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Web www.startsandfits.com
Tuesday, March 15, 2005
Seeing the Value of the City

Maurice R. "Hank" Greenberg, the 79-year-old multibillionaire who stepped down yesterday after 38 years as chief executive of the American International Group, is departing under a cloud of ethics questions and has reportedly hired a criminal defense lawyer. In the midst of the swirl of allegations that led to his departure, it is important to remember that at a key point in the history of New York City, Mr. Greenberg stepped forward and expressed confidence in the city at a time when it was very unfashionable to do so. And he backed that confidence with money. He made a move that was great for the city, and it proved to be great for his firm and himself as well.
Photo from Wall Street Models
In part because of a decision to be described below, he and his firm were rewarded with enormous wealth in the decades that followed. Mr. Greenberg was ranked as the 59th richest person in the United States by Forbes magazine last year, which estimated his net worth at $3.1 billion, all of it self-made by a farm boy from upstate.

In 1976, New York City was on the brink of fiscal insolvency. Fortune 500 firms were leaving in droves. IBM had fled to Armonk. PepsiCo to Purchase. General Foods to White Plains. Graffiti covered the subways and the headlines and talk show hosts continuously described increasing violent crime. It would be a decade and a half before Joel Garreau would coin the term "Edge City," but the future seemed to be in Stamford, new home to Olin, Continental Can and General Host, Fortune 500 companies all. As William H. Whyte put it in a prescient 1976 article in New York magazine entitled "End of the Exodus":
By mid-1975 over 30 major corporations had left New York. The belief was growing that New York's trouble was terminal and that the migrations were a forerunner of inevitable decline for all aging cities.
In March 1976, Ken Auletta pleaded in an article in New York magazine that listed 25 things the city government could do to improve the city's dire situation:
13. Keep Union Carbide From Moving. Union Carbide Corporation, employing 3,600 and headquartered at 270 Park Avenue, has announced that it is thinking of leaving town. The eyes of many other corporate heads, says EDA official Jack Bush, are fixed on Union Carbide. So are the eyes of city and state officials who have urged Carbide to stay. If the company decides to leave — as one government executive who has talked with Carbide fears — the move would contribute to the pervasive sense of doom which must first be lifted if the city's climate is to change.
But it was not to be. Later that year, Union Carbide announced it was moving to Danbury, Conn. More from Whyte:
In 1976 things seemed to get worse yet. Amax moved out. Pittston and Texasgulf started moving. Union Carbide announced it would move. Continental Can and General Host did the same. Eager for their share of the wave to come, New Jersey builders pressed construction of speculative office buidlings; at interchanges all over New Jersey towers are going up — at Woodbridge, Paramus, Secaucus.
In the midst of this atmosphere of gloom and dispair, another Fortune 500 company had left town, too. Or rather, it had fled to Tulsa, Okla., so quickly that it abandoned its Financial District headquarters before so much as finding someone to buy it. Left behind were real estate people charged with offloading the depression-era relic to whatever poor bastards would buy a place in such a crime-ridden, financially insolvent, God forsaken hell hole. That company was the Cities Service Corporation, which in 1930-1932 had built a slender and elegant Art Deco tower at Pine and Pearl. Like so many others built or conceived in the 1920s, the building symbolized an optimism in urban America that is beginning to return only now. The building's graceful spire illuminates the night sky and provides a majestic focal point to counterbalance the Woolworth Building's pinnacle a few blocks away. The building has windows that open.

Designed by the firm of Clinton & Russel, Holton & George, the Cities Service Building at 70 Pine was really created by Henry L. Doherty, a grade school dropout who built the Cities Service Corp. up from $50 million in 1910 into a $1.3 billion powerhouse by 1930. Mr. Doherty had wanted a signature skyscraper that would put his company on the map. He felt that a towering icon in what was then the heart of New York was a fitting symbol of the company, which prospered by providing petroleum, electricity and natural gas to cities in the booming 1910s and 1920s. He conceived of the building and of his bachelor's apartment on the top floor, but had to take a six year sick leave during construction that ended on May 13, 1932, when he returned to dedicate this tower. Sadly, he died a short time later, but his company continued to prosper, renamed itself Citgo, and carried on in the building until 1974. But by then, corporate values had changed completely from the heady 1920s, and the absolute last place an oil company wanted to be was New York City.

Two years after it fled the city, Citgo sold its building to a small but growing insurance company, the American International Group, for an undisclosed amount of money that must have been a pittance given the prevaling attitudes at the time. On May 6, 1976, Mayor Abe Beame and A.I.G.'s relatively new chief held a press conference at City Hall, where the mayor said he was "grateful" for A.I.G.'s decision to remain in the city and said the move was an "antidote" to the exodus unfolding in the newspapers every day. That new chief, Maurice R. "Hank" Greenberg, spoke out in rare praise of the city. "We as an organization," he said, "are confident the necessary changes will be made to permit the city to become the dynamic metropolis it once was."

At about the time that A.I.G. was buying 70 Pine Street, Whyte was conducting a pioneering study of the locational choices of Fortune 500 companies. He discovered that, shocking to say it, most companies that left the city moved to within a few miles of the home of their chief executive officer. Of course, this may be good for the chief, but, on balance, it is bad for most of the workers. A firm in Long Island is convenient for Long Islanders, but it is hard to reach for people from Westchester or Jersey. But by staying in the city center, A.I.G. could attract the best and brightest insurance underwriters, marketing people, finance experts, deal makers, tech people and support staff, whether they preferred to live on Long Island, in New Jersey, Brooklyn, or, like Mr. Greenberg, on the Upper East Side. In Whyte's words:
One of the claims made for the decentralization of work is that it brings jobs closer to where people live. It does not. It brings jobs closer to a few executives, but not for the work force of the metropolitan area. The farther you poke out into suburbia, the farther you are from the greatest numer of people.
Not only could A.I.G. hire people from all over the entire metropolitan area, but it put them in an exciting milieu with a myriad of lunch options and where the chance sidewalk encounter was a daily occurrence. It smartly avoided the stultifying suburban office parks, where for all their gleaming newness, lunch came only from the office cafeteria and the static surroundings make the work on the computer screen seem that much more boring. And the workforce that A.I.G. was centering itself in was not just larger, but on average more creative and dynamic than that found elsewhere, the image of the city as a cesspool notwithstanding. Again, to quote Whyte:
The move-outs speak of Middle Americans who don't like the city; the stayers speak of the creative, competitive people who do. At Avon, the personnel experts said leave; the tax people said leave. The company stayed. Main reason: 600 of its 1,600 people wre writers, artists, and marketing people. "It is not possible to find that kind of vital person in an outlying area or attract them to it," says president David Mithcell. McGraw-Hill chairman Shelton Fisher: "We are rubbing elbows with some of the best talent in the world. If we had moved away, our human resources loss would have been crippling."
That was in 1976. Twelve years later, Whyte published the results of a study that found that the stock prices of firms that stayed in the city appreciated more than twice as much as those of two dozen companies that had left, leading him to conclude: "When a company is tired of New York, it is tired." Hmmm, kind of reminds me of how the housing values in New Urbanist communities rise more quickly than those in suburban sprawl.

That's a dose of the general theory. What about the firms that bought and sold 70 Pine Street? Their fates could hardly be more different. By 1986, Citgo had ceased to be an independent company. That year, its parent, the Southland Corporation, sold half of its stake in the firm to Petroleos de Venezuela for $300 million. Southland sold the other half in 1989 for $661.5 million. Put in terms of the billions of dollars, that of course is a combined price of $0.962 billion for what had been an emblem of the Roaring Twenties. Meanwhile, A.I.G. grew, and grew, and grew, expanding into a galaxy of office buildings all around the headquarters and elsewhere further afield. With $677 billion in assets, it has grown to No. 10 on the Fortune 500, the largest insurer in the world. Throughout decades where it seemed like the future was in the endless pavement and sparkling new office parks in the suburbs and exurbs, all that success accrued to a company in a Jazz Age skyscraper on narrow Pine Street. Did that building have something to do with it? Yes, it did.

Startsandfits.com salutes Maurice R. Greenberg for his ability to ignore the fashionable consensus and understand the true value of locating a firm in the city. One hopes that he will be remembered in the twilight of his career not just for the scandal of the day, but for having optimism where others saw only darkness.
- Posted at 9:30 AM | Permalink | Comments: 1 | Post a Comment |  

Great Article!!!!!!!!!11

By Anonymous, at 10/17/2007 10:15 AM  


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