New Jersey Nabs New York Jobs

1,600 jobs to 415,000 square feet of now-vacant space at the Newport Office Center here.

Although the DTCC decline to comment, a company statement notes that it will retain 700 employees, and the headquarters, at 55 Water St. in New York City. According to Jerry Zaro, head of the New Jersey Office of Economic Growth, the state Economic Development Authority has already approved just over $79 million in tax incentives.

DTCC will also benefit from economic incentives offered through the EDA, including the Business Employment Incentive Program and the newly authorized Economic Redevelopment and Growth Grant Program, which Gov. Jon Corzine signed into law in July as part of the Economic Stimulus Act of 2009.

BEIP grants have been part of the state's arsenal for several years now and are based on the number of new jobs created. By adding at least 25 qualified jobs within two years, eligible companies can be reimbursed for up to 80% of gross withholding tax paid by new employees for up to 10 years, to a maximum of $50,000 per employee over the course of the grant. "Basically, the state collects income taxes on all of the company's employees and then remits up to 80% of that total back to company," Zaro explains. "By definition that means that the state will collect no less than 20% of the payroll taxes."

Keep in mind, though, DTCC does not get this benefit in perpetuity. "When it ends, the state is getting 100% of those payroll taxes," Zaro relates. "This is why it is such a powerful tool for both the company and the state."

For this particular deal, the state is also making an immediate capital investment of $81 million, which will result in purchases that carry sales tax and construction contracts that put New Jersey residents to work.

In the long run, the state anticipates $100 million in the form of corporate business tax from DTCC. "We also estimate that we will collect $186 million from the employees in property taxes," Zaro says. However, companies eligible for the BEIP grant must demonstrate that there is a net positive economic benefit to New Jersey.

Even with BEIP, "it is a heck of a thing to just pick up and move," Zaro remarks. This is where ERGG, which is essentially a form of tax incremental financing, comes in. Under the program, developers can obtain up to 20% of a project's cost from state and local grants if those developments fall within certain designated areas. The developer must put in a minimum of 20% equity, with the remainder of the project's cost funded from other sources. No more than 75% of the incremental increase in state and local revenues derived from the project can go toward the payout, which could extend for up to 20 years. "When Gov. Corzine brought in ERGG, as well as the Urban Transit Hub Tax Credit, it was the rocket fuel that propelled us ahead of our competition, and that is how we got DTCC," Zaro affirms.

Having only been signed into law three months ago, DTCC is the first company to utilize the ERGG program. "Again, this is a powerful tool because we are only giving away a portion of the incremental increase in tax that the project generates," Zaro explains. "The state and the municipality, meanwhile, continue to reap more taxes than they get now by virtue of this increased activity."

The state also stands to benefit from a number of less tangible aspects. Namely, that DTCC is absorbing a sizeable chunk of vacant space, which should have a positive impact on the Jersey City real estate market, which has historically served as a release valve for downtown Manhattan.

However, prior to the DTCC deal, the economic advantage of lower rents hasn't cushioned the downturn in Jersey City as much as many industry experts had predicted. There currently exists nearly 1.7 million square feet of available office space, 52.4% of which is comprised of sublease space, with significant vacancies at Newport Office Center III and at Harborside Financial Center II.

According to Mayor Jerramiah Healy, the city worked closely with Gov. Corzine's office, the EDA and Hudson County, as well as the private sector in the form of 57 Washington St. landlord the Lefrak Organization to make this deal happen.

In addition to BEIP and ERGG grants, Jersey City is offering Urban Enterprise Zone funds to the tune of $250,000 over four years. The city also opted to use a portion of its federal stimulus funds to help seal the deal, as did Hudson County. "This money could only be used for commercial and economic stimulus purposes, so there were not a whole host of eligible projects," admits Healy.

Perhaps most important for Jersey City is that the DTCC's move will bring added foot traffic into an area that is already home to a variety of local and national businesses, bars and restaurants, along with five hotels including Courtyard by Marriot, the Doubletree, Candlewood Suites, Hyatt Regency and the Westin.

"With 1,600 employees and their clients coming to this location, the hotel industry in Jersey City is going to be helped substantially," Healy says, adding that many of the employees may opt to buy or rent property in the area.

As for future deals similar to DTCC, Healy says that the city is not currently working on anything specific, "but we are always looking to draw new business. Since taking office, my mission has been to have a business-friendly city and administration because it is the only way we can continue to bring ratables and pilot payments here and create jobs for our citizens."

Although Lefrak declined to comment on rental rates, according to industry reports, Jersey City office space currently stands around $30 per square foot. This is opposed to Downtown Manhattan rates, which are $42 a square foot, according to Cushman & Wakefield figures.

For more coverage on the DTCC move, see GlobeSt.com answer the question Did NYC Miss the Boat with DTCC?.

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