Small Business

Surviving in Ground Zero's Shadow


For Peter Muscat, the owner of a liquor store three blocks from Ground Zero, his business' health was not a top priority when the World Trade Center was attacked on September 11. But keeping Maiden Lane Wine and Liquor going soon became a daily struggle. Muscat says he was denied a Small Business Administration (SBA) disaster loan because he didn't want to use his house as collateral, and had to dig into his life savings to make it through a year when business all but stopped (see BusinessWeek.com, Fall, 2005, "After the Chaos").

Muscat says it was only through the kindness of his loyal customers and his 36 years of experience that his store survived. With construction slated to begin in New York soon on the Freedom Tower complex on the site of the old World Trade Center, Muscat says he's hopeful that business, which is still only at 65% to 70% of what it was pre-September 11, will continue to pick up.

"I think the worst is over. We're still suffering, but if we can survive for the next five years, it will be O.K. When [the Freedom Tower and all the construction] is done, it's going to be one hell of a city down here," says Muscat.

Many small-business owners such as Muscat, who make their living in the shadow of Ground Zero, are adapting as the area struggles to adjust to

two major growth spurts at once. "Our challenge in lower Manhattan is that we have a residential boom, and what could be described as a painful rebuilding—opening up streets and building a transportation hub at Ground Zero," says Rob Walsh, commissioner of New York City's Small Business Services Dept., a small-business advocacy agency created by Mayor Michael Bloomberg in 2002. "It's a mix of rebuilding commerce at the same time we're trying to develop an environment for people to live 24-7. But we're seeing new business open up, and a lot of people are still bullish about lower Manhattan."

MANY NEW RESIDENTS. Incentives that had started attracting developers before September 11 continued afterward with the conversion of outdated commercial buildings into residential spaces. Before September 11, there were 22,961 residents in the lower Manhattan area. By the second quarter of 2006, there were 37,081 residents, according to the Downtown Alliance, a group dedicated to revitalizing the area around Ground Zero. "By 2011, there will be roughly 17,000 new units and nearly 70,000 people will live downtown—double the number that lives there today," said Daniel L. Doctoroff, deputy mayor for economic development and rebuilding, in a speech at a Crain's Breakfast on Sept. 6.

Though a boon for many developers, residences replacing offices have been a mixed bag for small business. The slow but steady influx of residents to area buildings has helped Muscat's business, but for others, it's been more of a challenge. V.I.P. Suit Store, a second-floor discount retailer one block from the Twin Towers site, depended on the working professionals who

are being replaced by families and young residents. Owner Mike Rouach has struggled to get sales back up to where they are now, at 80% of the pre-September 11 level. "We put a lot of work and energy into selling—we're priced right and very competitive," says Rouach, who had only been in business a year and a half before the attacks crippled his store.

Other entrepreneurs have adjusted expectations and are embracing their neighborhood's shift toward residential. Since September 11 wiped out the majority of his local operations, Robert Garber, owner of Bits, Bites, and Baguettes, a restaurant and caterer based near City Hall—located in lower Manhattan—has tweaked his business model to include citywide corporate catering.

"MUCH MORE 24-7 FEEL." Just as his catering business was taking off, Garber says residential growth sparked a mini-boom in his Wall Street location. "When we first opened, there was nothing going on," says Garber. The area, he says, was filled with abandoned office buildings, many of which have since been converted to apartments. "People are people. Whether business or residential, they still need to eat, and hopefully I'm going to be the one to feed them," says Garber.

At the same time, though it's hard to tell from the dust, barricades, and scores of construction workers milling about the area, commercial tenants are starting to come back. After September 11, the office vacancy rate in Manhattan's downtown shot up more than 7%, to a high of 13.7%. As of early 2006, the vacancy rate has fallen by 2.5%, according to a Downtown Alliance report. And Goldman Sachs (GS) and other companies have committed to lower Manhattan for their headquarters.

Another positive sign for local businesses: Big-name retailers are starting to push into lower Manhattan, an area that boasts one of the highest average household income levels in the city, at $153,000. Tiffany & Co. (TIF) plans to open its second shop in New York around the corner from the New York Stock Exchange. It joins BMW, Sephora, and several high-end restaurants. Whole Foods Market (WFMI) has also signed a lease to bring a 55,000-square-foot grocery store to lower Manhattan by spring, 2007. "Sure there will be some disruptions, some pain and difficulty along the way, but the end result will be more retail, higher-quality retail, and more residents—a much more 24-7 feel," says Walsh.

HUGE DEMAND FOR HELP. But some small-business owners in the area claim they'll be lucky to survive what they see as a decade-long disruption from the day of the attacks to when the construction is supposed to wrap up. Andy Czegledi, the owner of World Trade Camera, half a block from Ground Zero, says he closed his old camera shop on Wall Street after September 11 when walk-in traffic decreased by 50%. He was attracted to the Ground Zero area by government incentives, including subsidized electricity and rents.

But Czegledi says the government didn't deliver on its promises. "I got a favorable rent, but it was supposed to be supplemented. If they didn't say they'd support me, I wouldn't have come," he says. To survive, Czegledi says he'll probably be forced to sublet one floor of his store. "The business down here—it basically stinks."

Those who had a hand in the programs that tried to help small businesses bounce back gave freely of their time and expertise but faced challenges in terms of the large number of businesses that needed support. Ivan Szanto, a Service Corps of Retired Executives (SCORE) counselor who was one of the 15 members manning the temporary lower Manhattan SCORE office, estimates that his group spent between 1,700 to 1,800 volunteer hours over three months, helping about 500 to 600 businesses get back on their feet. "The main issue was money," says Szanto. "Most businesses live from day to day or week to week, and they had zero income for weeks or months."

STILL HOPING FOR A TURNAROUND. Those who received loans could stock inventory, improve their business, and continue to pay their employees. Garber, for one, was able to invest in his catering business only through loan money he received from the SBA and the economic-development organization Seedco. Overall, the SBA approved 6,083 Economic Injury Disaster Loans (EIDLs) for $513 million, and the federal government provided nearly $700 million in grant money to companies with 200 or fewer employees, says Deborah Wetzel, spokesperson for Empire State Development Corp., a New York State public authority that disbursed the money.

But not everyone was so lucky. Czegledi was denied a loan, which he says he would've used for inventory and to pay his employees. Now, he has to hope that the new complex at Ground Zero will improve his situation. "We're hoping business turns around, but it doesn't look like it's doing well," he says. "When the new Trade Center is built, I think it'll be a hell of a lot better, but it's too long a period of time."

Five years after September 11 shook their lives and livelihoods, small-business owners in lower Manhattan are still recovering. Says Garber, "You can't help but think about where you'd have been if it didn't happen."


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