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ONE YEAR : Aftermath of the Attacks
Wall Street Could Lose Its Place on The Map

Finance Firms' Moves Diversify Downtown

By Ben White
Washington Post Staff Writer

Wednesday, September 11, 2002

New York

A year later and the World Financial Center is a frontier town. Defiant signs proclaim the pioneer spirit: "Johnney's Seafood is Back. C'mon in."

You see it in the faces. Lunch break feels like the first day back at school after a long summer. Friendships rekindle with broad smiles.

Across West Street, what had been a smoldering wreck of unfathomable destruction is now an orderly construction site -- the hulking cranes of winter are gone, tangles of smoking steel replaced by a clean hole in the ground.

In January, you could wander into the Financial Center complex and barely find a soul. Now the Starbucks is packed, and if you want to sit outside at SouthWest NY and watch boats bob in the marina, you will have to wait for a table.

"Every time a new restaurant or store opens, or one of our old hangouts comes back, it turns into a spontaneous celebration," said Steve Carl, senior vice president for technology operations at American Express Co., which has moved about 3,000 of a planned 4,000 employees back to the Financial Center. Along with Merrill Lynch & Co. and returning Wall Street Journal staffers, the American Express employees breathed life back into the area.

"Every time the elevator door opens I run into someone who tells me they are overwhelmed by a sense of being back home," Carl said. But not everyone has come home.

And once the current era of good feelings recedes, Carl and others will confront the new reality: Wall Street, and the neighborhoods surrounding it, is no longer the unquestioned center of global finance. And depending on how the rebuilding process goes, it may never be again.

Whether this is a bad thing is open to debate. In many instances, Wall Street's big guns (Morgan Stanley and Lehman Brothers Inc., among others) have simply packed up and moved to glittering Midtown towers. Others, including Bank of New York Co., are moving some employees to Brooklyn and other boroughs, continuing a migration that began well before terrorists toppled the World Trade Center.

Many city advocates praise these moves, saying as long as jobs and tax receipts stay in the city, all is well. And despite early fears of a post-Sept. 11 exodus to New Jersey, numbers so far indicate that 70 percent of the office space destroyed on Sept. 11 that has migrated elsewhere has gone to Midtown, while just 9 percent has crossed the Hudson.

Still, the list of blue-chip Wall Street firms no longer on (or near) Wall Street is long and getting longer: Lehman Brothers, Credit Suisse First Boston Corp., Morgan Stanley, Bank of America Corp. and CIBC, to name just a few. According to some estimates, downtown has lost 100,000 of the 400,000 jobs it had before Sept. 11, most of which were in the financial services and insurance industries.

Those who advocate for trying to keep as many big financial firms downtown as possible contend that if the firms continue to disperse, another city, perhaps Singapore or Brussels, could emerge as the world's biggest financial marketplace, which would damage both New York and the nation.

Meanwhile, even some of the big firms still downtown have quietly moved some employees elsewhere or are planning to soon. Goldman Sachs Group Inc., a pillar of Wall Street since 1869, still has around 10,000 employees at 85 Broad St. but plans to move a significant number (the firm wouldn't say how many) to a Jersey City tower in 2004. New York Stock Exchange Inc., the axis around which the financial district revolves, plans a second trading floor outside Lower Manhattan.

According to M. Myers Mermel, founder and CEO of TenantWise Inc., which monitors New York commercial real estate, only 25 percent of companies with 200 or more employees downtown have made long-term commitments to stay.

On the bright side, Merrill Lynch, among the first back into the World Financial Center, is committed to the complex at least through 2012. The firm has moved 6,700 employees back in, nearly as many as were there before the attacks. Firm officials say the slightly lower total reflects bear-market layoffs rather than a decision to move employees to alternative locations. American Express is also committed to downtown for at least 10 years.

Nonetheless, with Lower Manhattan vacancy rates at around 15 percent and an increasing number of big firms controlled by foreign conglomerates with presumably little allegiance to New York or even the United States (Credit Suisse First Boston, Deutsche Bank AG and UBS Warburg, for example), some worry that Gotham could suffer the same fate as London, once assumed to be global capital's permanent home.

For Wall Street to avoid that fate, urban planners, academics and real estate brokers say the city, state and federal governments must focus on three things: transportation, transportation and transportation.

The PATH train station that brought hundreds of thousands from New Jersey must quickly be rebuilt. The new transit hub envisioned for downtown must include a connection to Grand Central Terminal to link Lower Manhattan with the Metro-North Railroad, which serves affluent suburbs in Westchester County, N.Y., and Connecticut. The biggest dream of all: a new subway line on Second Avenue to take pressure off the jam-packed Lexington Avenue line and provide express service downtown from the Upper East Side.

More broadly, planners point to a need to rethink street patterns by opening up blocks once cut off by the Trade Center while providing moving sidewalks to connect one side of busy West Street to the rest of the financial district.

Experts say all this will require a federal commitment far larger than the $20 billion already promised, at least $3.8 billion of which is earmarked for transportation projects. Without a bigger commitment, they say, keeping Wall Street on Wall Street could prove impossible.

"Without doing all this, it's very likely that they will restore the 16 acres of the Trade Center and in 10 years you will have a nice, shiny apple in the middle of a big dead tree," Mermel said.

So far, much of the financial assistance for Lower Manhattan has centered on offering tax incentives and direct payments to encourage businesses not to leave or to come back. Such programs, initially criticized as too restrictive, have recently been widened and have helped numerous small retail and professional services firms stay afloat downtown.

According to a report by the city's comptroller, 8,768 firms with fewer than 500 employees have received grants totaling $240 million, while a far smaller number of big firms have received much less. Urban planners say the disparity reflects how little the incentives mean to big Wall Street banks and brokerages that have balance sheets big enough to afford more expensive Midtown digs or to build outside the city.

Lehman Brothers, for example, reportedly paid $700 million, or $700 per square foot, for its new neon-soaked tower on Seventh Avenue near Times Square. Meanwhile, Brookfield Properties Corp., the largest downtown landlord, is said to be paying just $127 per square foot for Lehman's space in the World Financial Center.

"Our fundamental belief has always been that the short-term incentives are not going to address fundamental issues," said Thomas Wright, executive vice president of the Regional Plan Association, which studies urban design. "Subsidizing real estate construction is not going to help Lower Manhattan. Building more civic institutions and open spaces and improving infrastructure will."

In addition to funding transportation, Congress needs to pass legislation making terrorism insurance more affordable for city companies, said Kathryn Wylde, president of the New York City Partnership, which advocates for New York businesses.

"No amount of subsidy is going to get firms, particularly major employers, to stay downtown if they can't get insurance," she said. "And an incredible number are unable to get it. And if they do, the cost is so astronomical that it more than offsets any benefits they get from the relatively small per-employee grants."

Even if Congress passes a terror-insurance bill and government at all levels unites to dramatically improve transportation, experts tend to agree that a very different downtown is likely to emerge in the next five to 10 years, one that will include increased residential and retail development, more small firms, and more tourism.

As an early indicator, experts point to the bitter invective New Yorkers heaped on initial plans for redevelopment of the Trade Center site, plans that would have restored all 13 million square feet of destroyed office space. Who would fill all that space, many asked, citing high vacancy rates and the trend toward Midtown development.

Instead, sentiment now seems to favor rebuilding on a smaller scale to include a significant memorial, new housing (at high, moderate and lower prices) and open spaces.

Already, most residents displaced by the attacks have returned. And housing experts say incentives -- including awards up to $12,000 -- to get more people to move downtown could lead to a new housing boom.

"In the end you are going to see a lot of new housing built downtown," said Michael Schill, a professor and housing expert at the Robert F. Wagner Graduate School of Public Service at New York University.

"One of the keys to success will be to see downtown become a 24-hour community like much of the rest of the city, where people live in close proximity to where they work and the residential population helps support amenities," Schill said. "If someone could tolerate a period of disruption, buying housing downtown could be a very good investment right now."

Mary Anne Tighe, a leading New York real estate agent at CB Richard Ellis, said big commercial development will continue to flow toward Midtown through late 2003, when new space in the area may finally run short. In the meantime, Tighe expects improved infrastructure to attract residents and small businesses downtown. Coupled with lower rents, this should once again attract the big firms once Midtown space runs dry.

"At long last we will finally see a much more dynamic and extensive residential population downtown, and that will support the business environment," Tighe said. "There is no residential real estate developer of any significance right now not thinkingabout what to do downtown."

Wylde of the New York City Partnership said tourism will also be a bigger part of Lower Manhattan's future, as visitors who now come to Ground Zero but leave without spending much money will have more options for dining and shopping.

"After several years of construction, we think Lower Manhattan will remain the world's financial capital," she said. "But it's going to have less of a concentration of big employers. We think the movement of smaller entrepreneurs downtown, which started in the 1990s, will continue and become a very important part of the ideal 24-7 community."

2002 The Washington Post Company

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