UPDATE 1-WTC developer quits loan negotiations

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By Joan Gralla

NEW YORK, July 6 (Reuters) - The Port Authority of New York and New Jersey on Monday said World Trade Center developer Larry Silverstein had stopped negotiating over his demand for the agency to guarantee his bank loans for two office towers.

The national recession has withered banks' interest in making real estate loans while Wall Street's profit-crunch has left Lower Manhattan's with numerous empty offices.

The Port Authority, which owns the Lower Manhattan site where the famed twin towers stood, has been only willing to backstop loans for one of the three office towers Silverstein is building.

Silverstein and the agency have had numerous clashes over money and designs and on Monday they also disagreed over how the talks broke off.

"Larry Silverstein is not walking away from the negotiating table," his spokesman said.

In 2006, the Port Authority and Silverstein reached an agreement that requires them to settle differences via arbitration.

Silverstein has now sent the agency a notice beginning arbitration. The notice forces the two sides to resume talks for 10 days; if no solution is found by then, the clash could be turned over to arbitrators. Silverstein's spokesman explained.

The Port Authority urged Silverstein to resume talks, saying the arbitrators cannot settle the financing dispute.

Silverstein is seeking unspecified compensatory damages based on his claim that the authority will miss its 2012 deadline for a vehicle security center and the 2014 deadline for a new mass transit hub, an agency official said by telephone.

"We are certain that SPI (Silverstein Properties) understands that an arbitration decision under the Master Development Agreement will not resolve when there will be a market for two private office towers on the site, and how this speculative private office space should be financed," the authority said in a statement."

Silverstein, who must pay the authority rent, said it has gotten $2.75 billion from him since 2001. The Port Authority in turn has paid him hundreds of thousands of dollars in fines because it failed to complete some of the site preparations so building could begin.

Though the Port Authority's Freedom Tower, renamed One World Trade, has risen above ground level, other major rebuilding projects, including part of the memorial for those killed in the Sept. 11, 2009, attack, are running late.

Silverstein has expressed much more confidence in how quickly office demand will revive than the Port Authority, which fears that guaranteeing his loans might not only be risky but will siphon money it needs for transportation links.

The latest deadlock comes despite the efforts of Mayor Michael Bloomberg, who has no direct control but who pushed all the parties to find a solution, including the governors of New York and New Jersey who jointly control the Port Authority.

The authority last October admitted it was running late finishing the "underpinning" for a subway line that runs through the site, the hub for the trains that take commuters across the Hudson River, and the vehicle security center, Silverstein said.

"These delays, which Silverstein believes remain grossly understated, have adversely affected the development, schedule, cost and marketing of the three towers being built by Silverstein," Silverstein Properties said in a statement. (Editing by Leslie Adler)