With its lease at Brookfield Properties’ World Financial Center set to expire in 2013, Merrill Lynch is eyeing a move of its headquarters to one of three locations in Manhattan.
But as Merrill weighs its options, Governor Eliot Spitzer has stepped in to coordinate a bid by developer Larry Silverstein and the Port Authority to have the bank move to Mr. Silverstein’s planned Tower 3 at the World Trade Center site. The governor’s maneuvers have dropped hundreds of millions from the cost to Merrill of moving its headquarters there.
Just four weeks ago, Merrill’s location decision seemed to be a foregone conclusion, people involved in the discussions say, with company executives set to recommend to their governing board that the firm move to the site of the Hotel Pennsylvania in midtown, owned by Steven Roth’s Vornado Realty Trust.
But since, the landscape has changed markedly.
Just as the board meeting was approaching, Governor Spitzer brought forward a proposal for Merrill to go into World Trade Center Tower 3; it was hundreds of millions less than what Mr. Silverstein and the Port Authority initially proposed, people in the discussions say. The substantial price cut came as a result of Governor Spitzer injecting himself into the process to mediate an impasse between Lower Manhattan’s perennially bickering couple: Mr. Silverstein and the Port Authority of New York and New Jersey, owner of the World Trade Center site.
At the same time, Merrill announced it faced $7.9 billion in write-downs, postponing the headquarters decision as CEO Stanley O’Neal departed. Many involved in the discussions say they believe Mr. O’Neal had a very strong hand in the firm’s location decision.
Messrs. Roth and Silverstein as well as Brookfield CEO Ric Clark have patiently sat around, waiting on Merrill. In a conference call with investors late last month, Mr. Clark described the state of talks as suspended, a state that people involved in the discussions say has mostly continued.
“If we were having this call two weeks ago, we probably would have reported that it was very highly unlikely that Merrill would remain at the World Financial Center,” Mr. Clark said. “Today, under the circumstances—well, I guess the best way to put it is to say that we have no clue.”
For months, the Bloomberg and Spitzer administrations, perhaps daunted by the specter of Merrill’s 2.5 million square feet becoming available at the same time as the World Trade Center towers open just across the street, have been urging Merrill to choose either Brookfield or Silverstein Properties.
However, Governor Spitzer felt a need to put his stamp on the Silverstein bid, motivated by the fat in the original bid by the Port Authority and Mr. Silverstein, including infrastructure costs and other expenses, according to one person involved in discussions.
“The governor made sure there was a single unified joint proposal,” said Avi Schick, the Spitzer-appointed chairman of the Lower Manhattan Development Corporation. “We think it’s a fair offer downtown, it’s an attractive offer; it’s more than competitive.”
In the past few days, State Assembly Speaker Sheldon Silver has met with new Merrill CEO John Thain about keeping the bank downtown, according to Mr. Silver’s spokesman.
The cost to Merrill for the Hotel Pennsylvania site could be as much as $4 billion, people familiar with the plans say; the downtown bids are about $1 billion cheaper.
While Mr. Thain surveys the situation, the bank does not have that much time to dawdle, as a move to a soaring tower at the Hotel Pennsylvania would require years to approve and then build. The skyscraper, built on the half-block hotel site, would be about three million square feet, according to people involved in discussions.
In a brief interview with The Observer on Sunday, Mr. Roth, the Vornado CEO, said the building would be built solely atop the Hotel Pennsylvania, not invading the neighboring Manhattan Mall, which Vornado also owns. Mr. Roth confirmed the tower would be independent of the redevelopment of Pennsylvania Station, meaning Vornado would not seek a transfer of the needed air rights from Madison Square Garden but would rather need to gain approval through the city’s public review process.