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NEW YORK CITY-Sources have confirmed ongoing rumors–fanned yesterday by newspaper reports–that financial-services firm Merrill Lynch is inches from a deal that would render it the new anchor of a proposed 2.5-million-sf Midtown office tower. The structure would rise on the footprint of the Pennsylvania Hotel. Needless to say, a move of this size–valued as high as $4 billion–from Lower to Midtown Manhattan doesn’t leave Downtown’s advocates smiling.

No one involved in the deal, not Vornado, Merrill or broker Jones Lang LaSalle, would return calls for comment, but a source familiar with the proceedings did confirm that a relocation announcement was close at hand.

In fact, there’s a good chance, he says, that definitive news would be in hand by now, were it not for the matter of Merrill’s $2.3-billion net loss in Q3. News of a project this size on the heels of such massive loss would be viewed as less than prudent. “They want some time between,” the two announcements.

In that interim, the source says, “anything can happen. Lawyers have a way of making things more difficult.”

Nevertheless, he tells GlobeSt that he’s placing his money on a Midtown deal going through. “They’re marching toward the West Side,” he states, adding that he wouldn’t be surprised if a formal announcement is cut within the month.

The Alliance for Downtown New York, in the meantime, is trying to mount a pre-emptive strike, and has issued a statement that underscores for Merrill decisionmakers the benefits of Lower Manhattan. “The reports that Merrill Lynch is seriously considering relocating its headquarters from Lower Manhattan–the business district where it was founded and has flourished for the past 93 years–to Midtown Manhattan are disappointing,” says the statement from chairman Robert R. Douglass. “I am hopeful that further consideration will persuade top management that keeping its headquarters in Lower Manhattan is the most economically prudent and forward-thinking choice.

Utilizing the many financial incentives available to the company if they choose to locate in the World Trade Center site or another site Downtown–including a Pilot deal that reduces real estate taxes, low cost power, and waiver of sales tax on the building, and the entire tenant fit-out–will save Merrill Lynch $600 million, while constructing a new headquarters in Midtown Manhattan could cost in excess of $600 million more than constructing a new one in Lower Manhattan. These two factors alone bring the additional cost of moving to Midtown to more than $1 billion, a figure that is hard to justify.”

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