NYSE’s Chairman Unplugs His Plans For a New Exchange

Last summer, the New York City Economic Development Corporation quietly circulated a glossy brochure picturing a 51-story office building towering over lower Manhattan. “33 Wall, sitting above the New York Stock Exchange, is certain to become an address of international corporate prominence,” the brochure advertised.

More than that, the tower was to be the linchpin of the biggest development project undertaken by Mayor Rudolph Giuliani’s administration: the $1.1 billion relocation of the exchange to a new state-of-the-art trading facility across the street from its current home. The brochure was meant to attract a big corporate tenant to lease the tower, which would in turn attract a developer, who would then defray the project’s cost by paying the city millions a year for the rights to build and operate the complex.

“Looking out of a corner office at 33 Wall onto the expanse of New York Harbor … even the most restrained executive cannot help but feel at the center of the world. Indeed,” the brochure asked, “what better place to do business than the world-class neighborhood of Downtown Manhattan?”

Today, that vision of the future seems as dated as the World’s Fair Futurama, and the entire stock-exchange project has fallen into disarray. Lower Manhattan is a disaster area. Richard Grasso, the chairman of the stock exchange, has abruptly changed course, saying the idea of a 900-foot skyscraper above the symbolic center of American commerce is not “salable”-meaning no developer would want to build it, and no tenant would want to work in it. He even suggested that he might be interested in abandoning the site altogether to be the anchor of a redeveloped World Trade Center site.

That would be a disaster for the Giuliani administration, which has already committed millions of dollars buying land for the original site. Now city officials are scrambling to keep the project from turning into a billion-dollar boondoggle. A new round of negotiations is underway, focused on keeping the trading pits on Exchange Place.

The two sides, however, remain stuck between two conflicting-and probably irreconcilable-imperatives. Mr. Grasso is desperately afraid of what could befall a skyscraper above his exchange. City officials are equally determined not to be left holding the bag for a big development project. They’re insisting that if the skyscraper is scrapped, the stock exchange should make up the difference in cost.

“The city is going to take a huge whack on this deal,” one real-estate executive predicted.

How big? The city has already agreed to spend $380 million to buy three of the five properties that make up the site, and has spent millions more on architects, development consultants and payments to tenants of an apartment building that was to be demolished as part of the project.

“This project is in deep, deep trouble,” said Bettina Damiani, project director for Good Jobs New York, a civic group that advocates against corporate subsidies. “And I don’t think we can put all of the blame on Sept. 11.”

Indeed, the project has been plagued with delays and disagreements from the start. There were problems locating a suitable site. The tower project was shopped to the biggest development names in town-Jerry Speyer, the late Lewis Rudin-but no one wanted a part of it without a tenant. And that was before a recession set in.

Real-estate professionals said the city then broke a cardinal rule of development by not getting a tenant’s signature on a contract before moving forward with a big project. Instead, the city decided last year to go forward with buying land for the project, without a developer or a legally binding commitment from the stock exchange. It probably overpaid for the three properties, experts said. It also hired a development consultant, the Clarett Group, which had never built an office building, let alone a development of this size and complexity.

But those close to the city pointed to one culprit: Mr. Grasso. The stock-exchange chairman, one former city official said, has never been willing to commit to the project, vacillating and putting off a final decision. The rejection of the tower-which was originally the stock exchange’s idea-was just one more “fickle change of mind,” the former official said.

“He was always shaky,” he said.

A stock-exchange spokesman declined to comment, other than to say the issues were still under discussion.

Mr. Grasso scuttled the deal with a single, seemingly offhand remark. Appearing via closed-circuit television at a securities-industry conference on Nov. 8, the chairman was discussing the stock exchange’s response to the World Trade Center disaster. How, he was asked, would it affect the new complex?

“Well,” he said, “we can pretty well tell the folks in the audience, as I’ve told my colleagues here on the campus, that a 900-foot tower post–Sept. 11 is not a salable transaction.” Any tower would have to be “much shortened.” And some in the city, he added, would like the exchange to move to the Trade Center site-an idea he said he’d be open to.

City officials hit the roof. “To say they wereshocked would be an understatement,” said one real-estate attorney familiar with the project.

Why did Mr. Grasso do it? He’s always been fanatical about the exchange’s security. And since Sept. 11, he’s seemed less concerned with building a new home in lower Manhattan for the stock exchange than with ensuring that it would stay in business in the case of another cataclysm. In his Nov. 8 speech, Mr. Grasso also spoke ambitiously of building new trading floors at remote locations.

Meanwhile, stock-exchange executives had been quietly complaining about the tower for weeks to officials at the New York City Economic Development Corporation, with no response, sources said.

Mr. Grasso was also facing some deadlines to sign something more than the simple non-binding agreement he and the city reached in March. E.D.C. officials were pushing for a lease before the end of the year. A vote on a $950 million city bond offering intended to finance the deal was scheduled for Nov. 13, just five days after Mr. Grasso’s unexpected public ruminations. (The bond offering has since been put off indefinitely.)

City officials had hoped to begin demolition this winter. Now that, too, will be put off. “The project is being reevaluated,” said Janel Patterson, an E.D.C. spokeswoman.

From the city’s perspective, removing the tower spoils its one chance to recoup any of the project’s enormous expense-assuming the stock exchange is still interested in the site. “Without the tower, the taxpayers are just giving the New York Stock Exchange a free ride,” Ms. Damiani said.

Yet the city’s leverage may be limited. It’s already signed contracts to buy two office buildings from J.P. Morgan Chase for $225 million and an apartment building from Rockrose Development Corporation for $160 million.

Even if the new stock exchange doesn’t go through, the city is still obligated to buy the office buildings, a J.P. Morgan spokeswoman said. Henry Elghanyan, Rockrose’s chief executive, declined to comment on whether his agreement is binding, but the city has been compensating him for lost rents and his tenants for their relocation costs. (Two other properties that make up the block still have to be purchased or condemned.)

So if the deal doesn’t go ahead, city officials could be left with nothing more to show for their efforts than a couple of rundown office buildings and a bunch of vacant apartments.

But Mr. Grasso has reasons to make a deal, too. He’s already holding the biggest corporate-incentive package in city history-besides the land costs, the city would spend $480 million to build the complex and give the exchange $160 million in tax breaks-and might want to get a deal done before a new Mayor, facing a new fiscal crisis, takes office.

“It’s a very strange time, because [Michael Bloomberg] comes in with a clean slate, and he might say, ‘Well, the world has changed since Sept. 11,'” said Don Schnabel, vice president of the real-estate brokerage Julien J. Studley Inc.

During his campaign, Mr. Bloomberg said he supported the stock-exchange deal. But one of his advisers on development issues, New York University professor Mitchell Moss, has been a public critic.

“We don’t want to inject ourselves into the negotiations,” said Bloomberg spokesman Ed Skyler.

Meanwhile, everyone downtown is in limbo. Employees from the Bank of New York-refugees put out of their offices by the World Trade Center collapse-are working out of the J.P. Morgan building the city had planned to begin demolishing soon. At 45 Wall Street, where tenants waged an unsuccessful lawsuit to keep their homes, residents are no longer being told to move out.

“They’ve sort of been given an open-ended opportunity right now to stay,” said Ray Fleischhacker, a former tenant.