Can Incentives Slow Defections?
Crain's New York Business
By Lore Croghan
November 04, 2001
The exodus is likely to continue over the next several months.
New York City has lost an estimated 17,600 jobs since the terrorist attacks
of Sept. 11, as big financial services firms moved their offices to
locations in New Jersey and Connecticut.
A weakening economy is expected to drive some businesses to cut real estate
costs by moving to cheaper markets. Other firms are seeking to decentralize
their operations into multiple locations for the sake of security. And
downtown faces a wave of departures by office tenants that are finding it
too difficult to do business in a war zone. Some of these will leave the
“Midtown is secure, but downtown is at risk,” says M. Myers Mermel, chief
executive of real estate brokerage TenantWise.com Inc., which as been
tracking the relocation of companies from the disaster area, and came up
with the number of lost jobs. “The anchor tenants of downtown have left,
transportation is bad, and many small tenants depended on large companies as
But longer term, real estate executives hope the number of departures from
New York City will shrink as federal tax incentives to keep businesses
downtown take shape. The prospect of substantial savings may draw back to
lower Manhattan despite the neighborhood’s problems.
What also will help keep businesses in New York City is a surprising surge
of sublet offerings since Sept. 11. The sublets will enable many downtown
companies to find places in midtown and to structure deals they can afford.
But the initial departures are huge. Financial services firms have taken 4.4
million square feet of offices out of town, the equivalent of more than 20%
of the space that big tenants had occupied in the destroyed or damaged
buildings, according to an analysis by TenantWise.com
The companies that signed long-term leases outside the city include American
Express, which dispersed its employees to Parsippany and short Hills, N.J.,
and Stamford, Conn. Lehman brothers, which bought a midtown tower for a new
headquarters, also rented and entire building in Jersey City.
Anxious smaller companies
What will probably add to the big-company flight is the increasing number of
smaller companies that are anxious to leave downtown. With leases set to
expire on 9 million square feet of offices in the neighborhood over the next
12 months, up to 35,000 jobs are in danger of disappearing from the area.
Some tenants will go to midtown and other boroughs; some will leave the
“The mayor is saying, ‘Come on down,’ but let’s not kid ourselves,” says
Stephan Peskin of Tolmage Peskin Harris & Falick, a law firm that just
reopened at 20 Vesey St., building located behind the fence of the
militarized Red Zone. “Lower Manhattan isn’t open for business as usual.”
Even so, there are some firms that remain committed to downtown.
“I was always the type of guy who faced the bully in the schoolyard,” says
Steve Berliner of Insignia/ESG Inc., who was looking out the window of his 1
Liberty Plaza office when a fireball from the trade center blew over his
building. He’s going to reopen the real estate frim’s downtown office, and
hire 10 new brokers for good meaure, to join the current roster of 20.
“I believe in facing your fears,” he says.
Yet many companies that are there are finding it impossible to do business.
For instance, lawyers need cars to reach far-flung clients and courts, but
can’t get their vehicles near their offices because of roadblocks. William
Dealy of Dealy & Trachtman, whose lease at 225 Broadway expired in June, has
had it with the transportation snafus. “From my standpoint, the
businesspeople of lower Manhattan have been put on the ‘pay no mind’ list,”
Bronxville or Scarsdale?
He plans either to seek a location on Park Avenue South, or look for a new
office in Bronxville or Scarsdale, N.Y., and set up a midtown mail drop.
With many downtown anchor tenants gone or going, small businesses that
needed to be near them see no point in staying.
Market news international- a wire service that covers the bond and currency
markets and whose neighborhood customers included American Express, Lehman
Brothers and Merrill Lynch-had planned to stay downtown when its lease 100
William St. expires in April. Then disaster struck. Now, Mike Connor, Market
New’ chief executive, is negotiating a move to the Dumbo section of
Some downtown tenants are hoping to move to midtown, where they may find
sublet space. But midtown rents are more expensive, as some firms are
cutting back on the size of their offices.
Manfred Ohrenstein, who paid in the mid-$30’s per square foot for a
33,000-square-foot office at now-vanished 1 World Trade Center, is
negotiating for a midtown office of only 20,000 to 25,000 square feet,
because the rent is more than $50 a square foot.
It’s either shrink, or move the entire operation of law firm Ohrenstein &
Brown to its Garden City, L.I., office.
The hopes for stemming the exodus rest on a strong and easy to-access
incentive package that makes downtown cheaper than markets outside the city.
Under the plan, businesses that sign or extend eases south of Chambers
Street would receive federal tax credits of $3,000 per employee. City
incentives are likely to added as well.
“It’s the economics that will drive this,” says Bruce Mosler, president of
the U.S. operations of Cushman & Wakefield Inc.
Copyright 2001 Crain Communications, Inc