Tax Breaks, Redesigns Used To Lure Corporate Tenants

Dangling millions, sometimes billions in incentives to big companies to become part of the latest megaproject is often the cost of doing business in the city’s development market.But the lure of big business reached a new level when a developer offered last week to redesign a building in the hope that Merrill Lynch & Co. would agree to move to ground zero. The government extended deadlines for two towers at the World Trade Center site to allow developer Larry Silverstein to build wider trading floors Merrill has sought.The offer didn’t seal a deal with Merrill Lynch, but it showed industry watchers how far governments and developers will go in an economic downturn to commit skittish tenants to big, sometimes uncertain projects.“It’s realistic,” the president of the Partnership for New York City business group, Kathryn Wylde, said. “Things are slow because the economy is uncertain. Major prospective tenants are waiting to see how things roll out.”Across the city, big development projects are slowing down or falling apart because of uncertain financing, making an anchor tenant’s commitment a potential make-or-break factor, experts say.At Hudson Yards, a government effort to build skyscrapers and apartments over 26 acres of rail yards on Manhattan’s far West Side, prospective tenants like Morgan Stanley and News Corp. bailed out before a winning bidder was chosen, citing an uncertain economic climate.The Metropolitan Transportation Authority in March chose Tishman Speyer Properties, which had courted Morgan Stanley as an anchor tenant. But Tishman dropped out six weeks later, without securing a new tenant or financing for the multibillion-dollar project. Related Cos., chosen to replace Tishman, hasn’t announced which tenants would replace News Corp. as its anchor.At ground zero, state government agencies signed on early to rent space in two of the five office buildings planned to replace the twin towers. One of the country’s largest banks, JPMorgan Chase & Co., struck a deal last year for a $300 million lease — accompanied by $230 million in government incentives — to anchor one of the towers, after reportedly threatening to move out of state.This spring, the bank acquired Bear Stearns Co. and said it no longer planned to relocate its investment banking operations in the downtown tower, throwing parts of the deal into doubt.Merrill Lynch negotiated with Silverstein Properties last fall to move into a ground zero tower designed by British architect Richard Rogers, and also weighed a move to midtown before dropping out of talks for each site. It renewed negotiations with Silverstein this spring, once again seeking changes to the tower’s design to accommodate trading.The Port Authority of New York and New Jersey, which owns the trade center, agreed to extend the deadlines for two of the Silverstein towers to “allow us to find out: Can we secure a huge financial institution downtown?” an executive, Chris Ward, said.“We needed to make sure that Merrill had a window of negotiation,” he added. “The economics will be the economics. We just wanted to open up the six-month window and leave it that.”Critics questioned whether such an incentive — even a redesigned building, instead of a tax break — is a sound one for Merrill Lynch, which currently has office space in a building just west of ground zero.“Should this all go through, they’ll decide to move across the street,” a project director at a government watchdog group Good Jobs New York, Bettina Damiani, said. She said many companies prioritize transportation options and the location of their labor force over incentives like those the city and state offers. “To give away the fiscal store to companies for the short-term, press-release hit … shouldn’t be at the expense of the city’s fiscal future,” she said.The city’s deputy mayor for economic development, Robert Lieber, said the city isn’t offering greater incentives than it has previously to big corporations downtown. The real estate market downtown has largely stabilized, he said. He said the less-developed far West Side poses different challenges for potential tenants. “You don’t have the infrastructure, you don’t have the transportation,” he said. “The incentives out there are different and are more significant.”Ms. Wylde said more creative incentives may be needed in this economic climate, saying developers need a few months to see what major lease is signed next.The next six months is going to be a continued period of significant uncertainty,” she said. “Then people will make commitments … or we’re going to sort of have to rethink everything.”

Tax Breaks, Redesigns Used To Lure Corporate Tenants

Tax Breaks, Redesigns Used To Lure Corporate Tenants

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