Joseph C. Daniels, Robin Panovka, Seth Piasky, John Lieber

Robin Panovka integrating the office towers, focus on the insurance claims. Our retail space, memorial, museum litigators developed the argument, which ultimately prevailed in court, Robin Panovka is a partner at and infrastructure on the site. the law firm Wachtell, Lipton, that Silverstein was entitled to collect Mr. Panovka is a frequent for “two occurrences” under some of Rosen & Katz, where he co­heads speaker and author on topics the insurance policies. The insurance the firm’s Real Estate and REIT involving M&A, REITs and battle ultimately yielded $4.6 billion Mergers and Acquisitions (M&A) commercial real estate. Among of insurance proceeds needed to rebuild. Our role also included group. His expertise is in cross other publications, he is co­ border M&A, private equity, representing Silverstein in negotiating author of “REITs: Mergers and a framework for the rebuilding effort, strategic transactions and Acquisitions,” an article which was my primary focus. Our corporate governance. Mr. published by Law Journal Press. firm strongly supported Silverstein’s Panovka has been active in many Mr. Panovka was born in mission to rebuild the Trade Center, recent noteworthy M&A Johannesburg, South Africa, lived and we dedicated a huge amount of time and energy toward the effort transactions in the REIT sector in Israel for eleven years, and including representing AMB over the last 10 years. currently resides in Manhattan Property Corporation in the with his family. He holds honors What were the early days after 9/11 merger with ProLogis, and degrees from Cornell University like, down at Ground Zero? representing Ventas in its and Duke Law School and is a Initially, it was fairly chaotic, as acquisition of National Health member of the New York Bar. Properties. Since 2001 he has you would expect given the traumatic Cornell Real Estate Review also played a crucial role in the events of 9/11. The federal Questions for Robin Panovka, government took over the site under redevelopment of the World Partner Wachtell Lipton Rosen & its emergency powers., There were Trade Center, as counsel to Katz rescue and recovery attempts Silverstein Properties. He has ongoing, and continuing concerns been instrumental in negotiating about security. There was also an How did Wachtell Lipton first get the master development understandable sense that Ground involved in the rebuilding efforts? Zero belonged to the public and not agreement and master plan for to any one person or institution, that the redevelopment, the Larry Silverstein hired us a few it was more than just land and exchange of the Twin Towers’ days after 9/11 to help him address buildings, and it seemed as if footprints for five adjacent office the myriad issues that arose from the customary private property rights sites that enabled the destruction of the World Trade were suspended for a period. There redevelopment to proceed, and Center, which he had taken over from were many strongly-held views about the Port Authority just a few months what should happen at the site, the multiple public-private before 9/11 under a 99-year lease. coming from many different arrangements for building and Our role initially included a heavy stakeholders— property -- property owners, lessees, politicians, families for the site and created the blue print of victims, the press and everyone for all the agreements that followed. else. How did this “immediate swap” What was the process for resolving agreement come about? the uncertainty over what, if anything, should be rebuilt? Long story short, by mid-2003, Larry Silverstein, the Port Authority, There was no clear process initially Governor Pataki and most -- just lots of voices calling for stakeholders had generally agreed on different things, including a push by two broad principles. First, that that some for the government to take over the footprints of the Twin Towers, the site permanently. What was where so many lives had been lost, needed in the midst of all the should become a memorial. And, confusion was leadership, and Larry second, that it was important to re- Silverstein quickly stepped in to open the Manhattan street grid provide it. From the very early days, (including Greenwich Street) which Larry believed passionately in the had run through the site before the importance of rebuilding as the original World Trade Center had appropriate response to the terrorist been built in the 1960’s, but had been attacks, and he never wavered. blocked by the “super-block” design Within weeks we formulated what of the original WTC. The reasons for became somewhat of a mantra—we - re-establishing the grid and the - we have the right, we have the related urban planning considerations responsibility, and we have the is a whole separate topic for another resources to rebuild—and – and it day, but the important point here is turned out to be an important force in that these two principles had taken shaping the debate. It sounded short hold and were strongly felt—don’t -- and simple, but was actually a don’t build on the old footprints, and carefully constructed position, do re­open the grid. backed by legal, moral, political and There was just one problem. The financial analysis and strategic entire legal regime for the site, thinking. Each component—the -- the Silverstein’s 99-year lease and all the written proposal by the following carefully, but it was short and easy to right (a reminder that there was a other ownership and leasehold stakes, morning, so that we could cut understand. The key was that this binding 99-year lease in place which were completely inconsistent with through the deadlock, show that the was a final, binding agreement, not gave Silverstein the right to rebuild), these two principles. In fact, the 99­ problem could in fact be solved, and an aspirational letter of intent that the responsibility (both moral and year lease provided that Silverstein start shaping people’s thinking about may or may not be implemented. contractual) and the resources (a would rebuild the Twin Towers the way forward. What we came up There was no turning back. Once the reference to the billions of dollars of exactly where they had been pre- with was the idea of the “immediate letter was signed on 12/1/03, the insurance proceeds to which only 9/11, exactly where everyone agreed swap”, which we did in fact present swap was immediately effective, the Silverstein was entitled and which a memorial should be built. There to the Port Authority the following master plan for the site was legally were essential to rebuilding)— was -- was massive pressure. The Port morning in the form of two short adopted and final, and rebuilding was carefully constructed to blunt Authority and Governor took the paragraphs and a color-coded could proceed. It was a risky move, arguments against Silverstein position that the pre-9/11 legal diagram. Essentially what we said but it was essential to resolving a rebuilding. arrangements had to be thrown out, was that Silverstein would swap his paralyzing deadlock. and that the whole situation was too leasehold for the Twin Towers—so - Judging by the many volumes of complicated to sort through and - so their footprints could become a Were there other key documents involved, there must renegotiate. Their positions was that memorial—for --for a leasehold on breakthroughs? What about the have been many agreements we should just start with a clean page five adjacent sites surrounding the deal to rebuild 7 World Trade devoted to the rebuilding efforts. entirely controlled by government memorial, with development rights to Center? Do any stand out in particular? agencies and without any private build the same quality and amount of interests. But Silverstein was, as office space in the five towers as had There were many breakthroughs There were a succession of always, passionate about rebuilding existed in the Twin Towers before along the way— issues – issues arose important agreements, each more and we believed that stepping aside 9/11—“ -- “10 million square feet of frequently that threatened the project detailed and voluminous than its would be counter-productive and just commercially viable Class A above- and needed to be resolved—but – predecessor, including so-called lead to more delay. grade rentable office space ... [each but, yes, getting 7 WTC up, starting Master Development Agreements with] an at-grade lobby”. We slapped in 2002 when nothing else was that tied everything together, but if I Sounds like an impossible a three colored diagram on the back moving at the site, was important were to pick one, it would be what situation. How was it resolved? that showed what was transferred to because it showed that the WTC we called the 12/1/03 “immediate the memorial in green, what went to rebuilding effort wasn’t hopelessly swap” letter agreement. The “swap” Well, with this backdrop, after Silverstein for office space in blue, deadlocked and created a model for agreement resolved what, at the time, coming back from a summit one and what would become a train resolving future issues. 7 WTC was towards the end of 2003, seemed like night where Silverstein had been station and infrastructure in yellow. the last building to go down on 9/11 an impossible deadlock, and paved a given an ultimatum to either come up And we agreed to some negotiating and fortunately no one died there, so path for rebuilding to proceed. It was with a solution or step aside, Larry principles to fill in the details later, it was less controversial to rebuild. a very short, unusual letter agreement Silverstein, Marty Lipton, Janno including that everyone would act In fact, there was a need to rebuild 7 which, in the stroke of a pen, or Lieber and I sat down to try to come reasonably and in good faith to quickly because its base included a actually the stroke of a color-coded up with something. Marty pressed us negotiate all other issues. That was ConEd power substation that was diagram, established the master plan to formulate a short and to-the-point basically it. Every word was chosen needed to power Lower Manhattan. But there were two problems. circumstances allowed. We needed to Con Ed, with the help of the general punt on the rest” and “no thumb on First, as I mentioned, the pre-9/11 7 build right away, and we couldn’t contractor, Tishman Construction, the scale” protocols that we World Trade Center had straddled wait for the condemnation. Never shy entered into a weekly agreement established early on with the Port Greenwich Street and completely about taking calculated risk, Larry allocating costs for the prior week Authority negotiators. The idea was blocked it, and there was a strong Silverstein stepped up and proceeded and agreeing on what was to happen that at any given stage in the process feeling by many people involved, to build 7 on a strip of land he didn’t the following week. No one knew we would resolve only what needed including Larry Silverstein, that own or lease, ultimately getting most what would happen if we couldn’t to be resolved and could be resolved Greenwich Street should be re- of the building up by the time the reach agreement the following week, at that time, with other issues opened and that, since the Master strip was acquired. Luckily we never but here again luckily we never had deferred by articulating even-handed, Plan had not yet been agreed upon, had to find out what would have to find out. broad principles for future whatever was to be built at 7 should happened if something were to have negotiation. It was not possible, for not interfere with the ultimate Master gone wrong. Are there any lessons about example, to agree on all of the terms Plan. This was a simple proposition, The second problem was also negotiating that you’ve taken away of redevelopment when we signed the but it was on a collision course with caused by the need to rebuild quickly. from your experience at the Trade 12/1/03 immediate swap letter—there an equally simple fact. If the new 7 The rebuilding of 7 included the Center, thatCenter that perhaps r – there were too many moving were to be built on only one side of ConEd power substation I mentioned might have broader applicability to pieces, too many unknown and Greenwich Street so as to re-open the earlier, in the first 77 feet, with the other complex, multi-party unknowable facts—so -- so we had to street, the building’s footprint would office tower directly above it. negotiations? proceed in incremental steps. It was be too small to accommodate an Construction was to be on a super- understood that after each office tower. The solution was to fast track, before the plans for the It’s hard to boil down ten years into incremental step no one would try expand the footprint into another building were complete, and it was one simple answer— – someday I’ll indirectly to influence the outcome of adjacent street, the NYC-owned not possible to allocate costs between write a book about all this—but – but future negotiations, but rather that we Vesey Street, but here we ran into Con Ed and Silverstein in advance of I would emphasize the importance of would table the issue until it was ripe another “roadblock”. While the City building. There was no way to know arrangements that align parties for resolution. Any attempt to slant was willing to trade the required strip how much of the foundation, elevator interests and create long term drafting or facts on the ground in a of Vesey Street for the re-opened banks, façade and other elements was incentive to perform (not so simple way that would create future Greenwich Street, it couldn’t just attributable to the office versus the when you’re dealing with advantage, or any collateral convey the strip to Silverstein. substation until full plans and cost as many diverse stakeholders and agreement that would prematurely Rather, a series of complex estimates were completed, and there motivations as we had at the Trade change the status quo, was an regulations needed to be addressed by was no time to wait for the final Center); the importance of building impermissible “thumb on the scale” having the required strip condemned, plans. So, given the urgent need to trust and negotiating protocols among entitling the other parties to cry foul. which was a court process that could rebuild, Silverstein elected to proceed the negotiators; getting into the heads It took a lot of mutual respect and be challenged and which carried based on weekly agreements rather of counterparties in order to trust to make this work. various risks. There was no certainty than wait until a comprehensive understand exactly what they are it could be accomplished, and in any approach was possible. Each week trying to achieve and to help them get Any other general lessons from event, it would take much longer than during construction, Silverstein and there; understanding that in complex how the complexity and many multi-party terrain like Ground Zero obstacles in the way of rebuilding it’s impossible to please everyone, to were overcome? find the perfect solution or to draft the perfect agreement, so it’s often Many, but I would say that wise to seek Pareto optimality and Silverstein’s sheer determination and avoid getting bogged down trying to passion to rebuild, willingness to take achieve perfection; trying to resolve huge (albeit calculated) risks to make disputes and deadlock relatively it happen, and willingness to quickly before they spin out of cooperate and compromise in order to control or spill into the press, by craft solutions, were all critical changing the dynamics or parties at ingredients. 7 World Trade Center the table, seeking third party might never have been built if intervention, by forming alliances or Silverstein had not been willing to through PR; getting out ahead of give up Greenwich Street and build complexity and shaping people’s on a week-to-week basis on a City thinking with simple, bold proposals street he didn’t own, and the Master like the “immediate swap”; Plan might never have been adopted respecting “off the record” if Larry had not been willing to agree discussion; and avoiding ad hominem to the “immediate swap” in which he attacks if at all possible. Much of gave up well defined multi-billion negotiation is art, not science, like dollar leases in exchange for a few judging when to stick to your guns (admittedly carefully crafted) and when to compromise, when to paragraphs with a basic outline and draw lines in the sand and when to principles for future negotiation. roll with the punches, and the applicability of any rule will depend on the specific facts and circumstances. What do you mean by negotiating protocols? Can you give us an example? Two good examples were the related “resolve what you can and