LEAD: LARRY SILVERSTEIN, the New York City real estate investor whose 7 World Trade Center skyscraper in lower Manhattan remains 86 percent empty, seems almost unwilling to rent out his building - except on his terms.
LARRY SILVERSTEIN, the New York City real estate investor whose 7 World Trade Center skyscraper in lower Manhattan remains 86 percent empty, seems almost unwilling to rent out his building - except on his terms.
Mr. Silverstein, who is asking around $37 a square foot per year, could probably fill his building in a flash if he dropped the price to $34 a foot or made other concessions, real estate analysts say.
But he is in no hurry to do so, thanks to an unusually structured deal that involved tax breaks and favorable financing, including a waiver on interest payments for a number of years. He has structured the development of 7 World Trade in such a manner that he could break even by charging roughly $33 a foot. By charging, say, $34 a foot, Mr. Silverstein would earn about $2 million a year on a building for which his own investment is virtually nil. Apparently, however, Mr. Silverstein thinks he can do better.
''I have the staying power and the ability to do what I need to do,'' Mr. Silverstein said in a recent interview. ''We have a superior commodity - superior space at a first-class location.''
Mr. Silverstein argues that in the next couple of years the leases of a number of major downtown financial firms will expire and that these firms will almost be forced to deal with him, if only because the open space he is offering simply is not available elsewhere.
So Mr. Silverstein has not budged. Ever since Drexel Burnham Lambert Inc., the brokerage firm that was to be Mr. Silverstein's anchor tenant, announced in December 1986 that it was spiking the deal, only one other tenant - the accounting firm of Spicer & Oppenheim - has signed a lease. It rents only 14 percent of 7 World Trade's 1.8 million square feet. And while other big corporate tenants that have approached Mr. Silverstein - including Shearson Lehman Hutton, the Bank of New York, Marine Midland and Salomon Brothers - would love to see the developer cut his price, he shows no signs of cracking.
When it was first designed, 7 World Trade, which straddles Barclay and Vesey Streets just north of the main World Trade Center complex, was conceived as a building for brokers, banks and other financial firms. The building has some drawbacks - western views on lower floors are obscured by another building and the twin towers of the Trade Center cast a shadow on it - but real estate professionals say that on balance the pluses outweigh the minuses.
For example, many of 7 World Trade's 47 stories are enormous. The biggest, floors 38 through 45, stretch over nearly 50,000 square feet - more than an acre of space that would be ideal for a Wall Street firm.
But much of Mr. Silverstein's waiting game may have to do with the terms of the loan he obtained for construction and the tax breaks he received.
The loan, arranged by the mortgage bankers Sonnenblick-Goldman, is a $300 million, 10-year i.o.u. from the Teachers Insurance and Annuity Association, which invests the pension savings of college professors nationwide.
Under the i.o.u., which carries an interest rate that increases over time to 11 percent from 9.25 percent, Mr. Silverstein does not have to pay any interest while he is trying to fill his building. Instead, using what real estate professionals call an interest reserve, the interest simply accrues and is added to the principal. This means that Mr. Silverstein could go for two years or longer without paying interest.
Mr. Silverstein's tax situation also helps. The land on which 7 World Trade sits is owned by the Port Authority of New York and New Jersey. Ordinarily, that would mean that Mr. Silverstein would pay ground rent and payments in lieu of property taxes to the Port Authority. Under a deal he made a number of years ago, however, Mr. Silverstein will begin payments to the Port Authority only as he leases the building.