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N.Y.C. Proves Pessimists Wrong, Remains Heart of Financial World

Staff Writer: The Record

September 6, 2006

Standing on the New York waterfront, John Murphy looked up at the fire and smoke spewing from the World Trade Center's Twin Towers and began to map a survival plan for his Wall Street firm.

It was Sept. 11, 2001, and the company, investment manager Oppenheimer Funds Inc., had occupied five floors in the south tower. Within minutes, the headquarters lay smoldering in the rubble of Ground Zero.

Though Murphy had confidence in Oppenheimer's disaster recovery plan crafted after the 1993 WTC bombing -- he wasn't sure it was enough.

"You never knew until you actually did it," said Murphy, who became CEO just 10 weeks before the attacks. But there was no alternative. "We needed to be in business. We needed to manage money."

Five years later, Oppenheimer -- which lost no employees -- is riding high: it has new offices across the street from the WTC site, its market share is bigger than ever and the amount of money it manages has nearly doubled.

Oppenheimer's rebound is part of a remarkable turnaround for some of the firms hurt most in the attacks, as well as for lower Manhattan and the metropolitan region.

It's the tale of how a fierce will to survive, shrewdly targeted government incentives and a belief in the idea that New York is the financial center helped quash the most pessimistic predictions.

At the time, observers said the attacks would accelerate the economic downturn already under way and trigger mass layoffs and widespread business closures. They wondered if residents and companies alike would flee New York for the suburbs. They suggested that downtown Manhattan might lose its position as the center of world capitalism.

Though some of those things happened, the worst-case scenarios didn't. To the contrary, the metropolitan region especially New York -- has returned to health, and remains a global finance center, though lower Manhattan still has a ways to go toward full recovery.

An analysis by The Record shows that 18 of the 32 larger tenants at the World Trade Center based on office space moved to midtown Manhattan.

Another 12 stayed downtown, while other prominent companies that were not tenants in the Twin Towers, such as Goldman Sachs and American Express, also stayed.

More important for New York, only a few WTC tenants fled permanently for the suburbs.

"If you put all the noise aside, the outcome was pretty good," said Ken Patton, dean of the Real Estate Institute at New York University. "Culturally, residentially, commercially, New York is just as strong as it's ever been."

Even New Jersey benefited. Although few Wall Street firms permanently crossed the Hudson River after 9/11, a growing number have turned to New Jersey for expansion in recent months as New York's robust office market has pushed prices up.

And the increasing strength of the economy is reflected in job numbers on both sides of the river.

Consider that since Sept. 11, America has suffered a recession, a stock market decline, the tail end of the dot-com demise and a wave of corporate scandals. New Jersey also took a hit from the telecommunications industry meltdown.

Yet employment figures in both New York and New Jersey are now close to the pre-attack levels.

New York City's workforce, at 3.66 million, is about 32,000 lower -- less than 1 percent -- than on 9/11, and New Jersey has 91,000 more jobs than five years ago.

"I think it proves how resilient the economy is," said James W. Hughes, dean of the Edward J. Bloustein School of Planning and Public Policy at Rutgers University. "You put New York and New Jersey together; you have got close to 8 million jobs. That's a huge, huge enterprise. So it takes a lot to derail it."

Backup center

For Oppenheimer, which invests money for individuals and financial institutions, the road to revival ran through Carlstadt.

The company had set up a 60-seat emergency backup center there after the 1993 bombing. So when the stock market reopened on Sept. 17, 2001, the center was up and running, with pairs of traders sharing terminals.

By then, the company was looking for new offices, a search begun on Sept. 12 after Oppenheimer accounted for its 598 WTC employees.

The company put its new temporary head office in New York's garment district, and dispersed other employees around Hartford, Conn., and East Brunswick.

A key to revival was that even though the attacks turned Oppenheimer's headquarters to dust, its lifeblood -- electronic information -- was safely backed up in the company's Denver office.

"A tremendous amount of it is computer-based," said Murphy, 57, a gray-haired, unflappable Boston native. "We didn't lose any customer records or trading records ... From a business standpoint, I can't think of too much that set us back."

The company continued looking for a permanent, cost-effective home that was large and easily commutable for employees used to traveling to lower Manhattan. What Murphy found, in Jersey City and elsewhere, were building owners looking to make the most of his company's misfortune.

"The landlords on Sept. 12 got pretty greedy," he said.

Midtown Manhattan was rejected, too. "It's very crowded, it's dirtier, it's more touristy," he said. "To many of us, it doesn't have a real professional feel of business."

Instead, Oppenheimer returned downtown, enticed by a $4 million grant from a federal program designed to create and retain jobs in lower Manhattan. The homecoming took place in November 2003.

"At the end of the day, we felt downtown was the financial capital of the world, we felt it would continue to be the capital of the world," Murphy said. "We felt our firm started here and we wanted to be where the firm started."

Success stories

The company's tale of resurgence is one of several success stories from firms that bore the brunt of the Sept. 11 attacks.

Cantor Fitzgerald which lost 658 people, more than any other company and Sandler O'Neil, which lost 66, have each emerged stronger financially, and with more employees. Investment banker Keefe, Bruyette and Woods which lost 67 employees -- last month announced plans to go public.

Others have struggled.

Daniel Chung, president of Fred Alger Management, which lost 35 of its 200 employees, said his family-owned company faces a "glass half-full" situation.

The company headquarters was on the 93rd floor of the north tower, just about where the first plane hit. Those killed included President David Alger -- a highly regarded executive in the money management industry -- and most of the company's research team of analysts, a critical group because they decided where to invest client money.

Although a few clients pulled their money out, most preferred to back the company in its hour of need, Chung said.

"There was a huge amount of work needed to reassure clients that we could come back and do an excellent job of managing their assets," said Chung, 44. "There was certainly a period of three or four years where it was virtually impossible for us to win many new clients."

Investors were buoyed by the return of David Alger's brother, Fred, who founded the company in 1964 and retook the helm immediately.

The company also reached out to former employees. Five returned, driven by a desire to help a company they thought of as family. Among them was Jill Greenwald, who had left in 1992 but offered her former colleagues help after the attacks -- never thinking she would be invited back.

"I couldn't really say no," said Greenwald, 42, who is now a senior vice president and portfolio manager. "They had experienced such an extraordinary loss. I felt a moral obligation .... In a way, you feel you are doing something by being part of the rebuild."

The return of the alumni and the zeal of the surviving employees to get the business back on its feet proved a powerful motivator for new employees and has comforted jittery investors, Chung said.

The company also was hurt by the state and federal probe into mutual fund market timing and late trading. A former Fred Alger executive was sent to prison in 2003 for evidence tampering, and the company agreed in June to a $40 million settlement.

Today Fred Alger manages about $9 billion, a drop of about one-third since Sept. 11. But Chung said any business impact from the attacks is in the past. The company, which moved temporarily to Morristown, is now located in southern midtown and adding clients again.

"We are very much a firm reborn," said Chung, who is Fred Alger's son-in-law. "I think people understand that a company that can rebuild from that tragedy has great corporate DNA and ultimately great determination to succeed."

Business landscape

In pursuing its rebirth, Fred Alger, like Oppenheimer and the other companies, made relocation decisions that reshaped New York's commercial landscape.

When the Twin Towers and surrounding buildings fell, about 60 percent of the downtown Class A office space was damaged or destroyed -- some 34.5 million square feet, according to New York-based broker Tenantwise. More than 13 million square feet was lost from the destroyed World Trade Center buildings alone.

Of the towers' biggest tenants, about 56 percent moved to midtown, where there was ample high-quality office space.

Midtown also had the benefit of better transportation links to get employees to and from work, and a viable social life, which lower Manhattan didn't have, he said. So in the short-term, Patton added, "everyone who could move uptown did."

Yet midtown also had drawbacks, key among them cost. At $80 to $100 a square foot, midtown rents today are about double those for downtown Manhattan, while New Jersey rents are in the $35-per-square-foot range.

And while city and state officials sought to lure companies downtown with grants, some former WTC tenants found there were other important reasons for being in lower Manhattan.

Drinker Biddle & Reath, a large law firm that had 16 people in its New York office, formerly located on the 89th floor of the north tower, said its New York office moved back from temporary offices in Morristown to be close to the courts.

Likewise, the Commodity Futures Trading Commission, a government agency, wanted to be downtown to be close to the futures markets it oversees. The commission had located temporarily in Jersey City's Newport office tower.

Others stayed away. Real estate broker Studley, which lost two people in the attacks, split its 11 remaining WTC employees between existing offices in New Jersey and midtown.

"After the incident, people didn't want to be downtown," said Philip Lipper, a managing director at the company, who lives in Mahwah. "It was definitely an emotional issue."

Perhaps the tipping point in favor of lower Manhattan came a year ago when Goldman Sachs for years located downtown announced plans to build a $2 billion, 43-story corporate headquarters next to the World Financial Center, across from the WTC site.

Kathryn Wylde, CEO of the Partnership for New York City, a non-profit group created to promote business in the city, said that many of the displaced companies opted for downtown because that's where the "critical mass of people and talent" were.

"There's nothing like personal interface and communication," she said.

The revitalization also owed much to the determination of city planners to turn it from a 9-to-5 operation that effectively shut down at night to a more livable area with more housing, restaurants and retailers.

Thousands of downtown housing units have been created, many converted from old office buildings. And new restaurants and stores are opening all the time, including recent arrivals such as Hermes, Tiffany and Ann Taylor, Wylde said.

"It's like Madison Avenue South," she said.

Yet for all the advances, lower Manhattan is far from back to normal. Some streets are still choked with backhoes and construction zones. The downtown Manhattan workforce is about 28,000 jobs lower than on Sept. 10 roughly equal to the workforce formerly in the towers, Wylde said. That population is sorely missed by small businesses that rely on office workers for trade.

And although the first part of the World Trade Center to be rebuilt Building 7 recently opened, the indecision over what will replace the Twin Towers hangs heavily over all in the area.

"Clearly, the missing piece of the equation is the uncertainty over the pace of the commercial redevelopment of the site itself," Wylde said.

Copyright 2006 North Jersey Media Group Inc.

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