Not since 1609 has a trip across the Hudson River had the potential to generate such a dramatic and enduring economic impact.
Henry Hudson changed the course of history four centuries ago with his famed exploration of the waterway that would later become the boundary separating New York from New Jersey.
On Oct. 13, 2009, the Depository Trust & Clearing Corp.made history of its own when it announced plans to relocate 1,600 staff members from Lower Manhattan to the Newport Office Center just across the river in Jersey City.
“After lengthy deliberations with officials in New York and New Jersey, we have concluded that a move to New Jersey is the right decision,” said Donald F. Donahue, chairman and CEO of DTCC, in announcing the largest lease of the year in Jersey City. “New Jersey offers us a favorable business climate, convenient access to our customers in the greater metropolitan area, and also allows us to disperse our staff more widely for business continuity purposes. New Jersey will benefit from an infusion of 1,600 highly skilled professionals who specialize in financial services, information technology and operations. We are also excited to tap into New Jersey’s skilled work force as our business grows in the future.”
The move, expected to occur in early 2013, is significant for both cities. The relocating jobs pay an average annual wage of $130,000.
The real estate component alone is huge. DTCC will lease 415,000 sq. ft. (38,554 sq. m.) for 20 years in Newport Office Center VI. Approximately $45 million in facility improvements will be made at the waterfront development of The LeFrak Organization.
“We intend to make investments in both the technology and infrastructure at our new offices in keeping with the needs of this location,” says Anthony Alizzi, managing director, DTCC, by e-mail. “However, it is important to underscore that DTCC has multiple data centers and operating centers, more than a thousand miles apart, both in the U.S. and overseas. This vast network ensures that we have the resiliency and business continuity to continue operating under both ordinary and extraordinary circumstances.”
The incentives that made the deal possible are groundbreaking. Totaling about $100 million, the package of government assistance includes tax abatements and grants from the New Jersey Economic Development Authority, state Department of Labor & Workforce Development, Jersey City and Hudson County.
How the deal happened reveals as much about the transformation of New Jersey as it does the complexities of the high-stakes securities industry.
DTCC, through its subsidiaries, provides clearance, settlement and information services for equities, corporate and municipal bonds, government and mortgage-backed securities, money market instruments and over-the-counter derivatives. DTCC is also a leading processor of mutual funds and insurance transactions, connecting funds and carriers with financial companies and third parties that market these products.
DTCC’s depository provides custody and asset servicing for than 3.5 million securities issues from the U.S. and 117 other nations and territories, representing a total value of $27.6 trillion. Last year, DTCC settled more than $1.88 quadrillion in securities transactions.
Incentives Reduced DTCC’s Costs
To comprehend the reason for the move, one must first understand the business model of DTCC. Even a fraction of a penny saved per transaction can add up to millions of dollars a year in potential cost savings for the company.
DTCC is owned by its customers — the major global banks and securities firms that do the trading. Any profits made by DTCC are distributed back to the owners in the form of lower fees.
Occurring as it did during the middle of the financial market meltdown and global economic crisis, the corporate relocation project was driven by the need to reduce the overall operating costs of DTCC in the New York metropolitan area.
While the company will retain 700 jobs at its existing headquarters in Lower Manhattan, the incentives offered by New Jersey made the decision to cross the Hudson River easy for DTCC executives.
“Gov. Jon Corzine and the New Jersey Economic Development Authority actively pursued DTCC and were very responsive to our needs and concerns throughout this process,” Donahue said of the state’s then-chief executive, who will be replaced by newly elected Chris Christie on Jan. 19, 2010. “The governor personally called me several times to discuss the economic and business advantages of relocating to New Jersey and made a persuasive case on the benefits of this move. The process, which began last year (2008), considered a wide range of variables. We looked at numerous options, but in the end we concluded that relocating these operations to New Jersey would allow us to manage our cost structure and position the company for continued business expansion in the years ahead.”
Donahue said DTCC used a broad set of criteria to make the decision, including the competitive costs for a long-term lease, economic incentives, availability of infrastructure support such as telecommunications and transportation, accessibility to DTCC headquarters, the ease of commuting for employees, ability to retain and recruit highly skilled staff to the location, and other quality-of-life issues for DTCC workers.
According to people involved in the negotiations, the incentives provided by New Jersey sealed the deal in favor of the Garden State. Several programs were tailored to meet the needs of the project:
- In November, the New Jersey EDA approved an incentive under the new Economic Redevelopment and Growth Grant Program to help the project move forward. Under the agreement, the Newport Office Center VI will be reimbursed for up to $14.6 million, or just under 20 percent of the total eligible project costs for the redevelopment. The ERG program, designed for projects challenged by a financing gap, essentially uses future incremental state or local taxes as the source of the grant funding.
- The company will benefit from the Business Employment Incentive Program (BEIP), a credit against state income taxes paid by DTCC workers, worth an estimated $74.6 million over 10 years.
- The New Jersey Department of Labor & Workforce Development made a commitment to build a customized training grant program for DTCC. “We worked with them on the specific kind of skill development to upgrade their existing work force or bring on new workers,” says David Socolow, commissioner of the department. “Most of that will be existing workers, as they are just moving their location and their employees will have a slightly different commute.” Under this matching grant program, the employer puts up half the money. The total value of this training grant could be up to $1,000 per worker, or up to a total of $1.6 million.
- The Jersey City Economic Development Corp. issued a $1-million Urban Enterprise Zone business relocation grant, which will be paid over four years. “The first payment is due in the first year after their certificate of occupancy is issued,” says Rosemary McFadden, deputy mayor of economic development for Jersey City.
- $10 million in bonds for gap financing was provided through twin allocations of $5 million each from Jersey City and Hudson County, according to McFadden. “Through the federal economic stimulus program, we had received economic recovery zone bonds which we were able to use for this project,” she says.
DTCC also benefits from locating in an Urban Enterprise Zone that has a sales tax rate of only 3.5 percent. “There is no corporate income tax or personal income tax in Jersey City,” adds McFadden. “And the 07310 Zip Code has the highest level of post-graduate education in all of New Jersey.”
Quantifying the Deal’s Impact
The economic impact of the deal will be substantial, notes McFadden, who as former president of the New York Mercantile Exchange put her Wall Street experience to use. “They (DTCC) will spend $45 million to retrofit and equip the office space, and Jersey City residents will be employed in the construction,” she says. “An economic impact analysis using Bureau of Labor Statistics numbers shows that DTCC employees could be spending $11.6 million annually on food, entertainment and services in Jersey City. Plus, DTCC informed us that they will require about 700 room nights a year for corporate visitors. In addition, some employees will relocate to Jersey City to rent or purchase a home or condominium. If 20 to 30 percent of the workers do that, mortgage and rents locally could be about $10 million a year, which would boost our real estate market.”
Gov. Corzine, in announcing the deal, trumpeted it as one that would generate $260 million in economic impact over 20 years. Jerry Zaro, head of the New Jersey Office of Economic Growth, estimates that the state will collect $186 million in income taxes over the next two decades because of the project.
Caren Franzini, the New Jersey EDA CEO who worked on the project for over a year, said that the “net benefits to New Jersey are extremely high, particularly to have these high-paying jobs in our state.”
Franzini tells Site Selection that the generous incentives were necessary to win the project. “Recognizing that we do have some cost issues, we have adopted some major incentive programs to counterbalance those cost hurdles,” she says.
Jay Biggins, executive managing director of BLS & Company LLC in Princeton, N.J., served as the site selection consultant for DTCC on the project and applauded the cooperation that he and his client received from New Jersey.
“This was very much a real-time creative process of working between the state, the company and the city,” says Biggins. “The entire process took more than a year; the complex facilities requirements made for a complex site search.”
In the final analysis, notes Biggins, “reducing costs to deliver the lowest-cost transaction platform for the capital markets was the primary driver in guiding the location evaluations. Another important factor was the availability of talent with a high degree of financial markets expertise.”
The site search encompassed a range of location scenarios, says Biggins. Potential sites included Northern New Jersey, Connecticut, and Brooklyn and Westchester in New York. A few sites outside the region were also considered.
The Big Apple competed intensely to keep the jobs in Manhattan. “Along with New York City, we worked to encourage DTCC to retain their operation in NYC with a competitive incentive package,” said Empire State Development Public Affairs Manager Lisa Willner. “We did not provide DTCC with incentives to maintain their headquarters here.”
David Lombino, senior vice president of public affairs for the New York City Economic Development Corp., offered the following statement: “We take the potential loss of any New York City employer seriously, and we actively engage with these companies. Rather than competing dollar for dollar with other cities’ incentives, we’re confident that our strategy of investing taxpayer monies in maintaining the city as a place that businesses want to locate will ensure the greatest return in the long term.”
“DTCC has a long history of working with New York, and had productive conversations with the Mayor’s Office about our plans for the end of this lease,” writes DTCC’s Anthony Alizzi. “With support from the City of New York, we negotiated for space at our current location in lower Manhattan to accommodate our corporate headquarters and a number of new growth businesses. Senator Charles Schumer was also particularly active in these discussions and played an important role in our decision to keep our headquarters and senior management positions in New York.”
Building Completed the Puzzle
In the end, though, the offer from New Jersey was simply too good to pass up.
“This was a rare opportunity to design legislation and economic development programs with real projects and how they actually work and see how the company would really value the incentives,” Biggins says of the New Jersey package that was formed during the spring and summer of 2009. “That was very valuable for the state, and it enabled the company to explain how the program would apply to its project. It was an interactive and collaborative process that was corporate end-user driven.”
While not divulging what New York offered to retain the DTCC jobs at 55 Water Street in Manhattan, Empire State Development Public Affairs Manager Lisa Willner said, “Along with New York City, we worked to encourage DTCC to retain their operation in NYC with a competitive incentive package. … We did not provide DTCC with incentives to maintain their headquarters here.”
The final piece to the puzzle was the available 12-story building at 570 Washington Blvd. in Jersey City, which now ranks as the 12th largest downtown commercial office market in the country.
JP Morgan Chase is leasing the Newport Office Center VI building but is vacating the space that will be taken by DTCC in 2013.
Ed Cortese, senior vice president of marketing and corporate relations for LeFrak, says his firm is thrilled to land a tenant with the stature and prestige of DTCC. “We keep attracting blue-chip firms to the Jersey City, and a deal like this will definitely drive other tenants to the market,” he says. “Newport attracts people.”
Biggins concurs. “Jersey City worked in a real partnership to make this deal happen,” he adds. “They were responsive and quite determined to be successful. They recognized that they were in a highly competitive situation.”
Corporate real estate attorney Ted Zangari, who represented sub-landlord JP Morgan Chase in the real estate portion of the deal, says the new incentives adopted by New Jersey have the potential to completely change the perception of the state’s business climate.
“There is no question that the incentives tipped the analysis in favor of New Jersey,” says Zangari, chair of the Public Incentives and Government Relations Practice Groups at Sills Cummis & Gross in Newark and Princeton. “The New York EDC officials were genuinely frightened by the prospect of these new New Jersey incentives. New Jersey now has its game face on. We are running on eight cylinders for the first time in my 28 years of doing corporate real estate law.
“We are not perfect yet,” Zangari adds, “but we are light years ahead of where we were before. New Jersey is getting its act together.”