New Jersey's `Wall Street West' Quakes Amid Namesake's Turmoil

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New Jersey's `Wall Street West' Quakes Amid Namesake's Turmoil

By Stacie Servetah and Terrence Dopp

Sept. 17 (Bloomberg) -- Jersey City, where New Jersey bet it could transform warehouse and factory tracts into a ``Wall Street West'' across the Hudson River from Manhattan, was paying off. That is, until its investment bank tenants started collapsing.

Many of the towers that have sprung up in the past decade on Jersey City's waterfront are filled with satellite offices for the largest investment-banking firms. More than 3,000 employees of Lehman Brothers Holdings Inc. and Merrill Lynch & Co. work in New Jersey's second-largest city.

Lehman this week filed for the biggest bankruptcy, while Merrill agreed to a takeover by Bank of America Corp. Those firms joined Bear Stearns Cos. and at least 20 banks and credit unions nationally that couldn't survive this year's credit crunch.

``It's basically a disaster for tri-state real estate,'' said Andy Merin, vice chairman at Cushman & Wakefield in East Rutherford, New Jersey. ``Financial companies drive this region. Clearly of all the markets in New Jersey, Jersey City is the most dependent on New York City and the financial arena.''

Jersey City's Hudson River waterfront has attracted securities firms since the early 1980s, sparking a building boom for office space that now totals 17 million square feet (5.2 million square meters), more than in downtown Atlanta or Pittsburgh, according to the city's economic development agency.

Only four years ago, Jersey City's office vacancy rate was more than 18 percent. It's now about 7 percent, said Seena Stein, principal in real-estate broker Newmark Knight Frank's East Rutherford office.

Lower Taxes, Rent

New Jersey offered tax breaks and lower rent to entice the New York-based companies. While the asking rent along Jersey City's once-industrial waterfront is the highest in the state at $33 a square foot, it's less than half the rate in midtown Manhattan, according to Newmark.

The banks' offices also helped bring higher-income people to the city. Jersey City's median household income jumped 19 percent in 2007 from 2006, while the state average income climbed 4 percent, U.S. Census figures show.

``We are the economic engine that is driving the state,'' Mayor Jerramiah Healy, a Democrat, said in an interview.

Five years ago, the city didn't have one hotel; it has four now, with a 90 percent occupancy rate, and a fifth hotel ribbon- cutting will take place in the next six weeks, the mayor said.

``This is going to be a setback for everybody, including Jersey City,'' Healy said. ``But we still have the location, all the amenities. We will continue to market that.''

`We Are Vulnerable'

GovernorJon Corzine, a first-term Democrat who ran Goldman Sachs Group Inc. from 1994 to 1999, said yesterday he was watching to see if the financial firms cut any New Jersey-based jobs. As much as a third of the state's economy is dependent on Wall Street, he said.

``I'm worried about the state budget and the state economy in the context of the very dramatic restructuring that we're seeing on Wall Street,'' said Corzine, 61. ``We are vulnerable, there is no question about that.''

Merrill has about 1,600 workers in Jersey City. Lehman has 1,500 and American International Group Inc., the New York-based insurer that received an $85 billion U.S. government bailout yesterday to avert collapse, has about 200. The city hasn't been told yet of any plans to close offices or fire workers, said Rosemarie McFadden, deputy mayor for economic development.

``Clearly all of the signals are disconcerting, but it's going to take time to play out,'' McFadden said.

Layoffs, Delayed Expansion

For Jersey City, the likely impact is layoffs and delayed expansion, said James Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University in New Brunswick, New Jersey. Lost revenue from the banks is a larger issue for the entire state, he said. Merrill, for example, has 6,500 employees at its complex in Hopewell and many state residents commute to work at the firm's Manhattan headquarters.

``We are at risk,'' Hughes said. ``The lives of individual employees that potentially lose their job and the income losses to the state, particularly the bonus payments, play a big part in the state's income tax and revenue.''

Even before this week's news from Lehman and Merrill, Jersey City businesses were feeling the effects of the credit crisis, said Johnny Leung, owner of Komegashi, a Japanese restaurant five blocks away from the cluster of office buildings that includes Goldman, Lehman and Merrill.

$50 Lunch Bills

Groups of Goldman employees who used to spend as much as $500 to $600 at a time in Komegashi have trimmed bills to about $50, ordering the $11 ramen special instead of specialty sushi rolls that cost as much as $20 apiece, Leung said.

Black limousines idling curbside in the financial district, once a common sight in the evening, have become scarce. Leung, 44, said half of his lunchtime crowd consists of finance-sector workers, and deliveries to people working late nights have slowed drastically.

Valerie Vlahakis, 63, owner of Lee Sims Chocolates on Bergen Avenue, a middle-class neighborhood ``up the hill'' from Jersey City's financial district, said her business depends on the health of the city and its residents. The revitalization of the waterfront area has been trickling into other areas, and the demise of the city's financial district could stop that, she said.

``Everyone is holding their breath,'' Vlahakis said.

To contact the reporters on this story: Stacie Servetah in Trenton, New Jersey, at sbabula@bloomberg.com; Terrence Dopp in Trenton, New Jersey, at tdopp@bloomberg.net.

Last Updated: September 17, 2008 04:34 EDT

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