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REPORT HEALTH CARE HE’S THE MR. FIX-IT OF THE HOSPITAL BIZ And now he’s set his sights on Manhattan P. 15 ® Plus: a new acronym! P. 15
INSIDE VOL. XXVI, NO. 24 WWW.CRAINSNEWYORK.COM JUNE 14-20, 2010 PRICE: $3.00
TOP STORIES Gulf oil disaster Garment spills into NY lives center PAGE 2 High expectations for NYC’s tallest rezoning apartment tower PAGE 3 shelved Wall Street’s Protests, new views on summer bummer area’s value block plans IN THE MARKETS, PAGE 4 to decimate district Why LeBron James can have his cake BY ADRIANNE PASQUARELLI
and eat it, too after months of protests, New York NEW YORK, NEW YORK, P. 6 City is quietly backing away from a se- ries of highly controversial proposals to rezone the 13-block garment center. Among those was a plan announced BUSINESS LIVES last April that would have taken the 9.5 million-square-foot manufacturing district and sewn it into a single 300,000-square-foot building on West 38th Clocking Street. $10B
getty images “We always knew ANNUAL BY JEREMY SMERD that was kind of a CONTRIBUTION to the ridiculous proposal,” New York City in march 2003, executives at software company says Nanette Lepore, a economy Science Applications International Corp. were fashion designer who GOTHAM GIGS CityTime scrambling for a way out of a deal with the city to has been at the forefront of the battle to build a timekeeping system for its 167,000 munic- fight rezoning of the district. Sylvia Weinstock would ipal employees. According to sources familiar with rather eat babka P. 25 A dozen years late, 10 times The contract was worth $114 million. But SAIC the planning process, the city is going G ANNE FISHER on the executives realized soon after taking over the work back to the drawing board and is con- pitfalls of making a its original price, not even from a previous contractor that there was no way they ducting a new study of the neighbor- hobby your job P. 25 could build a system for that amount.The city’s work hood, which it hopes to release this force was too large, its union rules too complex. summer. G MOVERS & SHAKERS half-finished. A twisted tale “We should have killed the deal right there,”says City officials declined to comment. John Authers says,break of the craziest contract ever See CLOCKING on Page 23 See GARMENT CENTER on Page 24 up the banks! P. 26 G GAEL GREENE hits Navy Beach in Montauk P. 27
INDEX City plots huge land deal with U.N. THE INSIDER ______8 Plan: Sell E. Side city properties to diplos OPINION ______11 REAL ESTATE DEALS PLUS ______13 to fund mile-long park; they get new tower OVERCROWDED: Consultants say that SMALL BUSINESS ______14 the United Nations CLASSIFIEDS ______20 nade. The hard part is that it in- needs expansion BY THERESA AGOVINO volves selling two city-owned of- FOR THE RECORD ______22 space. fice buildings, razing a playground HOT JOBS ______25 city and state officials are and constructing a new tower for EXECUTIVE MOVES ______25 crafting a byzantine plan to raise the United Nations. THE WEEK AHEAD ______27 money to close a 21-block gap in The extraordinarily complicat- the East Side waterfront prome- ed proposal is still in its early stages, and it could easily fall apart as it
24 moves forward, given all of the
5 moving parts.Yet officials say it has a chance because it would offer a way to fulfill major,long-held goals ELECTRONIC EDITION for both the city and the U.N.:The international body would finally get the additional building it has NEWSPAPER See CITY PLOTS on Page 24 buck ennis 71486 01068 0 20100614-NEWS--0002,0003-NAT-CCI-CN_-- 6/11/2010 8:00 PM Page 1
IN BRIEF Lynch leading Barnes & Noble t THE NUMBER OF NEW YORK STATE RESIDENTS WHO PLAN TO BUY A HOME IN THE NEXT SIX months was up sharply in May, according to a poll conducted by Siena College Research BN.com’s market share decades, appointing Mr. Lynch chief ex- swallowed up by a cutthroat Institute, reaching the highest level since August ecutive.Since then,the 39-year-old new- bookstore chain. Thanks to 2008, right before the collapse of Lehman in e-books nearly 20%, comer has continued to put the good will Amazon, which has shown no Brothers. According to the monthly poll, 4.7% of of publishers to use—helping BN.com subtlety in its efforts to push consumers in the state plan to buy a home this but one-time Goliath grow its e-book market share to around publishers around, Barnes & year, up from just 3.4% the previous month and is now more like David 20%, placing it a distant second to domi- Noble is now David, with its 3% in May 2009. “There are signs that we are nant player Amazon.com, according Seattle-based rival taking starting to come out of a recession, [and] a lot of to company executives. on the role of Goliath. people are feeling better about their finances,” BY MATTHEW FLAMM Barnes & Noble’s relation- YOUNG says Doug Lonnstrom, professor of statistics and ships with publishers, which BLOOD: Mutual admirers finance at Siena College. when william lynch arrived at Barnes & were not always so friendly, William “publishers ab- Noble 16 months ago to run its online have become the company’s Lynch was solutely want us to named CEO RESIDENT PHYSICIANS AT ST. BARNABAS bookstore and launch its e-book program, secret weapon in its fight to in March. succeed,” Mr. HOSPITAL VOTED OVERWHELMINGLY TO FORM he had no book experience.That was a good survive the digital transition Lynch says. a union after a two-year fight. On Friday, the thing. Publishers were relieved to see that and avoid becoming the book “That’s driving National Labor Relations Board announced a the largest bricks-and-mortar bookseller industry’s Tower Records. their cooperation 119-to-2 vote in favor of the residents and was getting serious about going digital. Gone are the days of the with us in the interns joining the Committee of Interns and In March, the company showed just company being cast as the digital world.” Residents/SEIU Healthcare as their exclusive how serious, as brothers Len and Steve heavy, as it was in the 1998 Nora That cooper- bargaining agent. A hospital spokesman said Riggio handed over the reins of the com- Ephron movie You’ve Got Mail,in ation has taken Friday that it may appeal an NLRB decision pany they had run with an iron hand for which a cute independent shop was the form of some that allowed the vote to be counted. St. Barnabas administrators have maintained an aggressive anti-union campaign. NEW YORK IS A GREAT PLACE TO START A BUSINESS. THAT IS, UNLESS YOU NEED TO New Yorkers work on Gulf cleanup hire an engineer or take out a loan.Those are a few of the complaints levied against the Big Apple in a new study of the startup sector by Engineers, hairstylists, the city’s Economic Development Corp. Overall, New York got high marks. even bakers lend Respondents to an EDC survey credited the hand with oil spill city for a plentiful supply of potential clients, customers and employees, despite Wall Street’s habit of luring all engineering and math talent. BY HILARY POTKEWITZ New York also received accolades for its community of venture capitalists and angel within 24 hours of the sinking of the investors, but survey respondents said the city Deepwater Horizon oil rig, Mark Miller, could do better when it comes to availability of chief executive of Miller Environmental loans. Group, was on the phone with Gulf Coast contractors working out the logistics of sending some of his people down to the disaster site. BY THE NUMBERS EVERY LITTLE BIT: The Calverton, L.I.-based company The Julien Farel Weekly shift of the city’s economy specializes in oil spill management, and salon is saving hair when Mr. Miller heard that BP’s platform clippings to be DON’T LOOK EAST Europe’s likely to be a drag sank, he knew that his company’s services used in oil- on the U.S. for quite a while, but Brazil, China, would be in demand. The 50-year-old lo- absorbing tools. Japan and others are steaming ahead, and that’s good news for us. gistics specialist is on his fourth trip to the Gulf Coast since the accident. “It’s all a bit of a blur right now,” Mr. -38% $311.3K 45% Miller says of the first weeks after the spill, DROP in new AVERAGE annual RISE in freight when about 500 Miller Environmental en- foreclosures in Wall St. wage in cars carrying gineers, safety experts and oil cleanup pro- NYC in May from 2009, down trash in April/May a year earlier 21.5% from 2008 from a year earlier fessionals flew or drove down from the Source: Source: Independent Source: Association Northeast, many from New York, hauling PropertyShark.com Budget Office of American Railroads shallow-water skimming equipment, vac- uum trucks, and specialty boats and ma- chinery to deal with the spewing oil. BOTTOMS UP Liquor license approvals in New York state may appear a bit unsteady on their feet, but the trend is up. Long-distance assistance 200 within two weeks, Miller Environmen- tal had 60 vessels and a crew of nearly 800 160 in Louisiana, Mississippi, Alabama and 60 120 Florida. It set up safety and compliance training for a local labor force, ordered a
80 fleet of outboard motors from a local com- buck ennis pany, found an apartment complex with 40 enough vacancies to house the crew, and from the Exxon Valdez disaster in Alaska to chief executive of Rockefeller Philan- 0 hired a local auto-parts supplier and me- tanker accidents in the Port of New York. thropy Advisors, offers two reasons for the 5/09 11/09 5/10 chanic to service its vehicles.“When we re- Other businesses are donating time or underwhelming response: The govern- Source: State Liquor Authority, Division of Alcoholic Beverage Control. spond to a spill, we assume we have to be products, while still others are making ment hasn’t declared the spill a federal dis- self-sufficient,” Mr. Miller says.“This is as good use of skills abundant in New York: aster,and people expect deep-pocketed BP vol. xxvi, no. 24, june 14, 2010—Crain’s New York Business (issn close to a military operation as you can get financial and legal expertise. to cover the losses. 8756-789x) is published weekly, except for combined issues June without being shot at.” But compared with more recent natural 28/July 5, Aug. 30/Sept. 6, and Dec. 20/Dec. 27, by Crain Com- Use what you have munications Inc., 711 Third Ave., New York, NY 10017. Periodicals There are about 20,000 people han- disasters, such as Hurricanes Katrina and postage paid at New York, N.Y., and additional mailing offices. dling cleanup and containment in the Gulf Rita or the earthquake in Haiti, the local suelyn farel doesn’t have any profession- Postmaster: Send address changes to: Crain’s New York Business, right now, and while most are from the response has been muted. The New York- al ties to the disaster—she’s head of busi- Circulation Department, 1155 Gratiot Avenue, Detroit, MI 48207-2912. for subscriber service: Call (888) 909-9111.Fax Southeast, a handful of New York compa- based Audubon Society says it’s raised only ness development for the Julien Farel hair (313) 446-6777.$3.00 a copy, $59.79 one year, $109.79 two years. nies are also involved. Some, like Miller about $1 million so far, while nationwide salon and spa in Manhattan—and as a na- (GST No. 13676-0444-RT) ©Entire contents copyright 2010 by Crain Communications Inc. Environmental, are there in a professional just $4 million has been donated to chari- tive New Yorker, she has no relatives in the All rights reserved. capacity, hired for their industry expert- ties aiding the cleanup, according to The region, either. But for the past five weeks, ise—the company has tackled oil spills Chronicle of Philanthropy.Melissa Berman, See GULF on Page 23
2 | Crain’s New York Business | June 14, 2010 20100614-NEWS--0002,0003-NAT-CCI-CN_-- 6/11/2010 7:52 PM Page 2
to sales growth online U.S. E-BOOK RETAIL- RFP for SALES ESTIMATES
publishers allowing users of Barnes Amazon it was moving to a differ- for any device other than Ama- $99M 2008 eats on & Noble’s Nook e-reader to lend ent pricing model with the launch zon’s. titles to friends, giving the device of Apple’s iPad. In April, another Publishers insist that they’re ag- one feature not available with ei- fight erupted with Penguin Group nostic about where their e-books $296M ther Amazon’s Kindle or Apple’s (USA). are sold. But they say BN.com’s 2009 plazas iBookstore. Nook owners can also rapid sales growth has been over- stream books via Wi-Fi in Barnes Bad feelings linger looked by the press, which has fo- $666M & Noble stores. the differences were eventually cused on the Nook’s production 2010 Flatiron/23rd Street Not everyone has been persuad- settled, but Amazon’s practice of glitches and sexy products like the Source: IBISWorld ed—about 50% of BN.com’s cata- charging $9.99 for Kindle editions iPad. Partnership eyes log is lendable, while about 70% is of new titles left some bad feelings “They are the best-kept secret available for in-store streaming. with publishers, which had long in the e-book space,” says David food options But publishers credit Mr. Lynch felt that it undermined the value of Shanks, chief executive of Penguin with being a straightforward play- books.An Amazon spokesman de- Group. BY LISA FICKENSCHER er who heeds their concerns. clined to comment. The bookseller has a lot riding They don’t say that about Ama- Mr. Lynch’s strategy has also on its e-books program as its core the pedestrian plazas sprouting zon. Full-fledged fighting broke been to use an open format for e- bricks-and-mortar business de- Standard & Poor’s is projecting in the city may soon compete with out earlier this year when the e- books, called ePub, rather than a clines. Eroding store sales led rev- 2010 earnings per share to sink to neighborhood restaurants for con- tailer removed the “Buy” buttons proprietary format like that of the enue to drop 3% in fiscal-year $0.52,from $1.49 in 2009.And the sumers’ dining dollars. from books published by Macmil- Kindle. The aim is to make 2009, to $5.1 billion, while net in- company’s stock has fallen 26% in Last week, the Flatiron/23rd lan. The New York house had told BN.com the bookstore of choice come plunged 45%,to $76 million. See LYNCH on Page 24 Street Partnership put out a request for proposals for two food or bever- age kiosks to be installed in the pub- lic plazas adjacent to and across from the landmark Flatiron Building. Tim Tompkins, president of the p Times Square Alliance, says he plans to follow suit and issue an RFP later this summer that may include food NewNew rentalrental towertower options. Last month, the Alliance collected proposals from businesses responding to its requests for “expres- sion of interest”—a call for business- fillsfills talltall orderorder es to submit a variety of ideas for set- SOARING HOPES: ting up shop in its pedestrian plazas. Leasing at the Beekman Tower is Culinary ideas only for 23rd Street Downtown’s Beekman expected to begin in the first quarter of the 23rd street business-im- seen drawing good crowd, 2011. provement district is just looking but units are pricey, and for culinary ideas. “We think there will be a lot of in- market is still shaky terest from within the neighbor- hood,” says the partnership’s execu- tive director, Jennifer Brown, BY AMANDA FUNG “though it’s not exclusive to [busi- nesses] in the neighborhood.” despite years of community opposition over One restaurant that has been very its size, a financial crisis that briefly threatened successful in public parks is celebrity to halve its height, and falling debris that ren- chef Tom Colicchio’s ’wichcraft dered neighboring streets hazardous, the city’s sandwich shop. AL FRESCO tallest residential spire will officially open its “I’m obvi- doors in about six months. ously interest- And after all that, the 867-foot Beekman ed in the RFP,” Tower is already being hailed as a winner.In a re- says ’wichcraft 25% markable about-face, many community officials partner Jeffrey ’WICHCRAFT expect their new 76-story, Frank Gehry-de- Zurofsky, who kiosks’ year-over- signed neighbor to raise the profile of the entire installed kiosks year sales growth area. Meanwhile, real estate brokers predict de- five years ago in veloper Forest City Ratner Cos. will not only Bryant Park in Bryant Park have little trouble renting the building’s 903 and more re- high-end apartments but that their arrival on the cently in Herald Square and Greeley market will be perfectly timed. Square parks. Revenues at the four “The Beekman opening up is a good thing Bryant Park ’wichcraft kiosks have because there is plenty of demand,” says Jack grown 25% over each of the past two Berman, vice president at Metro Loft Manage- years, says Mr. Zurofsky. ment, the developer of nine luxury rental build- The 23rd St.Partnership is look- ings downtown. ing for a tenant for four years—the
buck ennis In fact, at this point the supply of eager length of its commitment from the wannabe residents in lower Manhattan appears city for the pedestrian plazas. But it to be almost infinite.In recent years,the area has will not be able to offer electricity or ranked as one of the fastest-growing neighbor- running water at the location. hoods in the city. Today, an estimated 55,000 “We are not looking to build a people live there. That is more than double the Shake Shack,” says Ms. Brown. Of population in 2001 and is up from a mere 14,000 course, restaurateur Danny Meyer’s in 1995, according to a recent survey by the Al- popular burger stand is just a stone’s liance for Downtown New York. throw away in Madison Square Park. The area has always had more rental build- The RFPs are due in mid-July, ings than condos, but none quite like the Beek- and Ms. Brown hopes an operator man Tower, brokers say, noting that they expect can move in by the fall.The Flatiron it to draw residents from all over Manhattan. public plazas opened in August “There is no other building like it, with views 2008, and the city has not declared See NEW RENTAL on Page 24 them permanent fixtures like the Times Square and Herald Square
buck ennis plazas.
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or that Great Britain, Greece or an- other country will teeter into the economic abyss. IN THE MARKETS “The problems in 2008 were mostly about banks. Now, we have by Aaron Elstein something more severe, with people questioning the viability of united Europe and the euro,” says Nicholas Colas,chief market strategist at bro- kerage firm ConvergEx Group. Amid all the Sturm und Drang, BUSY WORK? Fewer two of Wall Street’s most profitable trades are a sign of Summer bummer businesses—selling shares and bonds the creeping for companies—have tanked. Eight malaise. initial public offerings were delayed for Wall Street last month, the most for any month bloomberg news in 2010, while junk-bond issuance fell by nearly 80%. The gloom has layoffs that began in late 2008 before after steadily rising over the past elcome to wall street’s summer of discontent. even hit brokerage-firm analysts, pausing in the fourth quarter of 2009. month as the European economic usually an upbeat group. They’ve As of April, banks had laid off about crisis took hold. While most of the industry’s attention is stopped raising revenue estimates for 7,000 New Yorkers in 2010, accord- Among today’s few Wall Street focused on Washington lawmakers as they hammer the companies they follow after near- ing to U.S. Labor Department data, successes is money manager Eric W Sprott out reforms that could make life less prosperous for years to ly a year of steady increases. bringing the number of people in the , who recently launched a mu- come, an inconvenient truth “Clearly,things are slowing,”says city who work on Wall Street to tual fund that offers a new twist on Joseph Amato, president and chief 157,000—the lowest since 1993. that old standby, gold. His fund’s has dawned on bankers: investment officer for equities at Those losses, which surprised indus- gold bars are stored at the Royal Suddenly, business stinks. Neuberger Berman,which has $180 try economists, may have deepened Canadian Mint, but if an investor Sales of new stocks and billion under management. due to the expiration of severance or decides that’s risky, Mr. Sprott will bonds, after a splendid start Expecting tougher times, Neu- retention agreements struck during ship it—on a Brink’s truck—direct- berger Berman bond-investment the 2008 megamergers of Merrill Lynch ly to the customer for a $5 per troy earlier this year, have nose- chief Bradley Tank sold debt he held and other institutions. ounce fee. Demand is so strong that dived.The corporate-merger in J.P. Morgan Chase and other big The good news? All of Wall the fund trades at a 10% premium whirl has slowed, and trading banks because their prices no longer Street’s lines of business can be re- over its asset value, and last month, reflected the challenges the institu- vived almost instantly. bankers at Morgan Stanley helped Mr. desks have gone quiet. tions face. Nonfinancial companies in the Sprott raise another $240 million, Layoffs, after pausing late last “We’ve ‘de-risked,’ ” he says, us- Standard & Poor’s 500 are hoarding bringing the total amount invested year, have resumed. Since ing a term often heard in financial an $838 billion pile of cash, which in the fund to $720 million. mid-April—coincidentally, circles lately. could fuel the next merger boom. Morgan Stanley bankers were “De-risking” means sharply lower And retail investors who have large- surely grateful for the work— perhaps, when the profits for banks and brokers. The ly avoided stocks could lift the market they’ve been rather idle lately. But government sued Goldman city’s Independent Budget Office ex- if they turn on bonds and other in- offering deal makers hope, the in- Sachs for fraud—shares in big pects 2010 profits for Wall Street vestments that offer minimal returns. vestor is now weighing a concept ex- banks have fallen by 20% or more. firms to total one-half of 2009’s record More hope: the London Inter- pansion. results, and to halve again next year. bank Offered Rate, which measures “Maybe we’ll start a gold-coin Few expect a quick turnaround, since every day seems to That’s forcing banks to make what banks charge each other for trust,” Mr. Sprott says, “or one for bring new worries that Congress will crack the whip on banks, more staff cuts, resuming a wave of loans, has leveled off in recent days silver Maple Leafs.” No budget, big deficit? No problem everyone knows New York’s fi- tough, but folks eventually got paid, nances are a mess.The state has a $9 and investors are confident that New billion deficit and a government un- York will honor its obligations. able to cobble together a budget, New York bond prices are also forcing Gov.David Paterson to push benefiting because the state’s major through a series of emergency competitors in the credit markets are spending bills. Talk even surfaced in even worse shape.Illinois and Cal- last week of a government shut- ifornia have both had their credit rat- down. ings cut this year due to dire econom- Perhaps the oddest ic woes. New York’s AA thing: The state’s creditors rating seems safe, at least for don’t care. $60B now. In fact, yields on the AMOUNT OF “Economic dislocation DEBT on state’s long-term bonds have New York State’s here just hasn’t been all that actually dipped since the books bad,” Mr. Iselin says. budget impasse began in The state is fortunate for April, falling to 3.60% from 3.70%, another reason. Conventional mu- according to Bloomberg data,which nicipal bonds are in relatively short means demand for its debt has supply these days because many strengthened.This may sound crazy public authorities are issuing Build given that New York has $60 billion America Bonds, which don’t offer in debt on its books, no budget, and investors the same tax advantages. a legislature slow to approve one. Finally, government bond issues of But Neuberger Berman senior vice all sorts have rallied in recent weeks president James Iselin says there are as investors flee stocks and overseas reasons why the dysfunction doesn’t markets for less risky securities. matter to investors—yet. Still,investor patience has its lim- First, the antics in Albany are its.Late last week,amid talk of a gov- nothing new. Second, even in terri- ernment shutdown, some investors ble times, states don’t default. Sure, began selling, and yields on New California handed out IOUs to cred- York state bonds ticked up slightly,to itors last year when the going got 3.60% from 3.57%.