Battle of the Holland Tunnel
Dana Rubinstein Nov. 10, 2009, 3:54 p.m.
It was Oct. 13, and inside the wood-paneled lobby of the Newport Office Center, which rises like a glass punctuation mark from the Jersey City shore of the Hudson River, Governor Jon Corzine was gleefully announcing a huge score in the Garden State’s long-simmering battle with Manhattan for office tenants.
The Depository Trust and Clearing Corporation had signed a long-term lease to relocate 1,600 of its employees from 55 Water Street in Lower Manhattan to the Jersey waterfront.
“Yes, New Jersey is open for business and will work with business, not in a give-away context, but in a context that will create economic opportunity for our citizens [and] revenues for our communities that then can be plowed back into all the other important things I think we all care about,” the governor said.
For his part, William Aimetti, the tall, pallid CEO of the Depository Trust, made no bones about the root of the corporation’s decision: money: “[W]e concluded that relocating to New Jersey would allow us to manage our cost structure more readily and position DTC for continued business expansion in the years ahead.”
With real estate prices dramatically lower across the Hudson, and companies looking to save where they can, the flight of Depository Trust raises the question: Will another cross-river war erupt between the Jersey waterfront and Manhattan, à la post-9/11, as landlords try to lure scarce tenants in a market lousy with empty space?
Already, other large tenants are publicly considering a move, with some tentatively approved for lucrative incentives from the State of New Jersey. The largest: Deloitte, the mammoth accounting firm with mammoth offices at 1633 Broadway and Two World Financial Center, which, according to subsidy-package documents, “anticipates relocating 1,400 jobs from NYC,” either to New Jersey or Connecticut.
Others with high-paying jobs looking to New Jersey for relocation, and already approved for incentives should they actually move, include insurance company ACE Limited and the financial firm Group One Trading.
“Depository is perhaps the first of several we may see begin to explore [New Jersey],” said Pat Murphy, a vice chairman of brokerage CB Richard Ellis, who is not involved in any of the negotiations mentioned here.
DELOITTE IS WIDELY KNOWN in the industry to be working with Cushman & Wakefield brokers to find between 600,000 and 800,000 square feet of office space. As such, it is arguably the largest loose cannon in Manhattan real estate. (By point of comparison, the shiny, new and entirely empty skyscraper at 11 Times Square contains 1 million square feet of office space.)
Deloitte’s application for more than $35 million in incentives from New Jersey could legitimately be viewed as merely an attempt to acquire bargaining leverage with Manhattan landlords, or as part of Deloitte’s exhaustive exploration of its options.
Even so, Mr. Murphy, who spent much of his career in New Jersey, said, “It starts as leverage at first. But when you start looking at some of these incentives that Jersey is offering, it becomes incredibly compelling very quickly.”
As do the rents.
“With new construction in Hoboken, a tenant from New York starts out saying, ‘Well, my rent in midtown is $65 [a square foot], downtown it’s $45’; but in Hoboken, they can be essentially $20 for brand-new space,” Mr. Murphy said. “I do think the border war will pick up steam as more demand hits the market, and we’ll see more people looking at how they can reduce cost and take advantage of not just the workforce in Manhattan that can commute to New Jersey, but also the six million people who live in northern and central New Jersey.”
Jonathan Gandal, a Deloitte spokesman, said in an emailed statement that the application for incentives was merely “preliminary research of the tri-state area commercial real estate market in advance of our expiring leases in New York, New Jersey and Connecticut. The New Jersey grants are available to us, but no decisions have been made. Tax incentives are one of multiple factors we’re weighing.”
In September, yet another company with large Manhattan offices was approved for incentives by New Jersey’s Economic Development Authority (companies do not receive the incentives unless they actually move). Insurance firm ACE Limited, currently with offices at 1133 Avenue of the Americas, 140 Broadway and 1325 Avenue of the Americas, was tentatively awarded $9 million to relocate and create 336 jobs in New Jersey. The firm is said to be working with Jones Lang LaSalle to find a sizable chunk of office space.
This is the type of action that leads New Jersey officials to boast about the subsidies they offer, incentives that New York officials freely acknowledge are far more generous than what most companies can receive in the city.
In 2008, on its relocation subsidy program alone-the Business Employment Incentive Program-New Jersey signed agreements to give out more than $130 million in incentives, an amount that comes on top of tens of millions poured into numerous other incentives aimed at attracting new companies to move a few miles west. The BEIP program is income-based, and thus gives more money to companies with higher wages.
“It’s a spectacular deal for us,” said Jerry Zaro, Governor Corzine’s economic development czar. “We give no money out to anyone who doesn’t show a net positive economic benefit to the state.”
Such rhetoric irritates many New York business groups and landlords eager to match New Jersey’s subsidy play. Particularly in Lower Manhattan, the state and city have been liberal in awarding tax benefits to companies that relocate or expand, but generally speaking, the subsidies still don’t compare, and the cost of rent is tremendously lower outside of Manhattan.
“Right now, New York doesn’t make the short list on where to expand or put back-office jobs,” said Kathryn Wylde, president of the Partnership for New York City, a leading business group. Ms. Wylde is urging a plan to rival the BEIP program, one that would give an income tax credit to employers that relocate or expand in New York.
Brookfield Properties, which now houses much of Deloitte’s operations, said in a statement that it supports more such incentives.
“Incentives, especially with regard to large tenants such as Deloitte, are critical to retain the employment base in Lower Manhattan,” said Melissa Coley, a Brookfield spokeswoman. “The Downtown Alliance recently succeeded in lobbying Albany to extend the existing incentives. However, more needs to be done, both as of right and on a case-by-case basis, to financially compete with New Jersey and Brooklyn.”
THIS, OF COURSE, IS HOW arms races flare, as states pass increasingly lucrative incentive packages to compete with each other to move employers from one side of a border to another, with the end result being the same number of jobs in the region. (Though, as a Rutgers study on BEIP found, a state is left little other rational choice but to compete in this race, lest they lose the jobs.)
The periodic Jersey-Manhattan arms race goes back to at least 1985, when Bankers Trust relocated more than 1,000 jobs from Manhattan to a converted warehouse in Jersey City’s Harborside Financial Center, according to CBRE’s tristate chairman, Bob Alexander. Since then, said Mr. Alexander, the 16 million-square-foot Jersey Waterfront office market has become dominated by finance and insurance.
“Frankly, the only industry Jersey City is missing is the legal industry,” Mr. Alexander said.
The Bloomberg administration, for its part, says it plans to maintain its relatively restrained approach to office-tenant subsidies amid the economic downturn.
“We take the potential loss of any New York City employer seriously, and we actively engage with these companies,” David Lombino, spokesman for the city’s Economic Development Corporation, said in a statement. “Rather than competing dollar for dollar with other cities’ incentives, we’re confident that our strategy of investing taxpayer monies in maintaining the city as a place that businesses want to locate will ensure the greatest return in the long term.”
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