Lehman Bros. to Move 900 Back-Office Jobs to Jersey City

After months of speculation, Lehman Brothers Inc. has decided to move more than 900 back-office employees to Jersey City, to the same 42-floor tower to which Merrill Lynch moved 2,500 back-office jobs a year ago.

Richard S. Fuld Jr., Lehman Brothers' president, said the decision to move was the result of a six-month study of future space needs, and reaffirmed plans to keep 5,000 employees in New York, the bulk at company headquarters at 3 World Financial Center.

"We believe our decision to relocate certain employees to our headquarters building in New York City and to a new space in Jersey City best serves the interests of the firm," he said in a formal statement issued yesterday evening.

Word of Lehman's decision played differently on the two sides of the Hudson River.

The company's impending arrival at 101 Hudson Street, where it will occupy 340,000 square feet on 11 floors, is a cause for joy in Jersey City, which has an unemployment rate of almost 12 percent, compared with less than 8 percent for the rest of the state.

"Anytime a new employer comes to the city it means more people who will spend money and enrich the economy, and that is what we have been trying so hard to promote," said Thomas M. Gallagher, press secretary to Jersey City's Mayor, Bret Schundler. In an Urban Enterprise Zone

Moreover, 101 Hudson Street is in a state-designated Urban Enterprise Zone. Office supplies and equipment sold by vendors in such zones are exempt from sales tax. That might encourage Lehman Brothers to make many such purchases from nearby vendors, further helping the local economy.

Lehman's move is a blow to New York, which will lose more than 900 jobs and the taxes associated with them. It is also a blow to the downtown Manhattan real-estate market, which is plagued with a persistent 22 percent vacancy rate. Many industry professionals had expected Lehman Brothers to move into 344,000 square feet at One Financial Square, a 36-story, million-square-foot building on the block bounded by Old Slip, Gouverneur Lane, Front Street and South Street. One Financial Square is half empty.

"We had an agreement in principle and a 100-page document ready to be signed," said a disappointed Arthur J. Mirante, chief executive officer of Cushman & Wakefield, leasing and managing agents for One Financial Square. "Then they decide to go to New Jersey."

New York City officials refused to discuss the incentives they had offered, although real-estate brokers say that New York was sweetening its offer as recently as late last week. However, few say the offer was particularly lucrative. In a statement issued after Lehman's announcement, Mayor David N. Dinkins expressed his disappointment that 900 jobs were moving to New Jersey, but added that "the city cannot justify the high cost per job it would have taken to match Lehman's projected savings."

"I am pleased to learn that more than 5,000 jobs will stay headquartered in New York," Mr. Dinkins said.

Mr. Gallagher said that Jersey City did not offer financial incentives, that its tax structure was enough incentive.

"We have no city payroll tax, no city income tax, no corporate tax, we don't even have an unincorporated business tax or a tax on commercial leases," he said. Cheaper Power, Lower Rent

Real-estate brokers watching the deal said that Lehman also was lured by the extensive emergency backup systems offered at 101 Hudson Street, and that power costs 15 percent less in New Jersey than in New York. They said that Lehman struck a deal in the vicinity of $15 a square foot a year, and that One Financial Square was insisting on more than $20.

One source said that Lehman concluded that it would be just as easy for many of its employees to commute to Jersey City by PATH trains as to get to One Financial Square, which is much farther east than the company's current offices.

"This simply did not boil down to a battle over incentives," said one real-estate broker who insisted on anonymity.

There was never a question that Lehman Brothers would have to move its back offices. It used to be part of Shearson Lehman Brothers Inc., a subsidiary of American Express. Its back office and trading operations were at 388 and 390 Greenwich Street, which American Express owned.

But in March the Primerica Corporation bought the Shearson part of the subsidiary, including those two buildings. Lehman Brothers, which remains part of American Express, must vacate the premises by July. Most of Lehman's operations are situated elsewhere in lower Manhattan.