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e at Pfizer are here today with some good medicine: a shot in the arm for one of the greatest cities in the world,” Pfizer President and Chief Executive Officer Henry McKinnell said in May at a podium inside the drug-maker’s New York City headquarters.
McKinnell and Pfizer did indeed inject a strong shot of good-news medicine into the Big Apple economy:
The company is bringing 1,000 new jobs (most of them transfers) over the next year to New York, McKinnell said. And that’s not all. Between 2004 and 2009, McKinnell pledged, Pfizer will add another 1,000 jobs.
In all, McKinnell outlined an expansion plan that calls for Pfizer to spend US$1 billion on its New York real estate portfolio over the next seven years.
New Yorkers’ elation was tinged with huge sighs of relief.
Significantly, the announcement came less than a month after Pfizer on April 16 finalized its $57-billion takeover of rival Pharmacia. And Pfizer’s first post-merger month was so inordinately active that it seemed fueled by a potent cocktail of two of the company’s most popular products — Viagra and Lipitor. In some places, Pfizer is appreciably enlarging its presence; in others, it’s substantially reducing headcount.
That growth/contraction combo, though, is no surprise. The Pharmacia acquisition created a corporate giant — the world’s third-largest in terms of market capitalization — fusing Pfizer’s 98,000 employees with Pharmacia’s 43,000.
That big buy, though, created some big problems — ones with major real estate implications. The post-merger leviathan is riddled with redundancies in its facilities, employees and equipment. McKinnell plans to squeeze out a whopping $2.5 billion in savings by 2005.
That cost squeeze has already translated into major job cuts in some areas. Pfizer thus far has announced that it’s shutting down operations in Chicago; Freiburg, Germany; Fresnes, France; Ontario; and San Francisco.
New York, though, not only dodged that bullet; it landed 2,000 new jobs with annual salaries averaging a whopping $150,000.
Home is where the heart of expansion is, Pfizer’s decision seems to say. The company first set up shop in 1849 in New York inside a modest redbrick building in Brooklyn.
“Today’s announcement marks another important milestone in our 154 years of operations in New York City,” said McKinnell, flanked at the announcement by Mayor Michael Bloomberg and Gov. George Pataki. “During a time of economic uncertainty, as New York City continues to recover from the aftermath of Sept. 11, we are pleased to add good jobs in New York and launch a capital investment program that will bring substantial returns to both the city and state.”
Factors more substantive than hometown loyalty, though, drove Pfizer to pick New York over Michigan and New Jersey, the two other finalist states for the expansion.
One major factor was the company’s post-merger decision to expand its marketing and corporate service functions, both anchored in New York. Added to that are the operational efficiencies of expanding in New York, where Pfizer has 4,500 workers in its 235 East 42nd St. headquarters and a nearby building.
The deal sealer, though, was the opportunity to buy a prime office property near its Manhattan headquarters complex.
Pfizer is making room for its New York expansion by purchasing the 31-story midtown office tower at 685 Third Ave. at East 43rd St., McKinnell said. The company will spend some $400 million of its $1-billion New York investment in buying the building from ING Clarion Real Estate Securities.
Pfizer already has a small leased presence inside the 635,000-sq.-ft. (57,150-sq.-m.) 685 Third Ave. After buying and renovating the tower, Pfizer will occupy more than half of the building, McKinnell said.
The other $600 million in Pfizer’s plan will be spent in renovating its existing New York City facilities, he explained.
In addition to the 2,000 new jobs, the announcement also ensures the future of Pfizer’s 1,000-employee existing plant in Brooklyn, McKinnell noted.
Long-term job-creation numbers could be even higher — at least if Pfizer wants to qualify for the $46.1 million in incentives that the New York Economic Development Corp. is offering. The company, though, would have to create 4,300 new jobs over the next 15 years to collect that package. Pfizer is receiving another $1.4 million in grants from the Empire State Development Corp.
Even at 2,000 jobs, though, Pfizer’s New York project ranks as New York City’s largest corporate expansion in the last two years. And it’s the largest expansion project in the state since November of 2000, when IBM announced a new 1,000-employee, $2.5-billion fab in East Fishkill, N.Y.
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Deal for a New Home
Rhode Island-based GTECH Holdings Corp., which makes lottery products and runs state lottery systems throughout the U.S. and internationally, is moving its worldwide headquarters from West Greenwich to downtown Providence, where it will build a $65-million, 210,000-sq.-ft. (19,509-sq.-m.) building. The company has also agreed to build a $20-million manufacturing plant expansion that will employ about 200 at the West Warwick Industrial Park back in West Greenwich. But that’s not all.
In a savvy move, the corporation’s announced $237 million of investments in the state include improvements to the state’s own lottery system. Besides the standard package of tax breaks, the company has secured a 20-year contract to continue running that lottery, all authorized by the state’s General Assembly and signed into law by Gov. Donald Carcieri in May.
RIEDC Director of Research and Development Jean Robertson says that GTECH’s search was sparked by another company’s property query: growing biotech firm Amgen had approached GTECH about buying GTECH property.
A subsequent assessment of its own needs by GTECH revealed that “they needed more space anyway,” says Robertson, to accommodate business growth in both overseas financial services and domestic production of video lottery terminals.
GTECH has agreed to employ at least 1,000 people full-time in Rhode Island by the end of 2005 and maintain that level of employment thereafter. The company now has $1 billion in annual revenues, and employs 4,200 people in 43 countries.
“The site in Providence allows GTECH the opportunity to design a new corporate headquarters in keeping with the company’s current culture, operations, and future strategic direction on one of the premier development sites in New England,” said GTECH President and CEO W. Bruce Turner in May. “Our company was built around a single contract from the Rhode Island Lottery and growth and success flowed from there. The substantial investment we will be making is an indication of our commitment to Rhode Island and a belief in its future.”
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During the IEDC Annual Conference in September 2002, the California Works Foundation surveyed attendees about their opinions on accountability provisions in tax incentive deals, public disclosure of information on such deals and the overall effectiveness of tax incentives themselves. The findings are that an overwhelming majority of respondents favor attaching accountability measures to economic development tax incentives. Tax incentives overall were seen as “somewhat effective” as eco nomic development tools by 22 percent of respondents. But six other strategies were ranked higher in the site selection process: “Skilled work force” (86 percent), “access to quality transportation networks” (47 percent), “quality of life” (35 percent), “labor costs” (33 percent), and “proximity to consumer markets” (27 percent).
Jay Biggins, managing director, national incentives, for Stadtmauer Bailkin Biggins in Princeton, N.J., says incentives occupy a higher station, especially when one considers at what point in the process such negotiations occur.
“With respect to the relative weighting of incentives versus other location variables, this comparison always seems to made on a static basis,” he says. But that misses the point.
“The importance of incentives moves up the list of priorities as the process progresses from a long list to the ‘short list,’ as other location variables begin to converge into a tighter competitive range, and all of the surviving locations can satisfy the mission-critical criteria,” he says.
In other words, as the clock keeps ticking, cost keeps clicking.
“In many cases, incentives are the last variable resolved, and there is typically no other single cost factor that can be managed to greater economic effect for a project at the margin,” says Biggins. “Incentives are the late bloomer in the site selection process.”
As for clawbacks and other accountability measures, Biggins says they have their place, if created from cold hard analysis and not reactionary gesturing.
“The public sector is advised to avoid overreacting to the last failed transaction in which they believe they were not dealt with fairly,” he says. “This is one of the most subtle and complex topics in the field of incentives, involving delicate legal and political issues that the parties have to manage carefully, and work together with a high level of trust and cooperation.”
