A real recovery, but fragile in some sectors.

The consensus, as we approach 1994's mid-point, is that Manhattan office leasing, which has had a good six-month start, is on its way to a much better year than it had in 1993. We are, unquestionably, experiencing a real recovery, after a lot of false starts, that can support a strong office leasing market.

The "good-news-is-bad-news" syndrome, however, has resuscitated the Federal Reserve's hackles about inflation, which keeps the financial market in nearly a perpetual tizzy, as it worries about the Fed's future intentions and past deeds in tightening money. Actually, the Fed's rate-tightening thus far seems to have had slight effect upon the economy - and may even be achieving its goal of slow, steady growth without inflation.

Sound as that goal can be in terms of macro-economics and the long-term health of the economy, the effect of any increase in the cost of money falls more heavily upon small businesses than it does on corporations with deep pockets. Our small-to-moderate tenants at The Lincoln Building, for example, are always going to be affected by a rise in the cost of money. Like the rest of us, they understand, in general, the dangers of inflation, but they also have to adjust to increased costs in what are, in most cases, tight budgets.

Every time short-term interest rates go up, small-time space users become more tentative, postponing plans for expansion and curtailing expenses where possible. Since the Fed's recent moves, tenants I've talked to are all very cautious.

It's too soon to gauge the effects of the Fed's early moves upon our building or our sector of the market. I believe our tenants are more uneasy about the Fed's future course of action than they are about the impact of its recent moves. Like all of us, they are worried about the ability of the Fed to walk the tightrope between disastrous inflation and debilitating deflation, as it tries to keep the economy growing steadily.

As for The Lincoln Building, we are 90 percent rented as we approach the end of June. During our April renewal season we rented a record 60,000 square feet of space. To ensure our high occupancy rate we are constantly upgrading and modernizing our building, in both good times and bad. In particular, we strive in slow markets to put the building in a better position to take advantage of upturns in the economy. Recently, we have extensively renovated the front of the building on 42nd Street and will shortly begin modernizing the area outside the entrance, which includes the stairs to the subway.

Financial Stability

The financial collapse in the 80s of some of the biggest names in the industry has made the sound financial condition of a building a very important factor in attracting tenants today. The Lincoln Building's mortgage is so low in comparison with its value that our cash position is extremely sound. Its ownership is very experienced, having been through many market cycles and the owners' investing philosophy has always been conservative.

In other areas of the market, uncertainty about the economy and rising interest rates has not kept large corporations who need to expand from expanding. I understand from industry colleagues affiliated with large buildings that big blocks of space are becoming increasingly scarce. One of the most encouraging things that has been happening in the Manhattan market is he pickup Downtown. The "smarter" buildings, those providing modern technological supports, are recovering the fastest, and it seems likely that older buildings, in appropriate locations, will be recycled into residential use.

Healthy and Expanding Economy

Despite worries about interest rates, overall statistics continue to point to a healthy and expanding economy. At the Lincoln Building we expect to do well as the economy strengthens. One barrier that must be overcome if the economy is to achieve the kind of steady and stable growth everyone wants is the creation of new jobs to replace those that are, unfortunately, continuing to be lost through the downsizing of large companies.

In regard to the New York office market, it is imperative that we in the city's real estate industry work with New York City and State governments to strengthen its multiple attractions as an excellent place to do business and eliminate the conditions that detract from them. The days when everybody had to have an office in New York to contact customers, banks and other financial institutions, obtain information and supply it, attract qualified employees, have, to a great extent, gone forever. A modern computer and E-mail can now handle many of these tasks from anywhere - and modem technology has just begun.

Electronics, though, are not going to abolish the necessity and values of human contact in business or social activity, although it will unquestionably affect business and social life. Companies will not become merely isolated individuals working away at keyboards. There will still be great business centers concentrating the talents of people and the complexities of business, finance, education, culture, science. The question is: Will New York still be in the forefront of them?