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Displaced Companies Speed Decision-Making Process for Picking New Sites


September 26, 2001

Normally, a big company's choice of where to put its offices emerges from a months long strategic review of its business needs and options. But in the wake of the World Trade Center attack, several insurance companies and investment banks are squeezing these high-stakes decisions into just a few short days.

Empire Blue Cross and Blue Shield, like other tenants of the twin towers, is simultaneously trying to find temporary space for 1,900 workers and a permanent home, in a matter of weeks.

The decision-making process is complicated not just by the speed with which it is being conducted, but also by the confusion surrounding what tax breaks and other subsidies are available from the city for Blue Cross and others displaced by the destruction of the trade center, inducements that companies routinely seek in making real estate decisions.

Two weeks after it began negotiating with the city over building a new tower in Brooklyn, Empire Blue Cross is still not sure what subsidies it can expect, said real estate executives, who fear that the insurance company may soon decide to permanently move some employees to its offices in Melville, on Long Island.

City officials, they said, are also worried that every other company will want the same tax breaks and other incentives Empire Blue Cross gets, or more.

The situation is complicated by the fact that even before the attacks, the city faced a projected $3 billion budget gap next year and contract negotiations with municipal employees. Budget analysts are now more concerned than ever that tax revenues from Wall Street will slow to a trickle, worsening the city's fiscal woes.

"There are some very hard choices facing both the city and the corporations displaced by the attack," said Harvey Robins, a former city director of operations under Mayor David N. Dinkins. "In some cases, the city will have to choose between losing corporations and losing vitally needed tax revenues."

But many companies are pushing to make decisions quickly. In lieu of a clear municipal policy, some corporate executives have complained that that they have not even gotten a telephone call from Mayor Rudolph W. Giuliani or his top deputies imploring them to stay put until the city learns whether there is state or federal money available for displaced companies.

"We've had a couple of corporate executives, people responsible for locating businesses, indicating that there's no reaching out," said City Councilman Herbert E. Berman of Brooklyn. "I don't know if it's a confused process, or nobody has a plan yet. We have to organize our resources to reach out to these people. We have to sit down and determine what we can do, vis--vis incentives."

Michael Carey, president of the city's Economic Development Corporation, which has been negotiating with Empire Blue Cross, said the city had been working in recent days with state and federal officials on some kind of incentive package.

"We are looking at what kind of relief we can offer across the board to companies that were displaced," Mr. Carey said. "Ultimately, it'll be on a case-by-case basis, pursuant to a standard formula."

Mr. Carey said that some tax breaks are available to Empire Blue Cross and other companies that move to Brooklyn or Queens, although they fall short of what the companies are seeking.

According to TenantWise.com, a real estate company, the top 30 tenants at the World Trade Center have already moved thousands of employees from Lower Manhattan to Midtown, New Jersey or Connecticut. Citigroup, Deutsche Bank and others have said they are committed to remaining in New York. But city officials, real estate brokers and landlords wonder how many of those employees will return in the years to come.

Empire Blue Cross, which had 1,914 employees in the north tower of the trade center, has temporarily moved its headquarters into space it has in Melville. Dr. Michael Stocker, chief executive of Empire Blue Cross, said that the company was looking at interim space in Brooklyn and New Jersey, while it decided exactly where it would locate permanently. He said the company was considering whether to become an anchor tenant in a new 700,000- square-foot tower at Metrotech, in Downtown Brooklyn.

Empire Blue Cross would take about 300,000 square feet in the tower and lease space for a headquarters in Manhattan, Mr. Stocker said. The company is also considering taking space at 450 West 33rd Street, at Tenth Avenue in Manhattan, although the rent would be a good deal higher than in Brooklyn.

Empire decided to sell its building on Third Avenue in 1997 and moved in 1998 to 461,000 square feet in the World Trade Center. Its rent was less than $25 a square foot, negotiated when one-fifth of the trade center was vacant and just before the downtown rents soared.

Empire Blue Cross, like many of the other companies at the twin towers, are competing for office space in Midtown, where rents are $45 a square foot or more, for the little that is available. According to real estate executives, the developer at Metrotech, Forest City Ratner Companies, could build a new tower for about $40 per square foot.

Bruce Ratner, who heads Forest City Ratner, did not return calls requesting comment.

Dr. Stocker declined to discuss his negotiations with the city, but according to executives who have been briefed on the meetings, city officials initially expressed a willingness to provide a package of tax breaks worth about $4.5 million a year. But as the magnitude of the destruction downtown became more apparent, they said, city officials became less clear about what could be done.

"Our assumption is that benefits related to the Sept. 11 attack would go to people who stay in New York City, not just in Manhattan," Dr. Stocker said. "We need space right away. We can't wait for a decision about the subsidies."

One city official said: "There's a lot of pressure to provide discretionary benefits. Hey, we're broke."

Diana Fortuna, president of the Citizens Budget Commission, said: "It's one of the toughest policy decisions the city faces right now is how much it should provide in economic incentives to make sure firms stay in the city. There's an urgency to do it quickly, but at the same time, there's little information about the economic environment after Sept. 11."

Councilman Berman said the situation goes beyond the usual corporate poker game, in which companies threaten to move to New Jersey in order to obtain tax breaks.

"We have to make certain that the vast majority of these companies stay in New York," he said. "We're going to be stretched with our budget for the next year or two, but keeping the companies here paying taxes will benefit us, not hurt us."

Copyright 2001 The New York Times Company

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