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. Last Updated: 07/27/2016

Companies Flee Manhattan's Financial District

NEW YORK -- Just five hours after a jet slammed into the north tower at the World Trade Center, at least one corporation that was still comforting its weeping employees began negotiating with a landlord for new office space -- far from Lower Manhattan.

Some of Wall Street's biggest names -- like American Express, Citigroup and Lehman Brothers -- are searching for and making deals for new space, which is almost nonexistent in the city's battered financial district. And when they find new offices in places like Jersey City, they are signing leases lasting many years, real estate executives say.

The big question, these executives say, is whether companies that leave will come back to downtown Manhattan. "This is not the end of the city," said Leonard Stern, chairman of Hartz Mountain Industries. "But there will be companies with several million square meters that will find homes elsewhere that they'll get used to."

The loss of some of its biggest employers has led some real estate specialists to speculate that this is the the end of the financial district at the tip of Manhattan, where the city's history began. While such predictions have been made before, the collapse of the World Trade Center towers and associated damage has taken more than 10 percent of the district's prime office space out of the market, with no expectation that it will be replaced soon.

The equivalent of 15 Empire State Buildings, or an estimated 15 million square feet of prime office space, has been destroyed, or rendered at least temporarily useless. Yet in the financial district, turn-of-the-century temples of commerce still dominate some of the crooked alleys, and there is little room among the landmark buildings for modern office towers.

Of course, the office vacancy rate in Manhattan has doubled in the last year, and as much as 1.86 million square meters of space is sitting empty. But even before the World Trade Center collapsed, big blocks of contiguous space were rare.

Displaced investment banks, law firms and insurance companies that are looking for less than 4,650 square meters of office space are foraging north for space in Midtown. And smaller companies will have even more choices.

But Merrill Lynch, Citigroup, Nomura, Hartford Casualty, Morgan Stanley Dean Witter, Empire Blue Cross, Bank of New York, Oppenheimer and dozens of other tenants of the World Trade Center and the World Financial Center need hectares of space. So they are casting about in Westchester, New Jersey, Long Island and southern Connecticut for alternatives, though none want to speak publicly or in detail about it for fear of appearing insensitive, real estate brokers say.

And American Express and Lehman Brothers are already signing deals in New Jersey, according to real estate executives.

Some real estate executives and city officials say the doomsayers are premature in declaring Lower Manhattan dead. Carl Weisbrod, director of the Alliance for Downtown New York, the business improvement district for the 14,000 companies in the financial district, said he was confident that the area would be rebuilt.

"Downtown could be stigmatized by this event," Weisbrod said. "But it is more likely that its rejuvenation will become a symbol of New York's indomitable spirit. The fundamental downtown institutions -- the stock exchange, Nasdaq, the Federal Reserve and the Depository Trust -- are not going anywhere."

Temporarily, however, the American Stock Exchange will not be operating out of its building on Trinity Place, which was damaged in the disaster. If trading resumes as scheduled Monday morning, some of the exchange's business will move to Philadelphia, officials said Thursday. Other trading will take place in a separate area of the New York Stock Exchange.

The potential loss of large financial companies is most worrisome to downtown and to city officials. Not only do the firms pay taxes, but their employees have also received big taxable bonuses that have helped fill the city's coffers and turbocharge its economy in recent years.

New York Mayor Rudolph Giuliani has said that state and city officials will do everything they can to not only rebuild the World Trade Center but to reinvigorate the financial district as well. But many companies are not waiting around; they are considering signing long-term leases outside New York and, executives said, may not want to undertake the risk or expense of moving back.

"Most companies are looking for immediate disaster recovery, although many companies would prefer immediate long-term solutions," said Mary Ann Tighe, a vice chairman of Insignia/ESG, a real estate company, speaking of the frantic search for office space by displaced companies. "People don't realize the speed with which business must react to stay competitive. They can't wait for the dust to settle."

After the power went down in Lower Manhattan, one New Jersey real estate executive confided, "my phone lit up like you wouldn't believe" with calls from companies displaced by the widening disaster in and around the trade center.

Last week, Lehman Brothers, another displaced tenant at the World Trade Center, made its move, edging out rival American Express and laying claim to 27,870 square meters of space in a building in Jersey City, according to real estate executives on both sides of the river. The firm, which evacuated its headquarters in the World Financial Center on Tuesday, declined to comment on the deal or on whether it would return to Manhattan. It is now operating out of a building it had already rented in Jersey City.

American Express, in turn, shook hands on a deal to take 46,450 square meters in two buildings in New Jersey, one in Short Hills, the other in Parsippany, the real estate executives said.

Nancy Muller, a spokeswoman for American Express, could not confirm that, but said the company was "looking throughout the metropolitan area" for offices to house the 4,000 employees who had worked in Lower Manhattan. The company was planning to open an interim headquarters in Jersey City as early as Friday, she added.

The disaster at the World Trade Center may also cause fundamental changes in the way companies house their operations, some real estate executives say. No longer will major corporations concentrate their employees in tall skyscrapers emblazoned with the company name. Nor will they congregate their buildings in a single location or corporate campus, as Goldman Sachs has done downtown and J. P. Morgan Chase has done on Park Avenue.

"The world has changed," said Stern of Hartz Mountain, which owns about 175 office building and warehouses in New Jersey and New York. "I'm not sure that tall, trophy office buildings will ever be popular again in our lifetime anyplace in the world."

Richard LeFrak, whose family- owned company has apartment buildings in Battery Park City and 464,500 square meters of office buildings in Jersey City, said he expected companies to continue to spread to multiple locations.

"They're going to assess whether having too much concentration in a single location can be compromised by a single event," he said.

Last week, city and state officials began meeting with the Real Estate Board of New York and others on a plan to address the short-term needs of hundreds of companies in Lower Manhattan. They also began to identify sites where development could begin immediately.

"At the end of the day, we will do what we have to do to not only replace the space at the World Trade Center but to create even more," said Joseph Rose, director of the Department of City Planning.