Incentives Deal of the Month
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But 'Handouts Era Ending,' City Says
$4.8M Incentives Shift Helps Keep 1,500 Bear Stearnsby JACK LYNE, Site Selection Executive Editor of Interactive Publishing
Workers in New York
BROOKLYN, N.Y. - Keeping a big part of Bear Stearns (www.bearstearns.com) in the New York City financial family, the investment bank has inked a new 20-year deal that will keep 1,500 of its employees based in Brooklyn's MetroTech Center development.
The agreement ends a high-profile contretemps that began last summer, when Bear Stearns strongly suggested that as many as 1,000 of those workers, who are in operations and global clearing services, might move across the state line into New Jersey.
"We are very pleased to make this announcement," Bear Stearns Chairman and Chief Executive Officer James Cayne said in disclosing the new deal. "The decision to renew our lease at MetroTech is a reflection of our long-term commitment to New York City and the value that we place on maintaining our operations in Brooklyn."
Since summer, though, Bear Stearns' commitment to New York had been looking wobbly. The prospect of higher occupancy costs was the catalysts for that wavering commitment. Bear Stearns' 290,000-sq.-ft. (26,100-sq.-m.) lease at MetroTech was set to expire in 2004. Renewing the lease would substantially increase occupancy costs, Bear Stearns officials publicly noted. And that, they said, made cheaper New Jersey digs an appealing locational possibility.
But there was still a magic bullet, Bear Stearns added, that would keep the 1,500 back-office employees in New York City (www.newyorkbiz.com): city incentives enabling the operation to relocate to Lower Manhattan.
Bank Had Already Received $111
Bear Stearns, they pointed out, had already received as much as $111 million in city incentives in two separate packages in 1991 and 1997. One critic, Jonathan Bowles, research director for the nonprofit New York-based Center for an Urban Future think tank, called the ongoing New York/New Jersey incentives competition "a ridiculous border war."
City officials, too, weren't pleased - neither by the prospect of a Bear Stearns move nor, in particular, by the heavy-handed hint that more incentives were necessary. Already, Mayor Michael Bloomberg's administration was firmly on record as opposing large corporate retention packages funded by the city, which is facing a budget shortfall of some $5 billion.
"We expect Bear Stearns to live up to the commitments to the city that they've made through two prior agreements," said Daniel Doctoroff, New York City deputy mayor for economic development and rebuilding.
The 1997 agreement, though, had left Bear Stearns with an out. Under the terms of the '97 contract, the bank, because of its huge existing base in the city, would've faced only modest incentives penalties if it moved fewer than 1,000 employees out of New York City. The upshot was that a substantial move-out was a feasible alternative.
$4.8 Million in Unused Sales Tax
Specifically, the bank will receive $4.8 million. Those funds, however, actually trace back to the 1997 agreement.
The $4.8 million comes from unused sales tax breaks that Bear Stearns got as part of its incentives for first moving the operation to Brooklyn in 1991. Now, those funds will be converted - a shift made possible by a deal that the bank managed to work out with the city and Bear Stearns' landlord, MetroTech developer Forest City Ratner Companies (www.fcrc.com). That agreement will shift the unused sales tax breaks into property tax exemptions, which were another component in Bear Stearns' '97 subsidy package.
"The deal could not have been achieved without the cooperation of the city and our landlord, Forest City Ratner," Cayne said at the lease announcement.
Bloomberg diplomatically avoided mention of the brouhaha in his remarks at the announcement.
"Since it was founded in 1923, Bear Stearns has been an integral part of New York City's financial services industry," the mayor said. "The company's decision to move 1,500 employees to MetroTech in 1991 was a catalyst for the burgeoning growth and renaissance of downtown Brooklyn. I am very pleased that Bear Stearns has decided to recommit to MetroTech."
The Bloomberg administration, however, played a major role in making the deal happen, Forest City Ratner President and CEO Bruce Ratner explained.
"Their decision to remain here is great for Brooklyn, great for New York City and, of course, terrific for MetroTech," Ratner said at the announcement. "We want to thank the city for its efforts in bringing this to a conclusion that will prove to be a win for everyone." He called Bear Stearns "a pioneer, one of the first tenants to commit to MetroTech Center."
The incentives shift's major plus was that it quickly created assistance, said Doctoroff, who characterized the arrangement as involving "some small cost" to the city. He added emphatically, however, "The era of handouts to get companies to stay in the city is nearing an end."
'91 Incentives Spurred Move to MetroTechCurrently, Bear Stearns has 6,100 employees in the New York metro.
The bank's initial decision to locate the back-office operation at MetroTech was spurred by city's 1991 incentives. Bear Stearns was then considering moving the 1,500 employees to an office park it had recently purchased in Whippany, N.J.
Then-Mayor David Dinkins, however, granted the bank a $36-million incentive package. That deal included Bear Stearns' commitment to move into MetroTech and to maintain at least 3,100 employees in the city.
New York City's 1997 incentive package of $75 million came in support for Bear Stearns' decision to build a new $850-million Madison Avenue headquarters. At the time, the bank didn't mention moving any operations out of the city. But the headquarters package, then-Mayor Rudolph Giuliani said, would ensure that more than 5,700 Bear Stearns employees would remain in New York for the next 50 years.
Some 4,600 Bear Stearns employees are currently based at the 1.2-million-sq.-ft. (108,000-sq.-m.) Madison Avenue headquarters.
"Bear Stearns," Cayne noted at the lease announcement, "is one of the few remaining financial services firms that maintain both a headquarters and a back-office operation in New York City." Financial terms of the new lease agreement weren't released by Bear Stearns and Forest City Ratner officials.
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