The decision by Merrill Lynch to end negotiations on moving its headquarters to one of the office towers planned for ground zero could serve as a trigger for a legal battle between developer Larry Silverstein and the Port Authority of New York and New Jersey.
Three days after the executive director of the Port Authority, Christopher Ward, delivered an assessment of the site that did not include a budget or scheduling, Merrill Lynch, which had been negotiating with Mr. Silverstein to occupy office space in one of his towers, sent a letter effectively ending those talks.
"We appreciate your candid assessment of scheduling issues at yesterday's meeting," Merrill's letter said. "However, with no further movement on basic economic terms, we believe we are too far apart to continue this process."
The breakdown in the talks, which was due in large part to Merrill's shaky financial state, leaves Mr. Silverstein without an anchor tenant — an unenviable position to be in if Mr. Silverstein seeks additional bond financing.
"It's near impossible even in a good market," a real estate attorney, who declined to be identified because he has worked with Mr. Silverstein in the past, said.
According to a number of observers and real estate attorneys, it is now up to Mr. Ward to extend an olive branch to Mr. Silverstein. Possible concessions may include reworking the schedules within the site's master development agreement to allow Mr. Silverstein more flexibility for the delivery of towers 2, 3, and 4.
Mr. Silverstein faces default on all three buildings if he fails to build even one of the towers on schedule. All need to be finished for various deadlines during 2013.
Mr. Ward must also present a reliable schedule for the construction of the site's other buildings and infrastructure, a challenge he said he would meet by the end of September.
Failure to do so could result in the pursuit of damages by Mr. Silverstein.
"There is no question that at some point he is going to sue. It is going to be a battle royal, and he is going to blame the Port Authority, the LMDC, and the city," a source who has helped negotiate past agreements at the World Trade Center site on behalf of the state, and who asked not to be identified, said.
At least for now, Mr. Silverstein is playing nice while awaiting Mr. Ward's more detailed site assessment.
The president of World Trade Center Properties, Janno Lieber, said in a statement that it is "focused on working with government to resolve the design and construction issues identified by the Port Authority in its recent report to the Governor, as well as ongoing uncertainties about the Port Authority's schedule to complete vital site infrastructure."
A spokesman for the Port Authority, Stephen Sigmund, said the authority is "confident in the long-term viability of the office market at the site."
News of Merrill ending negotiations was first reported by the New York Times.