Like most landlords, Mitchell Hersh loves to trumpet his buildings' advantages. On this early October day, he gestures to the picture window in Plaza 3 in Harborside, his office complex on the Jersey City waterfront. Through the window, just across the Hudson River, a visitor can still see smoke rising from the rubble of the World Trade Center. "Notwithstanding the tragedy across the harbor," Hersh says, "there are world-class views."

Hersh, CEO of Mack-Cali Realty, a large New Jersey property owner, has been showing off his views a lot lately. Since the terrorist attack, Hersh has been negotiating leases with such displaced companies as Morgan Stanley and Deutsche Bank. He has "handshake deals" to fill most of a 34-story office tower under construction at Harborside that was only one-third leased before the Trade Center fell. And the real estate brokers from Manhattan keep calling. There's one waiting in the reception area to see Hersh now. "Ira, are your clients here yet?" Hersh asks him. "If not, I'm just going to step outside and give this guy a quick tour."

Hersh is playing a small but significant role in the remapping of Wall Street. The Sept. 11 attack on the World Trade Center damaged or destroyed 29 million square feet--30%--of the office space in Manhattan's downtown financial district. But as staggering as that number may sound, it tells only part of the story. According to online real estate broker TenantWise, the World Trade Center and the maimed buildings surrounding it represented fully 60% of the financial district's Class A office space, a real estate term for properties built after 1970 and outfitted with the latest technology. As of Oct. 9, 8.2 million square feet of commercial space was still available in the Wall Street area, but 80% of it is in pre-World War II office buildings that lack amenities like the high-speed cable wiring and room for expansive trading floors that today's financial firms require. That leaves almost no place in lower Manhattan in which the displaced can quickly get back to business

No surprise, then, that most of them are not planning to move back to lower Manhattan anytime soon--if ever. Of the World Trade Center's 73 largest nongovernment tenants, 60 have revealed their relocation plans; of that number, 47 are moving most of their operations to midtown Manhattan--including major Wall Street firms such as Morgan Stanley and Credit Suisse First Boston. (A good portion of their employees will now be working in New Jersey and Connecticut too.) What's more, less than half of the 114 tenants in the 14 damaged buildings ringing the trade center have announced plans to remain downtown--even though most of the properties, including those in the World Financial Center, are expected to be fully repaired in less than a year.

New York's politicians, major developers, and construction unions are all talking about the need to rebuild the Wall Street area so that it doesn't lose its claim to being the world's preeminent financial district. But the truth is that downtown Manhattan has been gradually losing that claim since the 1950s, when major companies began moving their headquarters to midtown, followed in the 1970s by investment banks such as Morgan Stanley and Lazard Freres. These days you see almost as many Wall Street firms on Park Avenue--J.P. Morgan Chase, Bear Stearns, Citigroup--as you once did strolling through the city's historic financial district some 60 blocks south. The question is, How many of lower Manhattan's major financial firms will still be there when the construction crews leave? Now that so many have been blasted out of their offices, is this the end of Wall Street as a financial center?

Today when people say "Wall Street," they mean something larger than a particular area of Manhattan. But, of course, Wall Street was once the place you had to be if you wanted to transact financial business in New York City. It was where Alexander Hamilton and Aaron Burr founded rival banks at the latter part of the 18th century. It was where traders and speculators gathered in the open air to trade stocks and government bonds. And on May 17, 1792, it was where 24 of them stood under a buttonwood tree and agreed to fix rates for buying and selling securities. Thus did they create the city's first organized stock market, the precursor of the New York Stock Exchange.

Much of the area burned to the ground in 1835, but it was quickly rebuilt. And as the country boomed, so did Wall Street. The city's financial district became the address of choice for banks and insurance brokerages and many of the companies they served. After World War I, the area surpassed London as the world's financial capital. Real estate values soared. So did the lower Manhattan skyline. Between the mid-1920s and 1932, just as the stock market was crashing, 30 million square feet of office space went up in the area--equivalent to nearly 30 Chrysler Buildings.

In truth, it was the beginning of the end for Wall Street. As the country tumbled into the Depression, vacancy rates downtown climbed to 25%. And when the economy picked up after D-Day, companies slowly but surely began looking to midtown Manhattan instead. Unlike the financial district, midtown was largely residential and easily cleared for classy new office buildings. Indeed, in the decade following the war, more office space was constructed in midtown than existed in the entire city of Chicago. Executives who inhabited the new skyscrapers got used to walking to work from nearby Grand Central Station and lunching in the city's finest restaurants--neither of which you could do on the lower end of Manhattan Island.

By contrast, the financial district saw no new buildings for nearly two decades. Rents soon dipped significantly below those of midtown, and Wall Street became a seedy place isolated from the rest of the bustling city. "New York's financial district has changed very little in the last quarter-century--in appearance," FORTUNE wrote in 1956. "Its cacographic towers; its peeling lunch joints; its meek little Morgan Bank looking like a fairly respectable Indianapolis branch office; its ubiquitous hardware shops glutted with sleazy pliers--all this familiar furniture looks almost exactly the way it looked 30 years ago, down to the lapel cut of suits worn by passing bankers." Indeed, that the financial district remained a banking mecca at all was due largely to a New York Stock Exchange rule. Until 1980 the exchange required its members to have their offices in lower Manhattan so that their runners wouldn't have to travel far to deliver paperwork to finalize trades.

David Rockefeller was one banker who saw the future of Wall Street, and he didn't like it. To help spur development there, Rockefeller, who was Chase Manhattan's executive vice president of development, persuaded the bank to build its new headquarters in the financial district; it was completed in 1961. Along with his brother Nelson, then governor of New York, Rockefeller also pushed for the construction of the World Trade Center in the 1960s by the Port Authority of New York and New Jersey. The Trade Center would be the world's largest building, and it would shore up lower Manhattan the way the family's Rockefeller Center had anchored midtown.

The Rockefellers' initiatives revived the financial district, but it was a temporary reprieve. As it turned out, the hulking Twin Towers didn't appeal to Wall Street types, even though the Port Authority could offer cheap rents because the buildings sat on government land. "Nobody wanted to be in there," laughs John Whitehead, former co-chairman of Goldman Sachs. "Nobody wanted to be the tenant on the 65th floor. We all wanted our own buildings with our firms' names on them."

Goldman Sachs, which had had offices in lower Manhattan since the mid-1800s, was too tradition-bound to leave the area. But others in the financial community were not so sentimental. Investment banks were changing rapidly, from stuffy 200-member firms whose partners managed money for wealthy clients and underwrote the occasional stock offering to financial supermarkets whose business increasingly revolved around mergers and acquisitions and IPOs. They needed more space. More than that, they needed to be closer to their clients. Morgan Stanley decamped to Sixth Avenue in the 1970s. In the 1980s so did First Boston--after an internal analysis showed that the firm was spending $2 million a year on cab fare uptown. "It was a very big number," says a former First Boston executive. "It's just as simple as that. Traders can actually operate anywhere. What you need is client connectivity, and on the corporate finance side, 90% of our clients were in midtown."

A final wave of downtown construction culminated in the completion in 1987 of the 8.5-million-square-foot World Financial Center, which also offered cheap rents because it was built on government-owned land in Battery Park City. (In fact, Battery Park City was built on landfill from the World Trade Center.) Wall Street firms like Merrill Lynch, Lehman Brothers, and American Express took up residence there, as did Dow Jones, publisher of the Wall Street Journal. But the project turned out to be Wall Street's last hurrah. The stock market crashed, and by 1994 vacancy rates in lower Manhattan stood at a Depression-era level of 22%. On historic Broad Street, just south of the New York Stock Exchange, nearly every building went into foreclosure. "We had one of the few buildings that didn't go into bankruptcy," says Bill Rudin, a major downtown property owner. "Those were dark days."

To hear financial-district boosters tell it, lower Manhattan experienced a miraculous rebirth in the second half of the 1990s. "Downtown was probably healthier just before Sept. 11 than it had been since World War II," insists Carl Weisbrod, president of the Alliance for Downtown New York. Indeed, the average rent in lower Manhattan had risen from $26 a square foot in 1996 to $42 a square foot this year. The vacancy rate had declined to 6%. However, those rosy numbers are somewhat misleading. One reason the vacancy rate declined is that 40 of the financial district's older commercial structures were converted into apartment buildings because businesses didn't want to be there anymore. Ten more conversions are in the works.

More to the point, with the exception of a heavily subsidized trading facility for the New York Mercantile Exchange, there has been no new-office construction in lower Manhattan in almost 15 years. Meanwhile, cranes clutter the sky all around midtown, a number of them putting up investment banking headquarters. Bear Stearns and CIBC World Markets, for example, are erecting towers there. Why isn't anyone building in lower Manhattan? Because, developers say, it's not cost-effective. The problem is that the cost of construction in Manhattan--roughly $500 a square foot--is the same uptown or downtown. Developers, however, say you need to make $70 a square foot to turn a profit. That's possible uptown, where the rents for a new high-rise can run to $90 a square foot. It's a lot harder, if not impossible, downtown.

New Jersey developers are benefiting too. The average rent on the Jersey waterfront is $37 a square foot--$5 less than in the financial district. But land costs about $50 a square foot, half of what developers pay in lower Manhattan. "In New Jersey all you do is take down an empty manufacturing building, and you've got a vacant lot," says TenantWise CEO M. Meyers Mermel. "Downtown there are existing buildings you have to buy out and get rid of the tenants before you can build." That makes constructing an office tower in Jersey City much easier--and much more profitable. According to real estate broker Cushman & Wakefield, Jersey City's Class A inventory more than tripled during the 1990s, to nearly 12 million square feet, and is expected to grow another 50% by 2003. As a result Wall Street firms like J.P. Morgan Chase, Lehman Brothers, and Merrill Lynch have been moving their back-office operations out of lower Manhattan and across the Hudson.

The deals in New Jersey are so compelling that even the New York Stock Exchange considered moving there in the late 1990s. Most people in the Manhattan real estate community thought the exchange was just trying to shake the city down for government subsidies. They're probably right: Mayor Giuliani and Governor Pataki were so worried the NYSE might leave Wall Street that in 1998 they agreed to build it a new $560 million trading facility at Broad and Wall streets. But the project has stalled. The city hoped to finance the deal by enticing a private developer to build an office tower above the exchange's new headquarters. Guess what? So far, no developer has bitten.

The destruction of the World Trade Center revealed how few of the financial world's major players still had headquarters south of Chambers Street before Sept. 11. Besides Goldman Sachs (whose primary offices are on Broad Street near the New York Stock Exchange), the only biggies were Merrill Lynch, Lehman Brothers, and American Express, all in the now damaged World Financial Center. (One major player is bucking the trend: By the end of the year Deutsche Bank plans to begin moving into the Wall Street tower that J.P. Morgan Chase is leaving as it consolidates in midtown.) Ironically the World Trade Center itself was a place where big midtown-based firms, such as Morgan Stanley and Credit Suisse First Boston, parked mostly back-office personnel, just like in New Jersey. The bulk of the Trade Center's clientele were smaller firms like Cantor Fitzgerald and Keefe Bruyette & Woods, plus a host of foreign banks.

To figure out how many of the big Wall Street firms will come back to lower Manhattan once the rebuilding is done, look at their real estate portfolios. Many of the companies have an abundance of vacant space in midtown and in New Jersey because of cutbacks they made earlier this year as business slowed. CSFB had enough square footage in its three other Manhattan buildings to absorb all its 819 World Trade Center employees. Morgan Stanley was sitting on 500,000 empty square feet in midtown and in New Jersey. When they're carrying all that available real estate, why would any of the firms return to the financial district?

Even the firms in the World Financial Center, most of whose buildings real estate analysts expect to be repaired and reopened by the end of the year, are far from unanimous about their desire to return. A spokesperson for Merrill Lynch, which leases two buildings there, says the company hopes to move back into its headquarters tower "within several weeks" and reoccupy the second building in "six months to a year." But American Express, which owns its World Financial Center digs, is being much coyer. It has signed new leases in New Jersey and Connecticut, and a spokeswoman refuses to say whether the company will return to the World Financial Center at all. "All I can say is, we're committed to Manhattan," she says. And Lehman? After moving displaced employees to midtown and to New Jersey, in early October it bought a 32-story midtown building for an estimated $650 million that Morgan Stanley had been in the process of completing for its own use. Lehman intends to make the building its new headquarters. "We'd
love to get back downtown," says a spokesman, "but literally it's up in the air what the status of our building is."

As you might expect, the possibility that some of the city's largest financial firms could relocate much of their operations to New Jersey terrifies New York politicians and landlords. Says Michael Carey, president of Mayor Giuliani's Economic Development Corporation: "We want to keep these businesses and jobs in Manhattan." The Real Estate Board of New York, the industry trade association, has identified a number of development sites that might be ready to build on immediately if tax-incentive deals can be cut to lure corporate tenants back to the city. The problem is, most of the sites under discussion are in midtown. That's where developers prefer to build, isn't it? But if the plan succeeds, it makes the financial district's chances of recovering dimmer still.

One developer has a site in lower Manhattan that could accommodate all the companies whose offices were destroyed Sept. 11. He is Larry Silverstein, the 70-year-old real estate mogul who in July had the misfortune of leasing the World Trade Center from the Port Authority for 99 years. He claims that the $7.2 billion insurance payout that he expects to pocket will give him ample money to rebuild the space lost at the World Trade Center complex. "Right now the lower Manhattan economy is going to be majorly affected until we get those buildings back into income-producing mode," he says.

Silverstein is obligated to keep making his $116-million-a-year lease payments to the Port Authority. So the sooner he rebuilds, the better. But nothing will happen anytime soon. "There are many, many things that have to be worked out in terms of our insurance coverage and in terms of our lease agreement," says Charles Gargano, vice chairman of the Port Authority. "There are a lot of people who are going to have a say in what happens there. The Port Authority does have something to say about it. The city and the state of New York will have something to say about it."

They surely will. Governor Pataki and Mayor Giuliani recently asked the federal government for $54 billion in "disaster relief" for New York State, including about $2 billion for grants, tax-exempt bonds and tax breaks for developers who build downtown, and for displaced businesses that return there. In a sign that the city isn't counting on Silverstein to rebuild, the $54 billion request also includes $8.2 billion to reconstruct the entire seven-building World Trade Center complex.

But Pataki and Giuliani's assumption--that if the area gets rebuilt, of course the big Wall Street firms will come back--belies the current reality. With companies signing leases wherever they can find room, whether on Park Avenue or in Parsippany, N.J., it's difficult to see many of them moving back to Wall Street, even with tax incentives. If they don't, city officials may have to remove the banners in lower Manhattan boasting that the area is the world's financial center and hang them in midtown instead.

Would that really be so terrible? There may be no new investment banking headquarters under construction on Wall Street. But the area is changing in ways that would have been inconceivable a decade or two ago. On an island full of people desperate for a place to live, lower Manhattan is gradually--and logically--becoming a residential neighborhood. The number of people living in the area has increased by 60% in the past ten years, to 25,000, most of them in converted commercial buildings. Five years ago there were four hotels there; now there are ten. Culture is arriving: The Guggenheim Museum is preparing to build a Frank Gehry-designed outpost downtown. The Sept. 11 attack may indeed precipitate the end of Wall Street as we know it. But it may also hasten a long-awaited rebirth of lower Manhattan.