Pa Letter To Spi

~PORrAUI1IORm

OF NY & NJ

Mr. Larry Silverstein World Trade Center Properties, LLC 7 World Trade Center 250 Greenwich Street New York, NY 10007 July 9, 2009 Dear Larry: We are writing to outline a new proposal intended to break the impasse over the financing of private office space at the World Trade Center site - one that advances a two-tower scenario without exposing the public to unsustainable amounts of risk. As this continues to involve a significant public financing commitment to the development, we began discussions on this proposal last week with the Mayor's, Speaker's and both Governors' offices, and they all agreed that we should advance this proposal for your consideration. We have developed this proposal within the context of three goals that have informed our participation in these discussions to date: • Advancing the redevelopment of the WTC site to keep the public projects moving forward, including the 9/11 Memorial and transportation projects, the new retail development that Lower Manhattan needs today, as well as new office space commensurate with market demand; • Providing public sector support in a responsible fashion to assist Silverstein Properties (SPI) in accessing private sector financing for its private office development; and, • Protecting public sector funds for investment in critical public transportation projects essential for our region's economic growth.

The Port Authority continues to believe that its previous two proposals of April 2009 and May 2009 achieve all three of these goals. However, you have rejected both offers in favor of more public financing and less private risk, which brings us to the current impasse. In order to advance the ongoing discussion, the Port Authority has prepared a new proposal, summarized in the enclosure, that increases our previous financing commitment by up to $1.2 billion. Key elements of this proposal include: • Port Authority Debt Backstop on Tower 2: The Port Authority will provide a new backstop of up to $1.2 billion of fixed-rate senior debt for Tower 2, on top of our existing offer to backstop Tower 4. The Tower 2 backstop will, in addition to the City's expressed willingness to underwrite up to $100 million of future cash shortfalls, help you raise private financing that otherwise would be unavailable in today's market, and will allow you to do so at a much lower interest rate given the Port Authority'S lower cost of capital.

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PORTAUI1IORnY OF NY & NJ

• No Public Sector Mandated Leasing Requirements: The Port Authority will waive any pre-lease requirement on Tower 2, leaving the determination of specific leasing requirements, if any, to the private real estate market. • Market-Based Capital from Private Sources: SPI must secure $625 million in subordinate financing for Tower 2. These funds can be in the form of new equity, subordinated debt or some combination of the two, and will be used to bridge the gap between the publicly­ backstopped senior debt ($1.2 billion), the balance of the site's insurance proceeds ($530 million), its Guaranteed Investment Contract income ($70 million), and the overall estimated development cost of Tower 2 ($2.4 billion). SPI could raise this capital now or, if you prefer, during Tower 2's early construction period, with a final decision concerning a full tower development deferred to a later date when all parties have a clearer picture ofthe market outlook. • Ground Rent Abatements: The Port Authority will abate SPI's annual ground rent - giving up approximately $770 million in rent over the next twelve years. We strongly believe this proposal gives you the opportunity to build two office towers that you have said you could not build without this public support. At the same time, this proposal includes a critical component that will help insulate the public sector from unmanageable risk. As we have said throughout these discussions, the Port Authority cannot be responsible for financing two private office buildings - the larger of which is completely speculative - without the private developer taking on reasonable risk. If SPI secures private financing per this new proposal, this "first-loss" risk will provide the necessary cushion to protect against future public sector losses, and will represent an important signal from the private market that this is a viable real estate transaction. With this new proposal, the Port Authority has now offered SPI several different roadmaps to help develop the private office space at the site. We remain committed to working with you, Mayor Bloomberg, Speaker Silver, Governor Corzine and Governor Paterson on breaking this impasse in a responsible way that ensures a rebuilt site while limiting the amount of public risk in these troubled economic times. We look forward to engaging on this proposal and are prepared to answer any questions you may have in the coming days. Sincerely,

Chris Ward Executive Director Cc:

Dean Fuleihan Bob Lieber Janno Lieber Ed McBride Judy Rapfogel Larry Schwartz