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JPMorgan's new home could mean opportunity for the bank, other Midtown tenants

JPMorgan Chase & Co. CEO Jamie Dimon is always looking for a competitive advantage — even when it comes to real estate development. The bank's latest move may give it and other Midtown Manhattan office tenants an edge.

Over the last decade, the bank has favored building its own product solutions rather than relying on third-party vendors. On Feb. 21, the bank's management announced it would stick to that strategy for its global headquarters, unveiling plans to build a large new tower at its existing office at 270 Park Ave. in New York City's Midtown East neighborhood. Analysts said the move, which will consolidate numerous locations in one central headquarters, will allow the bank to develop its own superior, more efficient work environment.

"It's an overarching strategic focus for JPMorgan: 'If we can control it, we can do it better than our competitors and make it a competitive advantage,'" said Jeffery Harte, an equity analyst for Sandler O'Neill. "They did the same with the technology upgrades at their branches."

JPMorgan wants more space for its headquarters, but it also wants that space to be more efficient. The new building will house 15,000 employees compared to 3,500 employees in the existing facility. The bank is said to have explored options in both Hudson Yards, the massive mixed-use development on Manhattan's West Side, and in Manhattan's Financial District, where the redevelopment of the World Trade Center has sparked a surge of new street life.

JPMorgan's development could be large enough to change the dynamics of the Midtown office submarket, market observers said. Asking rents there are on the decline, and landlords are offering generous tenant improvement allowances, which are pledges to customize the office space to the tenant's needs, said Keith DeCoster, director of research for Savills Studley. The bank's new headquarters should improve the market's fundamentals over the long term by bringing more high-income employees who can support retail and restaurants, he said. But in the short-term, the headquarters will add a significant amount of new supply.

"Unless there's a dramatic transformation of demand, which we don't see happening, the older buildings are going to be the ones that have difficulty competing," DeCoster said. That could mean favorable conditions for other tenants looking for office space in Midtown as landlords compete, he said.

The headquarters will be the first major development to take advantage of the city's new zoning plan for Midtown East, which suggests that the bank might have received some incentives from the city for the project.

"I haven't seen anything yet, which suggests there probably isn't much," Harte said, adding that he expected additional detail to be disclosed during the bank's Feb. 27 investor day. "JPMorgan is a big employer and they're shrewd, so you think they'd negotiate the best deal they could."

JPMorgan does not expect the construction project to have a material effect on its earnings, a projection Harte said was reasonable. The bank's current noninterest expenses run close to $60 billion per year, so the project's cost spread over five years is unlikely to have a significant impact.