There are reports that Merrill Lynch & Company will move its headquarters out of Lower Manhattan to a new skyscraper adjacent to Penn Station. This is described as a “blow” to city and state efforts to revitalize Lower Manhattan in the wake of 9/11. Efforts to revitalize Lower Manhattan, however, pre-date 9/11, and the World Trade Center itself was part of one such effort. All of these efforts, which have been led by real estate interests seeking higher office rents and sales prices, have assumed that Lower Manhattan needs to be a competitive location for the central offices of large U.S. corporations with employees located throughout the New York Metropolitan region. Downtown is at a disadvantage competing with Midtown for such facilities, because Midtown is directly accessible not only by subway from the city but also commuter rail from the suburbs. Suburban commuters must transfer to a subway or the PATH to get to Downtown. For fifty years the state and city have sought to offset this disadvantage by offering bribe to corporations such as Goldman Sachs to locate Downtown, and considering proposals to extend the commuter rail lines to Lower Manhattan at an unimaginable and unaffordable cost. But whether Merrill Lynch locates in Midtown or Downtown, its jobs will be accessible to New York City and State residents, and it will pay New York City and State taxes to support public services. And even if all large corporations were to exit Lower Manhattan, the area could still be as vibrant as it was before 9/11. More vibrant, in fact.
City planners have long been concerned that an overall shortage of commercial space will throttle the economy, though some have argued that telecommuting will eventually lift that constraint. Space for large companies has been a particular focus, because companies prefer to have their entire operation (or at least entire departments) on a single floor, and this requires large building floorplates and therefore large sites. As an already developed area with property ownership long subdivided, coming up with such sites has become harder and harder. Even Senator Chuck Schumer got in the act, forming a “group of 35” pre-9/11 that released this report http://urban.nyu.edu/g35/index.html. Among the Senator’s frustrations – a lack of urban redevelopment in Downtown Brooklyn, despite decades of public investment, because local property owners continue to ask for higher and higher prices for their sites without agreeing to sell, as a group, to a developer of a large building. The Senator threatened eminent domain, but an alternative response ahs developed – a shift of new development from the center of Downtown Brooklyn to the fringes at Atlantic Yards, and along Flatbush Avenue and Schemerhorn Street.
The bigger solution, however, was in Hudson Yards and Long Island City. There, zoning capacity has been created for all the large-floorplate office buildings New York City is likely to need for the foreseeable future, and infrastructure investments such as MetroNorth to Penn Station, the new Sunnyside Station in Long Island City, and the Flushing Line extension will make those locations directly accessible to the entire region. The condominium boom led to proposals to develop housing, rather than office space, over much of the Hudson Yards area, but as the wave of condo development causes the housing shortage to abate and the shortage of office space intensifies, this could change. Moreover, the area around Penn Station had the potential to accommodate more office space even before Hudson Yards, and this will increase if the extended Penn Station and Madison Square Gardens plan is approved. Unlike Lower Manhattan, office development in West Midtown will require fewer corporate bribes. Eventually it will require none.
With all the emphasis on meeting the needs of existing large corporations, with their existing voting employees and large campaign contributions, city and state officials have ignored the importance of entrepreneurial new firms. Some of these start-ups will be the dynamic large companies of tomorrow, but if they cannot find affordable space to begin with, they will be located elsewhere. New York will need new firms, because existing companies, even large ones, close and consolidate all the time. Providing bribes to existing firms without attracting new ones gives you the economy of Upstate New York, where no amount of subsidies could prevent Kodak from shedding thousands of jobs as people shifted to digital from film. Merrill Lynch and Goldman Sachs could also disappear, or merge, with a massive loss of jobs. Consider the JP Morgan Chase and Citigroup were once JP Morgan, Chase, Chemical, Manufacturers Hanover, Citibank, Travelers, Saloman Brothers and Smith Barney. Am I missing any? Probably. And the two survivors hardly employ as many people as the entities they replaced.
Will Downtown then be abandoned if the corporations go elsewhere? Hardly.
Downtown is now a live-work destination. If it were to become an affordable location for entrepreneurs and their firms who need access to the large companies up in Midtown but can live without direct transit access to the suburbs, the city would be better off. The city needs places for these firms. Former industrial buildings in Midtown South played the role in 1990s, and the city – desperate for alternatives – has proposed getting rid of restrictions to preserve garment wholesaling in the Garment District to make more room for lower cost offices. Why not Downtown?
In a global economy, the New York or U.S. operations of foreign firms are another key source of employment and office space demand. That is the type of firm that dominated occupancy at the old World Trade Center. While the heads of U.S. companies might prefer to site their workplaces at locations that provide ready access to Greenwich, Connecticut, those from elsewhere are more likely to prefer a New York City residence. Downtown works well as a location for such businesses.
If real estate were to become relatively less expensive there, moreover, the city might actually have a place to site new high schools that could solve shortages throughout the city. Downtown is easily accessible to the entire city, if not the entire region. Non-profits also have trouble finding affordable space in Midtown, which is why one Downtown landlord marketed its building exclusively to them back in the 1990s.
“Affordable” and “less expensive” real estate is great for workers and great for entrepreneurs. It is not, however, great for landlords. That’s why Brookfield Properties proposed taking away half the capacity of the Cranberry Tunnel (used by the A and C lines) in order to run separate trains occupied by Long Island commuters direct to their Battery Park City property, and the city has advanced a proposal to build an Airtrain tunnel that would lead those commuters on the far west side of Downtown, at Brookfield’s door, at huge expense. Sure such a connection would be nice to have, but the cost makes it unlikely to occur without severe consequences elsewhere.
Yes it would be less profitable for Brookfield Properties and Larry Silverstein to lease office buildings to multiple small tenants with higher turnover at lower rents. But it would not be less profitable for the city. It could be more profitable, in the long run.
There haven’t been many new “speculative” buildings — those without large corporate tenants signed for the onset of construction — built in New York City since the 1980s. But Silverstein has no excuse for not rebuilding office space at the WTC and renting to whoever wants the space at whatever the market will bear. He received the insurance money, after all.
In short, if moving to Midtown and paying full taxes is what is best for Merrill Lynch, than the City and State of New York should be pleased for them to do so, particularly if they will anchor a new office building there. And as for Downtown, the city and state should stop believing that the whole area will be abandoned if large companies continue to migrate to Midtown as they have for the past 50-plus years. There are many ways that Downtown can serve the city and region better in another role, or a combination of other roles.
The City of New York already got railroaded into paying huge money for a new New York Stock Exchange trading floor that never happened and, given shifts in the market, probably never will happen. Anyone know if we STILL paying for that. It’s bad enough cities and states raise taxes on new businesses to subsidize existing firms threatening to move from one jurisdiction to another. We shouldn’t do the same to prevent a company from locating in essentially the same place.