From New York Times

January 23, 2002
Special Issues for Merrill, the Landlord

When Michael Shenot is asked to describe what it has been like running the real estate office at Merrill Lynch lately, "challenging" is the word he first offers up.

First there were the Sept. 11 terrorist attacks, which forced Merrill, the nation's biggest brokerage firm, to find new working quarters for nearly 9,000 employees, 7,500 of whom had worked in the towers at 2 WFC and 4 World Financial Center.

And since October, Merrill has also had to deal with a huge restructuring that has forced the company to cut an additional 9,000 jobs (6,000 were cut earlier last year), as well as to close or sublet much of the excess space that it had built up in the 1990's to handle future growth that never materialized.

Unlike many Wall Street investment concerns, Merrill owns and actively manages commercial properties, as well as leasing them. That helps explain why its internal real estate operation now has about 80 full-time employees.

It also explains why Mr. Shenot's office has been grappling with more than Merrill's needs since Sept. 11, as the company has scrambled to keep its own operations running as well as those of its World Financial Center tenants like Nomura Securities and Barclays Bank (news/quote). While Merrill's tenants now occupy just 1.8 million square feet of the 22 million square feet that the company owns or leases around the world, most of those tenants were at 2 World Financial Center, which is not scheduled to reopen until early February.

Unlike some financial concerns, Merrill did not have to lease temporary office space in the city, Mr. Shenot said. There was enough property in the real estate portfolio to absorb employees displaced from the World Financial Center. In particular, Mr. Shenot said, Merrill benefited from the million square feet it leases in Jersey City. It also owns eight suburban office buildings in Hopewell, N.J., with a total of 1.25 million square feet.

But Merrill also avoided having to lease new office space last fall because it was able to reopen fairly quickly the 27-story building it leases at 222 Broadway, a block from the edge of the World Trade Center site, and reassign 300 employees there. The building, which normally provides support services to Merrill's headquarters, needed considerable cleanup. Still, a round-the-clock effort helped reopen it in just five days. Merrill leases 480,000 square feet of space at 222 Broadway, Mr. Shenot said, while Barclays sublets an additional 220,000.

Some 6,000 Merrill employees moved back into 4 World Financial Center from the middle of October to the end of 2001. And now Merrill is preparing to move 1,200 employees into 2 World Financial Center, where the company had to undertake a huge cleanup job, as well as redesign access. While the building was once accessible from three main entrances, it is now accessible only through a south side entrance on Liberty Street.

Before Sept. 11, Merrill occupied 1.2 million square feet of space at 2 World Financial Center, where it also sublets a million square feet. But now it plans to use only 800,000 square feet, and it intends to sublet the remaining 1.4 million square feet, 450,000 of which officially went on the market just last week, at $55 a square foot.

Peter G. Riguardi, a vice chairman at the real estate broker Colliers ABR, who is marketing the New York space, said that Merrill was probably more committed than ever to staying in Lower Manhattan, and that the company's excess downtown space had already generated sizable interest. He acknowledged that the space was priced near the top of the market for Lower Manhattan. Still, interest has been brisk, he said, and his company is in negotiations for about half the space.

In November, Merrill began marketing a 413,000-square-foot four- story building it owns at 300 Davidson Avenue in Franklin, N.J., that was used for back-office work. Mr. Shenot said Merrill was open to either leasing or selling the property.

According to Jane Wesby, Merrill's director of real estate operations, her company is in negotiations with one potential tenant, a technology company that is considering leasing half the building. But she added that Merrill was also about to market 110,000 square feet of space that the company leases in a 180,0000-square-foot three-story office building in West Windsor, N.J, at 9 Roszel Road.

The space in West Windsor will not be vacant until June. Still, it offers potential tenants a number of perks, Ms. Wesby said. For one, she said, it is relatively near the Princeton Junction train station, as well as adjacent to the Carnegie Center office park. Ms. Wesby said her company was marketing the space for $22.50 a square foot. By contrast, she said, space at Carnegie Center is about $25 a square foot.