Wall St. Giants Offered Grants for Staying Put
By CHARLES V. BAGLI
The state and city have begun to send letters offering the first of dozens of multimillion-dollar federal grants to some of the most important financial companies in the world, in an effort to keep jobs in Lower Manhattan or lure them there.
The money is part of $500 million in federal aid intended to protect the vibrancy of the city's historic financial district. After the attack on the World Trade Center, investment banks, insurance companies and law firms scattered, with as many as 30,000 employees relocating to New Jersey and Connecticut. The city feared the losses would be permanent, leaving a ghost town in Lower Manhattan.
The Bloomberg administration has not disclosed the names of companies designated for aid, or the amounts, but the candidates include the financial giants Merrill Lynch, American Express, Goldman Sachs and the Bank of New York; Aon, the insurance broker; and the law firms Thacher Proffitt & Wood and Pillsbury Winthrop.
The cash grants potentially raise thorny questions: Which companies are more valuable? If a company argues strenuously, will it get more money? Will the incentives reward companies like Citigroup and Lehman Brothers that are abandoning the financial district? The first crop of letters went out last week, according to Daniel L. Doctoroff, deputy mayor for economic development and rebuilding, who discussed the matter at a lunch for real estate executives at a Midtown hotel yesterday.
While cash incentives to stay in New York are not new, these new grants have unusual characteristics. First, the national spotlight after Sept. 11 means that this will be more public, as opposed to the usual hush- hush business of economic incentives. Also, these grants are discretionary, and the criteria are not crystal clear.
"This is really a significant pool that can be used to make it cheaper to live and work down there," Mr. Doctoroff said.
While it is not clear that Aon, the insurance giant that was blasted out of the World Trade Center last September, is in the first crop of letters, the company's situation illustrates some of the difficult issues. Aon is considering subleasing 335,000 square feet of space in the 40-story tower at 125 Broad Street, which overlooks the East River, but is also looking elsewhere in Manhattan and in New Jersey. So it would be a coup if the grants lured Aon's 1,100 jobs back downtown.
But the space is now occupied by Salomon Smith Barney, the investment bank owned by Citigroup, under a lease that runs for nine more years, at about $30 a square foot a year, according to real estate brokers. Salomon wants to sublease its space, but it is asking for $53 a square foot in rent to cover what it spent outfitting the offices.
The grants would enable Salomon to break even on its lease as it moves employees out of the neighborhood, critics said, rather than having to lower the rent to compete in a market swollen with cheap, vacant space.
"They want to come out of this without taking a write-off," said one real estate broker who toured the space. "The only way to do that is with the city offering tenants an incentive package, underwriting the rent. But the incentive money is intended for economic development and to repopulate the downtown work force. Do you want to give money to attract subtenants to space abandoned by Citigroup or Lehman?"
Definitely not, said James A. Parrott, an economist and deputy director of the Fiscal Policy Institute, a research organization.
"It illustrates the flaw in their approach to the redevelopment of Lower Manhattan," Mr. Parrott said. "We always thought it made more sense to put the resources into infrastructure and public investments that will make Lower Manhattan attractive to companies and residents, rather than handing it out on a firm-specific basis."
There is plenty of vacant office space downtown, critics said, without the city offering incentives. At 55 Water Street alone, for instance, more than a million square feet is available. In the last year, the vacancy rate downtown has doubled to 14.1 percent, or 13.4 million square feet, according to Newmark & Company, a real estate firm.
"You're rewarding a company for abandoning downtown," said Jonathan Bowles, chief researcher at the Center for an Urban Future, "and it may open the door for other companies to do the same thing."
According to real estate brokers, a number of companies are looking at space controlled by Lehman Brothers, which has about 1.7 million square feet of vacant space downtown, including its former headquarters in the World Financial Center.
Despite Lehman's swift-footed decision after Sept. 11 to leave Lower Manhattan for a new headquarters near Times Square, Lehman could benefit from federal largesse that effectively makes its space more affordable to other companies. In the end, one broker said, Lehman may not have to lower the rent to attract a tenant.
In the days after the attack, Lehman told city officials it wanted to move to 180 Water Street. The city pushed aside Aon, which had negotiated a lease with the landlord, to make way for Lehman. Those same city officials were dumbfounded in early October when Lehman suddenly announced instead that it was buying a skyscraper at 745 Seventh Avenue in Midtown.
Some city officials said the economic vitality of the district was so precarious that they must focus on retaining companies and luring new firms to empty space, not retribution. "I'd like to see Citigroup punished," one downtown official said. "But our priority is repopulating Lower Manhattan."
A Citigroup executive who spoke on the condition of anonymity said that there was "no basis" to think that the company's employees at 125 Broad Street would be move out of Lower Manhattan or the city.
Citigroup has laid off thousands of employees in recent months and it did not replace the 1.2 million square feet of office space it had at 7 World Trade Center, which was destroyed. But during a meeting with Gov. George E. Pataki in October, Sandy Weill, the chairman of Citigroup, also said that his company was overconcentrated in Lower Manhattan, where it had 16,000 employees.
At the luncheon, Mr. Doctoroff said the city and the state had recently sent out grant offers to about two dozen large companies. Those offers represent the first round of aid for about 150 companies that employ more than 200 people each, for a total of 125,000 workers. Mr. Doctoroff declined to name them until negotiations are completed. He said the criteria used to award the grants included the number of employees and the likelihood that a company would relocate.
Mr. Doctoroff added that some benefit packages would go to companies "that never had any intent to leave." Asked why, he said "first of all, everyone lies about it," with companies threatening to leave even if they really would not go. Beyond that, he said, "it probably is appropriate for people who recommit to downtown to get some money."
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Carl
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