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Merrill, Goldman, Schwab Job Cuts End Jersey City Economic Boom

By Antonio Olivo

Feb. 25, 2003

Jersey City, New Jersey, Feb. 25 (Bloomberg) -- Merrill Lynch & Co. has the land and the architectural designs to build a 38- story tower across the Hudson River from New York's financial district. What it doesn't have is a need for the building.

Merrill's 1.8 acres, purchased for $19 million, now serve as a parking lot for some of its 3,100 employees in Jersey City, New Jersey. The firm has eliminated 21,700 jobs since October 2000, when it submitted sketches of the tower to Jersey City officials, and has shelved plans to build.

A three-year plunge in U.S. stock markets and the loss of 75,400 securities industry jobs is reversing Jersey City's growth as an extension of Wall Street. A surge in relocations after the Sept. 11 attacks has ended and the city's office vacancy rate has tripled to 16.5 percent since 2000. Companies such as Goldman Sachs Group, Inc. and American Express Co. have retreated to Manhattan or scaled back plans to expand.

``Nobody is zooming over the river to come here,'' said Daniel Frohwirth, director of real estate and marketing for the Jersey City Economic Development Corp., an agency that seeks to bring business to the state's second-largest city. ``If the economy hadn't dropped dead, we'd have cranes all over the place.''

Wall Street job cuts in the past two years reduced the demand for office space even at costs that are almost a quarter less than in Lower Manhattan, according to rent data from Grubb & Ellis Co., which conducts real estate research.

Along Jersey City's waterfront, where office buildings replaced closed factories and abandoned warehouses, rents averaged $28.67 a square foot in the fourth quarter of 2002, compared with $37.33 in Lower Manhattan and $51.43 in midtown Manhattan.

Stalled Plans

Before Merrill cut its staff 30 percent, senior vice president for corporate real estate Michael Cowan said the company might place as many as 7,000 jobs in Jersey City. The design for the 1 million-square-foot tower included three trading floors. Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

``We purchased 99 Hudson Street with the idea that it could be useful for future development,'' said Merrill spokesman Joseph Cohen, adding that the firm never set a timetable for construction. ``Over the intermediate term, it was intended as a parking facility and it is serving that purpose.''

The securities industry slump has put on hold 11.5 million square feet of proposed commercial projects that city officials had counted on to boost retail and housing development in low- income neighborhoods.

``If there was no financial problem in the nation, we'd be going great,'' said Mayor Glenn Cunningham, a Democrat who took office in 2001.

Lost Lure

Amid the slowdown, Governor James McGreevey has ended a state program that since 1996 lured businesses to Jersey City with $356 million in grants, tax reductions and electric power discounts. McGreevey, a Democrat, withdrew funding to help close a $5 billion state budget gap.

``The lack of those high-end jobs and state dollars could affect the future of economic development,'' said Yaffa Rattner, who monitors Jersey City's fiscal health for Moody's Investors Service.

Moody's has rated the city's debt Baa3, the lowest investment grade, since February 2002, with a negative outlook. In December, the unemployment rate in the city of 240,000 was 8.8 percent, up from 6.5 percent in December 2001, its low for the past decade.

As U.S. securities employment rose by almost 90 percent from 1989 to 2000, Wall Street companies expanded in New York City's suburbs, with the largest concentration going to Jersey City, a five-minute train ride from the World Trade Center. The rail connection, severed by the Sept. 11 terrorist attack, is due to be restored in December.

New Skyline

Glass and steel towers reshaped a skyline once dominated by the Colgate-Palmolive Co.'s 55-foot clock -- a relic of a manufacturing past when Colgate toothpaste, Emerson radios and Dixon Ticonderoga pencils were made there.

By 2001, the securities workforce in New Jersey increased to 52,100 from 24,200. Most of the jobs went to Jersey City. Emergency relocations after Sept. 11 brought more analysts, traders, brokers and support personnel. Employment peaked at 61,400 last April, and then dropped to 48,400 by in December.

``Somewhere around April or May of last year, we saw the bulk of those jobs go back to New York,'' state labor department spokesman Kevin Smith said.

Goldman Sachs, whose workforce increased 75 percent to 22,669 employees from 1998 to 2000, envisioned a 2 million-square-foot complex with a hotel, convention center and retail space.

Goldman Pulls Back

After cutting 3,000 employees since July 2002, Goldman is building only the office tower and has canceled relocating its equity division from Manhattan. Frohwirth said Goldman officials told him they are likely to move 3,500 employees to Jersey City next year, down from an initial forecast of 9,000.

``The market downturn and headcount reductions have diminished the need for additional office space,'' said Goldman spokesman Bruce Corwin, who wouldn't discuss specific employee numbers.

Schwab, the world's largest discount broker, two years ago leased a 575,000-square-foot building under construction to relocate some financial advisers from Manhattan and its capital markets division from a Jersey City building shared with other businesses. Schwab never moved in.

After eliminating 9,600 jobs since 2000, Schwab is subletting half the building at Harborside Financial Center Plaza to Mizuho Bank Ltd. and Instinet Group, Inc., company spokeswoman Marta Von Loewenfeldt said. Schwab has been unable to find a tenant for the other half for more than a year.

Schwab's Cost

Schwab officials declined to say how much the unused space is costing. Equivalent space in Jersey City would rent for $7.25 million a year, according to Grubb & Ellis figures.

As American Express's workforce grew to 88,850 from 73,620 worldwide in three years through 2000, the company moved 560 information technology and human resources employees to Jersey City. Hundreds more came after the terrorist attacks forced the company from its Lower Manhattan offices.

Last March, American Express sent its workers back to Manhattan, leaving only its nameplate on the building, said spokeswoman Molly Faust. The company, which fired 14,000 employees in 2001, is subleasing the space to the American International Group Inc.

The departures have sapped Jersey City's economic momentum. Richard McKeever spent more than $1 million in 1991 to open Rosie Radigan's restaurant on the ground floor of 10 Exchange Place, which houses insurance and brokerage firms.

Between 1998 and 2001, with a Hyatt Regency hotel rising and more customers coming, McKeever spent $75,000 to add a takeout area and two bars for lunch and cocktail-hour patrons.

``I had to fight my way through the business crowd,'' McKeever said. ``Unfortunately, that's getting easier to do.'' Sales are down 25 percent since late 2001, he said.

2003 Bloomberg L.P. All rights reserved.
 

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