Goldman Sachs due for another money pot

Goldman Sachs , the Wall St firm that earned US$2.3 billion ($3.5 billion) last year, stands to get up to US$321 million if the state and city fail to meet construction and security deadlines at the World Trade Centre site.

Goldman Sachs is entitled to as much as US$160 million if the state does not fulfil obligations on eight projects, including a transit hub and the Trade Centre memorial, by December 31, according to the 2005 lease.

The firm can also recover a further US$161 million in rent on the headquarters it is building downtown under the terms of the lease.

The 6.4ha Trade Centre parcel remains a construction pit almost eight years after the September 11 terrorist attacks and is the focus of a financial dispute between developer Larry Silverstein and the Port Authority of New York and New Jersey over development of three office buildings.

Goldman Sachs would get the money in addition to an estimated US$390 million state and city incentive package that the New York company received to build the US$2.4 billion skyscraper adjacent to the site.

"While we were aggressive, I think everybody who was involved in the discussions with Goldman Sachs downtown at that point firmly believed that 2009 was a realistic timeframe to achieve those deadlines," said John Cahill, who was former Governor George Pataki's chief of staff and chief negotiator with Goldman Sachs.

Almost none of the projects named in the 392-page ground lease will be done by December 31, according to projections by the Port Authority.

The lease allows an extension to March 31, 2010. Goldman Sachs' rent deferral will be awarded only if a security plan for the area is not in place by the end of the year, according to the lease.

Andrea Raphael, a Goldman Sachs spokeswoman, and Marissa Shorenstein, a spokeswoman for Governor David Paterson, declined to comment.

The city was confident it would meet the lease's security provisions by December 31 and avoid the loss of US$161 million, said David Lombino, a spokesman for the New York City Economic Development Corp.

"Goldman Sachs made a monumental investment in lower Manhattan at a critical juncture," Lombino said. "Obviously everybody's frustrated with the pace of progress. I don't think it's the city's place to comment at this stage on projects that are not in our control." The city was in discussions with Goldman Sachs over the terms of the lease, Lombino said. He declined to be more specific.

Goldman Sachs is entitled to receive up to US$160 million of sales tax exemptions for qualified headquarters expenses until June 30, 2028, under the terms of its lease with the state-controlled Battery Park City Authority, according to Leticia Remauro, an authority spokeswoman.

The firm can claim the exemption on materials acquired for the "core and shell of the building and the fit-out of the building", according to the lease. Those items include room dividers and flooring.

"The language in the lease is written in mandatory terms," said Shelby Green, director of the real estate law programme at Pace University School of Law in White Plains, New York, who examined the documents. "It says the tenants will have no further obligations to make any sales tax escrow payments after" December 31, she said.

The city and state can avoid paying Goldman Sachs by claiming "force majeure", a legal concept that means unexpected events prevented them from meeting their obligations.

An August 2007 fire at the former Deutsche Bank AG building, southof the trade centre site, mightqualify as such an event, Green said.

The fire, which occurred amid demolition of the building, had slowed construction at Ground Zero, said George Sweeting, deputy director of the city's Independent Budget Office.

The Port Authority plans to open the September 11 Memorial on the 10th anniversary of the terrorist attacks. The memorial museum, which has to be constructed up to at least the sidewalk under the Goldman Sachs lease, is scheduled to be completed by 2013. The memorial plaza would be completed to grade by the second quarter of next year, the Port Authority said in an October 2008 report.

The Santiago Calatrava-designed transit hub is scheduled to be done by mid-2014.

The authority oversees both projects as well as the construction of Greenwich St and the vehicle security centre. Those projects may be completed by the second half of 2012, according to the report.

Goldman Sachs plans to move from its current headquarters at 85 Broad St and other downtown locations into the new 43-storey headquarters on West St by next year.

The sales tax agreement was one of several the company negotiated to ensure that the neighbourhood would be safe and secure when it moves in.

Goldman Sachs withdrew from an agreement in April 2005 to build on the Battery Park site because of uncertainty about the development of the area. City and state leaders worked to get Goldman Sachs to change its mind.

The state agreed four months later to raise the company's Liberty Bond entitlement to US$1.65 billion from US$1 billion, and included up to US$115 million of city and state tax breaks and energy savings.

"Goldman got the largest retention package in the history of New York City, as far as I know," said Jonathan Bowles, director of the Centre of an Urban Future, a New York policy group funded by foundations and labour organisations.

"I'm not ruling out the idea that maybe some incentive package was worth considering for Goldman Sachs, but it seemed like we gave away the store."

- BLOOMBERG