New York City's Downtown: It's All Uphill
As the man responsible for coordinating the rebuilding of Manhattan's scarred downtown, John C. Whitehead certainly has his work cut out. Whitehead, chairman of the Lower Manhattan Development Corp., must find a sensitive compromise between those who favor turning the World Trade Center site into a memorial and those pushing hard to replace much of the office space lost during the terror attacks of a year ago. In July, the LMDC unveiled six designs for the site. All were roundly criticized for being unimaginative, and Whitehead and his colleagues were forced back to the drawing board. Of his difficult new job, Whitehead, who is 80, says: "This could last 10 years. I'll end up down there in a wheelchair."
Whitehead's challenges only start at Ground Zero. He also is in charge of revitalizing the entire southern end of Manhattan. The territory includes Wall Street, the New York Stock Exchange, and the financial district--still the beating heart of American capitalism. After the attacks, many firms, including Lehman Brothers (LEH ), Credit Suisse First Boston (CSR ), and J.P. Morgan Chase (JPM ), moved hundreds of employees out of the area because their offices had been destroyed or damaged or because their people weren't ready to return. As designated cheerleader for downtown, Whitehead expresses confidence that he'll be able to woo the financial firms back. He points to Merrill Lynch (MER ), American Express (AXP ), and Deutsche Bank (DB ), which have mostly returned or plan to.
But convincing other firms won't be so easy. Indeed, Merrill Lynch reclaimed its old headquarters near Ground Zero mostly because it didn't want to build another expensive trading floor. In fact, long before the attacks, financial firms and brokerages were moving out of the Wall Street area. Many went to midtown Manhattan, where there are already more investment banks than in all of downtown, or farther afield to New Jersey and Connecticut. And that shift clearly has been intensified by the fallout from September 11.
Indeed, the combination of technology and a rapidly changing industry led many financial firms to conclude long ago that large parts of their operations no longer needed to be close to the New York Stock Exchange. In decades past, many believed they needed to be close to the action, and downtown was where America's best financial brains did their thinking and drinking. Since then, thanks to the rise of cell phones, text messaging, and videoconferencing, financiers can cut deals just about anywhere. Besides, who can blame financial firms from decamping when occupancy costs across the river in New Jersey, where energy is cheaper and taxes lower, are a fraction of the price of comparable office space downtown? "Wall Street as a financial epicenter hasn't made sense in 20 years," says industry compensation expert Alan Johnson.
In the wake of September 11, security weighs just as heavily as costs. That's a key reason even the NYSE is looking elsewhere. In the late 1990s, the exchange had planned to build new digs near its 11 Wall Street headquarters. The attacks put an end to those plans. Now, the NYSE is looking to move half its specialists and broker-dealers to help reduce its exposure to another attack. And if the NYSEmoves, many member firms will have to shift a big chunk of their operations with it. Says NYSE Chairman Richard A. Grasso: "We're not happy about this. Our home has been here for 210 years." Grasso, who says he is considering all of metropolitan New York and elsewhere for new space, acknowledges that a move from downtown could hurt the Lower Manhattan economy, putting out of business the restaurants, retailers, and business-service firms that cater to Wall Streeters.
Other industry executives are factoring security and psychological worries into their decisions about whether to move back. Emotions are still raw, says Ari Kiev, a psychologist who works with Wall Street traders: "The event is imprinted on memory banks, and people keep re-experiencing it. They can't get rid of the images." Indeed, Merrill Lynch & Co. and others offered counseling to employees returning downtown.
Still, some companies see a presence in Lower Manhattan as crucial to their operations. The NewYork Board of Trade, the commodities futures and options exchange whose WTC offices were destroyed, will move its 1,600 traders and staff back downtown from temporary offices in Queens by next year. "Downtown remains the financial capital of the world," says the company's interim chief operating officer, Patrick L. Gambaro. "We want to be part of it."
To persuade other firms to do the same, the City of New York is offering grants. While some companies say the incentives are too stingy, the effort is paying off, says Andrew Alper, president of New York City Economic Development Corp. He says 47 firms with a total workforce of 46,000 have committed to the district for the next three to five years. They include Deloitte & Touche and New York Life Insurance Co.
Yet it is clear that many of the high-paying jobs on Wall Street are never coming back, partly because they've been laid low by the bear market. That explains why business and civic groups are falling over themselves to attract companies to replace the high-spending Wall Streeters. The New York City Partnership, a local business promoter, has launched a series of road shows with CEOs like CSFB's John J. Mack to sell downtown's merits. For his part, Whitehead says he is not hoping to bring back all the lost jobs immediately. He and his staff are betting that by the time new offices at Ground Zero are built in 10 years, the economy will have expanded enough to generate high-paying employment downtown.
In the meantime, some former downtown tenants are still hedging their bets. On September 11, the $130 billion money manager OppenheimerFunds lost its South Tower offices. Thankfully, all 598 employees survived and took up new temporary quarters in midtown. "I'm sure the city and state have every intention of keeping Manhattan a thriving financial capital," says CEO John V. Murphy. "I'm just not sure they know how to go about it." Murphy is now weighing his options for the firm's permanent home. Downtown is just one of them.
By Robert McNatt, with Mara Der Hovanesian, in New York
— With assistance by Mara Der Hovanesian