Big Apple polishes image to fight corporate exodus
New York — NEW YORK has a dynamic cachet - a financial, cultural, and intellectual vigor that draws more Fortune 500 companies to set up headquarters here than to any other city in the country. But its very appeal has made the Big Apple one of the most expensive places to live and work. Lately, corporations are wondering: Is the prestigious address worth it?
Five major firms left in 1986. AT&T tried to skip town just three years after completing its showpiece skyscraper. But the city nixed the move by holding AT&T to a tax abatement agreement.
Still, a corporate exodus appears to be developing. Mobil Oil and J.C. Penney recently announced plans to leave - taking 6,000 employees (to Fairfax, Va., and Dallas, respectively) and vacating three million square feet of prime mid-town office space.
American Brands is departing. On June 10, TWA declared it might go, too. And last week, Deloitte, Haskins & Sells, the big eight accounting firm, announced it will move its national headquarters from New York to Fairfield County, Conn.
In the last 18 months, 28 companies have decided to move all or part of their operations out of Manhattan, says Cushman & Wakefield, a real estate research firm. The most visible affront to New York, however, is the uncertain fate of NBC.
``New York is the center of the broadcasting industry,'' says Arthur Delmhurst of Landauer Associates, a real estate consulting firm. ``You have NBC, ABC, and CBS all within a few blocks of one another. If NBC left, that would be a significant blow to the city - financially and psychologically.''
Three parties are courting NBC. Developer Donald Trump wants the network to anchor his huge Television City project on Manhattan's West Side. Rockefeller Plaza would dearly love to keep its high-profile tenant. But Hartz Mountain is offering low rent, low electric rates, and loads of space in nearby Secaucus, N.J.
General Electric's NBC subsidiary would not be the first to relocate to New Jersey. But New Yorkers are particularly galled by the idea of losing the network.
Mayor Edward Koch and Mr. Trump have battled over plans to try to keep NBC's 4,000 workers in the city. A decision on NBC's move is expected within two weeks. If it stays, talk about a corporate exodus will likely quiet. But either way, the publicity is a boon for New Jersey's economic development efforts.
``GO FOR BROKE, or go to New Jersey,'' challenged Hartz in a full page New York Times ad run last week touting the proximity of its development project and cost advantages.
Indeed, real estate consultants say northern New Jersey office space rents for $15 to $25 a square foot compared with midtown Manhattan costs of $40 to $50. New Jersey electric rates are about one-third of those in New York City. Taxes are generally lower in the Garden State and New York also charges a 6 percent occupancy tax.
But such costs are not the driving factor in a corporate relocation. ``Companies are more often moved because of internal politics and perceptions about quality of life,'' says Richard Kately of the Real Estate Research Corporation, a Chicago consulting firm.
In fact, Mobil chairman Allen E. Murray, cited a growing difficulty in attracting employees due to the high cost of living and commuting.
``Corporations don't move because they can't find upper level employees willing to move here,'' says Robert S. Nadel of the Hay Group. ``The compensation at that level covers the added costs. They move because they can't get middle and entry-level employees. Most middle-management compensation packages don't cover the added cost of living here.''
Mr. Nadel adds, ``This is not a popular city for someone with a family.'' Rents are high. Two-bedroom apartments in Manhattan start at about $1,400 (Story, Pg. 16.). And public schools are generally poor, while private schools are expensive.
A recent Cushman & Wakefield survey of chief executives ranked ``good public schools'' as the No. 1 factor in considering where to locate new offices. But corporate concern over the school system isn't limited to its ability to attract employees to locate here. Tax-paying companies would also like to rely on public schools for a pool of educated entry-level employees but have not been pleased with the quality of public school graduates.
Affordable housing was also a high priority, according to executives surveyed.
``For $160,000 to $170,000 in Manhattan you can buy a large studio - if you're lucky. Only so many people can afford that,'' says Barry Akrongold of Morgan Sterling Inc., a real estate agent who left Manhattan two years ago to sell in nearby New York City boroughs and Westchester, Conn.
Larger corporations still say they're staying. But many, such as Exxon, PaineWebber, and Peat Marwick, are moving support staff out of the city.
``We have no plans to move,'' says a W.R. Grace spokesman, ``But if the socio-economic climate continues to deteriorate, every major company will have to reevaluate its position here.''
Edmund T. Pratt Jr., chairman and chief executive of Pfizer, the city's largest manufacturer, watched a much larger exodus a decade ago when the city was in the throes of its financial crisis. After some study, Mr. Pratt opted to stay. And he's not wavering now.
``New York will never be completely cost competitive,'' Pratt says. ``Sure, it's cheaper in New Jersey or Memphis, Tenn. But is it the business capital of the world? Here you have the top law firms, the top banks, top financial firms, and top advertising agencies. It's here, not anywhere else.
``And you have the stimulation of ideas. Instead of sitting in an office, gazing out the window at a cornfield, you can be challenged here in a luncheon meeting by the intellectual leaders of the world.''
Pratt adds, ``We're encouraged by the signs of progress; a reasonably consistent pattern of reducing taxes.''
Indeed, spurred by the public debate, Mayor Koch has promised to eliminate the 6 percent corporate occupancy tax, although no timetable has been established. Koch recently proposed a five-year program to reduce energy taxes and costs to parity with New Jersey and is offering energy savings to NBC if it stays. He is also pushing a cut in the corporate tax from 9 to 8.85 percent.
``It's not much,'' allows Alair Townsend, deputy mayor for finance and development, ``but it's a signal we know the tax is too high.''
Ms. Townsend also touts the city's economic incentive package for firms that move north of 96th Street in Manhattan or to one of the four other city boroughs.
``We're in a tough competitive situation below 96th Street,'' Townsend concedes. ``But we can beat the competition [i.e. New Jersey] in any other part of the city.'' So far, the announced corporate departures are not enough to dampen the strong Manhattan office market. Only Boston has a lower vacancy rate. Absorbing Mobil and J.C. Penney's space won't be difficult, says Mr. Delmhorst at Landauer. But throw NBC into the equation and the market would soften, he says.
Still, the departures will be felt. A Wharton Econometric Forecasting Associates study projects the city could lose nearly 11,000 jobs over the next five years.
``We service Penney and Mobil,'' says Rick Katz of Orbit Messenger Service. ``There's no question it will have a major impact on our business. It's not easy to replace a client of that size quickly.''
On the other hand, Richard Jurmark, general manager of Bensons Steak House in the J.C. Penney building, is glad to see the firm leave. ``This is a higher-priced establishment. The people at Penney are all middle and lower management. Whoever moves in has to do more business with us than Penney does.''
Deputy Mayor Townsend allows there will be an economic ripple from these firms leaving. But she notes the city gained more than new 50,000 jobs last year. ``These are small and medium-size companies with tremendous growth potential - attracted to New York to be closer to their clients.''
But New York isn't known as a small business center.
``No,'' agrees Townsend. ``The communications, finance, culture - it's all still here. Not that we're taking this lightly, but you can lose a little bit around the edges and still maintain a preeminent position.''