NEW YORK CITY—After a healthy dose of controversy and theraising of questions over the Port Authority of New York and NewJersey's role, the agency has decided to scrap plans to provide a$1.2 billion financial guarantee that would allow a new tower torise at the World Trade Center site and, instead, it will pursue adeal to finance the soaring building with private funds.

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A PANY/NJ spokesman tells GlobeSt.com, “We've been pursuing twotracks, along with developer Silverstein Properties: arestructuring, based on an agreement reached in 2010—in which thePort Authority pledged to provide a $200 million backstop for thenew building—or a public/private partnership. We have reached apoint, based on recent conversations, where we're confident that wecan put together a deal based on a public/private partnershiprather than restructure the deal.”

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He adds candidly, “It's not clear what that's going to looklike; there are a number of private businesses interested andwe're talking to all of them. But when we can announce that, wewill. Meanwhile, our focus is to get 3 World Trade Center built andto reduce the risk to the Port Authority.”

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Speaking at a Port subcommittee meeting on Wednesday morning,Scott Rechler, the Port's vice chairman, suggested a reinsurancefirm could take on the risk that the Port initially wascontemplating. “We have had some interest, whether it's reinsuranceor others ... some of the largest financial players in theworld.”

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The Port was expected to vote on the tower financing at a boardmeeting Wednesday afternoon but will now postpone that vote to tryto arrange the private-sector deal. Executives at SilversteinProperties have for months said that raising the necessary fundsfor the new tower privately has been unfeasible at a time whenlenders have remained reluctant to provide money for speculativeoffice buildings.

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In a written statement, Larry Silverstein, the chairman ofSilverstein Properties, appeared to express some continueduncertainty whether the private-market deal that Rechler proposedwould be achievable.

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“Having agreed to the requests conveyed by Port Authorityleadership, we are surprised that the discussions did not yield asuccessful resolution,” Silverstein stated. “We remain committed toworking with the Port Authority to reach an agreement thataccomplishes our shared mission of building 3 WTC.”

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Rechler says he is certain that a financing package could bearranged in time to finish a key leasing deal Silverstein hastentatively struck with advertising and media firm GroupM, whichhas committedto take 515,000 square feet in the new tower.

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"I have a very high degree of confidence that we will be able toimplement a public private partnership that achieves our objectivesand achieves the objectives of the project [and] that will befunded in time to bring GroupM to Lower Manhattan," he says.

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For months, top Port Authority executives, led by Rechler andthe Port's executive director Pat Foye, have championed the meritsof providing the $1.2 billion loan guarantee, which would put thePort on the hook for that amount if Silverstein Propertiesdefaulted on the tower. Rechler, who is also a prominent landlordin the city as chairman and CEO of RXR Realty, and Foye said thatsuch a default would be highly unlikely and that the largerguarantee would allow the Port to collect tens of millions ofdollars of rent from the new building much sooner and also allow itto sell the property's valuable retail space and collect over $130million.

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In April, the Port tabled a vote on the financing due toopposition, pinning the hopes of the tower's proponents on this Mayvote. If a private sector arrangement can be reached, Portexecutives say they could immediately call a special vote on thetower deal in the coming days or weeks and still give Silversteinenough time to close out the 515,000-square-foot lease with GroupM, which has the right tocancel the deal after June.

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Rayna Katz

Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.