Annual review & forecast.

Real Estate Weekly: We like to start off by looking at the past year and to take a temperature as to what has been happening in the industry. So, if you could share with us your thoughts.

Brian Waterman: Retail has been the best performer in the marketplace. (to C. Bradley Mendelson) You have to be the guy to start. Let's start on a positive note.

C. Bradley Mendelson: I can give you a two-minute overview of the retail market in Manhattan, which is completely different from the national retail market. Manhattan's retail market has been incredibly strong. But over the last 2 1/2 years the pool of available tenants has been incredibly shallow. There have been just about enough tenants to take the space that's available in the marketplace. Landlords, have been continuing on their quest for credit-worthy tenants, as opposed to 'Mom and Pop' type retailers. So we see less of them in the marketplace and more of the bigger, category killer promotionally based retail transactions. This is in the prime areas of Manhattan, which would be the showcase areas-- Fifth Avenue, 57th Street, Madison Avenue, Times Square. In showcase marketplaces, retailers go into business for more than return on sales. They go in for public relations, identity, branding and other reasons. When you start to move out of those areas, you get into the areas that have to be commercially, v iable. Those areas haven't seen the climb in values that the showcase areas have seen, but there has been a lot of activity, mostly by banks. There are four main banks that have come into New York over the past few years. You have Washington Mutual, North Fork (which was here, but they continued to expand), Commerce Bank and now Wachovia. They have pushed retail prices in the commercial areas higher than retailers can afford to pay. They have expanded faster than anyone has ever seen banks expand. On every other corner you have a bank. There are 7-day banks now, they serve coffee, they are doing things that banks traditionally didn't do--longer hours, that kind of thing. I'm still confused. I have no idea why they are doing what they are doing, but there must be a reason here.

Waterman: That is not what we think of as a traditional bank. The sizing that we used to see in traditional banks has changed.

Mendelson: The sizing in traditional banks has reduced. They are going into bigger branches now. You saw 10,000to 15,000-SF branches 15 years ago. Now you are seeing 3,000-SF branches or 600-SF ATM branches. You are finding that the branches are taking spaces that are in the marketplace. They are not taking a particular size. They want saturation and they are getting it. But they are also pushing prices higher than traditional retailers can afford to pay. We've made a few deals with these banks and the next taker of space, other than the banks, were 30-40% less in rent payment. I think you are going to see a lot of retail space come on the market, the big boxes that are struggling. Today's Man -- and a lot of the others that have been in the newspapers recently -- are having trouble. A lot of the category killers are not doing the business that they need to do to remain in business. That is because everyone seems to be doing the same thing. At the same time you see Best Buy coming into the marketplace. Tenants like that, Circuit City, they seem to be flourishing. The retail market has been very strong. Our business was 50% over our projections last year, which is the only group within our company that I think was that high in earnings over forecast. We hope the trend continues, but there is less and less space available so we will see what happens in the coming year. We are optimistic. We see a strong first half of the year. We can't crystal ball more than the next six months, but we have enough in the pipeline to see a continued strength in our marketplace.

Real Estate Weekly: How about the office sector?

Kevin Danehy: In the office sector, there was an expectation for the first half of the year that - based on the economy starting to improve there would be an increase in demand. That certainly - didn't happen. So, if anything, the second half of the year saw a trail off in demand and increased vacancy, as there were additional layoffs and unemployment increased. The overall market increased in vacancy a couple of points and rental rates decreased but, more importantly, concessions increased. We are seeing tenant improvement allowances now upwards of $50 a SF. So, the higher quality A buildings, pre-rent in the 9-12 month range, sometimes on top of a construction period. So, I think a couple of things have happened. Additional availabilities were put on the market by users, which was really where the increase vacancy was coming from in the first half of the year. As leases expired and landlords acknowledged that the demand is not going to come back real soon, the direct deals begun to effect lower rental rates and higher concession packages. I don't think that is going to change dramatically this year. We are not going to start to see increases or recovery until next year at the earliest.

Waterman: Last year was the year that we saw 15-18% reduction in rental values across the board in every single marketplace. If you look Downtown, it had probably one of the smallest decreases in rental value, which was pretty interesting because most people would think that it would have the largest decrease in rental values. But the positive sign towards the end of the year was negative absorption. In the fourth quarter, you were probably seeing 1.5 million SF coming back into the market. In the previous quarters, 2 to 3 million SF was coming back. The interesting thing about Downtown is that you have a 5-year supply of space, which is probably the most depressing news to come out of 2002. I was at a lunch where they were talking about the height of the market, when positive absorption was about 800,000 SF Downtown. And Downtown probably has 16 to 18 million SF of available space, which would mean a 5-year supply at positive absorption numbers from 1999. So, that is the depressing news. But, I think that re ntal values have plateaued and you are not seeing the big decreases, the big drops in rent. I think there were a lot of landlords that had very high rental values. They were reluctant to drop them and they have finally dropped them. I think we have reached a flat spot in the marketplace. Are they going to drop more? Who knows? The question is, 'who is in the marketplace?' If you look at the next 12 to 24 months, there is probably 10 to 20, 100,000-SF or more tenants that are going to be in the marketplace. When I talk about expansions, we are just talking about a rollover in the marketplace in the entire Manhattan.

Danehy: What typically happens is that tenants in the marketplace trade up at the same cost that they would have done a renewal. Or those in B space will end up leasing A space. So, from a tenant's perspective, the bright spot in the market is that reduced costs allow them to trade up. There are two bright spots in the market right now. The top 75 buildings have 3 or 4% vacancy rates. So, the top buildings remain well leased. The other bright spot, from the demand side, is law firms. Law firms remain active. The bankruptcy practices are driving a lot of that. And out of town law firms are increasingly seeing a need to establish a presence here in New York, so that they have the ability to serve their national and global clients.

Waterman: Well, 85% of the transactions done last year in the office market were less than 20,000 SF. Financial firms still took space, but they were the small financial firms, the guys that were taking space on Park Avenue in the 2,000- to 5,000-SF range. There was still a significant amount of leasing. Even though the top buildings were still generating some of the top rental values, sublease space was driving down rental values, even in those buildings. In '99, you probably saw one tenth of the market was sublease. In 2002, probably one half to one third was sublease.

Bruce Fowle: How much is the impact of potential federal subsidy building bond affect what is going on?

Waterman: It has a greater impact, I believe, on landlords in Midtown than it does on landlords renting space Downtown because it is being used as a hammer, as leverage in negotiating uptown. These tenants are all looking Downtown. Or, the smart ones are looking Downtown and creating this vehicle to leverage. They're saying, 'This is what I can do Downtown, what are you going to do for me here?'

Danehy: It is not enough of an incentive for people to overcome the resistance to the difficulty with public transportation Downtown and the continued lack of energy that exists down there.

Nicholas Stolatis: How about the trend nowadays of financial services firms in dispersing for business continuity purposes? I've got to believe that that trend is going to force these companies to push big chunks of their operations elsewhere, like 300 miles away.

Waterman: There have been a lot of mixed signals. A lot of firms are not doing anything because they are waiting for the government to do something. Yes, there is this need, but where does it really have to be? There were also a couple of different things on this business continuity plan that said, if you had offices on the outside and you can reroute that way anyway, then you can use that office as a backup center.

Danehy: Most major players, because of economics over the last 10 to 15 years, have relocated their higher cost, back office operations to another locale. So those serve as an initial response to that issue. Frankly it is less government driven today. It is cost driven, but also insurance driven. Right now there is not enough certainty in what is going to happen. It is more or less business as usual as people wait to see what happens.

Waterman: The 25- to 35-mile radius is what everyone was operating under. Then an article came out in the Wall Street Journal in September that said the government was thinking about 300 miles. Then, the beginning of this week, they said, maybe it is not 300 miles.

Danehy: Listen, we are not going to impose a specific mileage distance - you have to use your own discretion. But the insurance companies are now saying that it will be so costly to acquire insurance that you won't be able to unless you've got an appropriate contingency plan in place. This will be handled by the private sector rather than the government imposing a regulation. And that still has to play out. We are just starting to deal with terrorism insurance.

Mendelson: It is not so solved, according to the New York Times article yesterday. They are not getting 100% coverage on any of the bigger developments. You've got Tishman-Speyer who can't get terrorism insurance on Rockefeller Center. They can't get it on the Chrysler Building, they can't get it on all the showcase buildings because they will cost too much to reproduce should there be an incident. And the insurance companies are saying that they are going to go out of business if there is an incident like that. In which case, who is going to insure? It has to be a governmental insurance program. It will eventually, but it certainly is not solved yet.

Fowle: When the companies have to disperse their operations a bit, this is not benefiting Jersey City and Queens. This is more of a national distribution.

Mendelson: I think it is going to be everywhere because I don't think the government can impose that you have to be 300 to 500 miles away, it is impractical. You may as well be in New Jersey. It is the same theoretical difference.

Waterman: If you are Senator Chuck Schumer or Hillary Clinton, do you think you are going to allow the government to impose a 300-mile ban?

Mendleson: Even with a 25-mile ban most businesses are going to wind up being in a different state.

Waterman: But if it was 25 miles, you could make the case that it could stay in New York.

Fowle: But think of all the senators and congressmen that are going to be pushing the other way.

Danehy: It ceases to be a political issue and becomes an economic issue. If it is going to be very highly insurance driven, then demographics come into play into where people want to work. Do you want to move to Albany or do you want to live in Florida? Where is the educated population.

Waterman: In that article it basically said that - if you were operating in New York and, say, have a main office in Chicago - you could use that hub as your rerouting point and deal with it that way. So, I don't think this is as much a critical issue. It is an issue, but I don't think it will dictate how bad the market will become in New York. It is an issue that needs to be dealt with and people are thinking about how to deal with it.

Danehy: It is like asbestos. It never put people out of business, they just had to deal with it. It took people a couple of years for people to get their arms around it properly: Remember, there were a couple of years where buildings didn't trade if they had asbestos in them.

Stolatis: It is an expensive solution.

Danehy: It is an expensive solution, but it is a solution. There are different levels and thresholds of solving a problem. So, that is the phase we are in right now.

Real Estate Weekly: Brian, you touched a little bit upon my next question about what we saw in the fourth quarter. The market seemed to show a few signs of life and I am wondering if we are turning the corner here?

Waterman: That is a very good question. I think no job growth, negative absorption, no companies growing are all signs that you are going to run at a flat market. Then take into account that most owners bastardized the market in '99 and 2000 and renewed tenants two or three years early. So, you have no regrowing, nobody rolling, so who is in the marketplace? There is still no velocity in the marketplace. We may be at a flat spot, but we may not have any velocity to show which way the market will go. I think that is going to be the troubling question for the next 12 months.

Mendelson: We have meetings of our senior people monthly and we saw a pickup in the marketplace at the end of the year. No one is sure if that will continue at the same rate or go flat again.

Danehy: I'm marketing myself towards the 2,000 to 10,000-SF tenant or the 2,000 to 20,000-SF tenant because those are the guys that are going to be in the market because they were the forgotten ones in '99 and 2000.

Waterman: But if you are a 30,000-SF law firm, how many true quality spaces are out there? There are not very many. I mean I don't think that you would say this is the perfect space for that type of tenant.

Danehy: The area where there are a lot of vacancies now are in what we consider the tertiary market. There was very little new construction in the past 10 years. Most of the new product that came out of the market to accommodate expansion in the late 90's was done through renovation of existing buildings and conversion. So those are the buildings that are suffering. The B buildings, we won't even go into the C buildings, are the ones that are going to suffer and will be the last ones to be affected. There are, in the Grand Central Area, the Park Avenue corner, there is less vacancy now and will continue to be demand for that space. There are two things that are going to happen. Right now there is 2 to 3% availability above current vacancy rates. You are looking at 9% vacancy Midtown and another 15% Downtown, there is another 2 to 3% minimum on top of that available space that users currently lease, but don't occupy, and can make available if someone approaches them, but not actively looking because they don't want to show weakness.

Real Estate Weekly: Shadow space.

Danehy: It is called the shadow space or hidden space. That space, as companies begin to improve earnings and become healthier again and start to hire employees, will be the first space to go. Then we will see the vacancy rates decline.

Waterman: On the same token sometimes they have multiple locations on the market but may not be ready to sublease all of. You have people like the Bank of New York that has six to eight locations on the market of which one or two or three or four they would sublease if they got a tenant. Then, once they find out what they can get a tenant for, they try and back fill some of the sublet space. So, there is a lot of space on the market. BONY has at least 3 million SF on the market.

Danehy: There are also varying degrees of availability. Some are actively marketing and, with others, you either need to know or find out if space is available in a particular building. All the big banks - Citibank is doing the same thing, JP Morgan, Merrill, PwC, all the people that want soft spots in their portfolio.

Fowle: Who is going to go back Downtown? Assuming that the financial industries maintain status quo. Who is going to fill up the space?

Danehy: The initial firms to strike have been the nonprofits and the law firms.

Waterman: But non-profits don't get any of the benefits, really.

Danehy: They don't get the benefits, but they still get the difference between the prices of Midtown and the prices of Downtown. I think a lot of it will have to do with how the area is redeveloped, to the extent that there is not a large envelope of space being contemplated and we are looking at a truly mixed-use development. Residential, commercial land, memorial space and park space will need to be created so that Downtown will become a more dynamic 24/7 environment.

Mendelson: Downtown has never been a 24/7 environment. It will never be a 24/7 environment as long as it is being driven by its office tenants. Residential has done fairly well because of the subsidles, otherwise it would be naked. You rent an apartment down there and you get the city to pick up half of your rent. The problem with Downtown is there is no real dynamic that is going to attract people. You have a lot of vacancy down there. They will put the World Trade Center space back up there in some way, shape or form and it will create more space on the marketplace that no one really wants today. Of course, that is three or four years away at the earliest.

Real Estate Weekly: While we are on that subject, what do you think so far about what has been put on the table so far with regard to the World Trade Center?

Fowle: I've been intimately involved since 9/13, I think. I helped organize this group called N.Y. New Visions. It has been a struggle, as we all know. The current proposals were supposed to be design ideas to stimulate everyone. Unfortunately most of these design ideas are real fantasy and not real. But the public has now seen these images and is expecting something of this magnitude. Lower Manhattan Development Corp. realizes that they can't just pick and choose from each of the schemes in which people are rallying around one or the other. Then there's the whole question of how you incorporate the memorial in the middle of it.

Mendelson: Here is the real question, this is private ownership to build. It is not being built by the Port Authority. It can be built by the people who own the lease on the WTC, theoretically. It seems like this is being designed by committee and that has got to be a disaster in the making. If you are going to let the public tell the private developer what he should build...I don't see how it ever happens. Did you ever hear of any one dictating to any developer what they are going to build in their office? The city dictates what you can build by zoning. Other than that, there are land use rules that -- if it impairs traffic and neighborhoods -- that need to be dealt with. But, this should be private development. And it should be sensitive as to what happened on 9/11, that is for sure. There should be some sort of memorial and park and things like that. But if you are going to let the 700 people who showed up at the review in Midtown dictate what the developer is going to do, nothing will ever get built. The y own the land underneath it, but someone paid a whole lot of money for the right to have office buildings there.

Fowle: What they need is a plan, and unfortunately what they have are images and only one or two of the plans work. And only one or two of them really allow for phasing in some logical free enterprise, typical New York City development process.

Mendelson: The former trade center vitalized that area Downtown. It was certainly the most productive retail area Downtown and probably the most productive retail area in the city. Force fed by public transportation and force fed by office buildings, it made the transition from the old Alexander sleepy, crappy retail to real, vibrant retail. The concourse was the only retail Downtown that did business and made sense.

Danehy: Well, it sucked the life out of the Downtown.

Fowle: It took the energy right off the streets.

Mendelson: The problem is that you said it sucked the energy off the streets, there wasn't any energy on the streets. There was the 9 to 5, 5-day-a-week office worker that flooded Fulton Street, Broadway and Nassau Street, which were the three vital streets Downtown. There were all of these offshoot streets where nothing ever stayed in business very long. They were all service businesses to the office buildings. The retail business in the trade center, it didn't suck the traffic off the street. That was the way the traffic got Downtown.

Fowle: Which is good for retail, but a flaw in terms of design.

Danehy: That is a very retail oriented perspective I think you have there. The broader perspective is that the office market was badly damaged by the trade center.

Mendelson: And it will be again if they put that much space on the market at one time.

Danehy: I think residential did show signs of really taking hold down there prior to 9/11. Battery Park City and some of the other wealthy.

Mendelson: Battery Park City is good, but it could really be anywhere. It is not really Downtown, it is Battery Park City. You really need a car to get in and get out. It is an island. The residential conversion market started to do very well until the office market started to increase in value again. Then, half the buildings slated to be converted to residential went back to office because there was a higher return to the developer to do it that way. But you need critical mass of after-hours occupants to make Downtown a viable area for residential. Without the critical mass you can't afford the infrastructure. You can't afford schools down there, you can't afford the retail down there, you can't afford any of that. So you have spotty little pockets of converted older office buildings into nice apartments that, if the trend had continued and market rates for offices hadn't gone up, there would be three times the amount of residential now. That would create a marketplace that could flourish because, the more r esidential you put in, the more of a neighborhood it becomes. When it becomes more of a neighborhood, people want to live there. Right now, you can shoot cannons off in the street down there. It is not a very user-friendly residential environment.

Stolatis: The fact that the office rates have dropped as much as they have, the availability of space that you have Downtown...what had been going on in the late 90's as far as residential conversions, I suspect it may reenergize itself and get back on track.

Mendelson: The only way Downtown becomes 24/7 is if you have a residential community that is going to flourish and grow down there.

Fowle: You have to add some housing. If not on the 16 acres, then in the vicinity of the 16 acres just to bridge that gap and create that critical mass.

Mendelson: How many people do you think will be comfortable living on that site?

Danehy: If there is no 110-story tower there...

Mendelson: I don't think that is the case.

Danehy: A fortunate opportunity that has resulted from a very tragic occurrence is that now we have the opportunity to recast the public transit system so that it makes sense. If properly implemented, it will allow for -- not just on the trade center site itself, but in the surrounding area -- an evolving mixed-use development with residential, commercial and retail and cultural.

Fowle: It has to be almost a self contained city. It has to live on its own merits.

Waterman: How much of what is going to be built down there is going to be dictated by the insurance? On the claims, who controls it?

Fowle: I don't think they have sorted that out. I've asked that question as to how the funds will be allocated between private funding, Port Authority funding, public funding. Who pays for the infrastructure, who pays for this, who. pays for that? And they really haven't sorted it out. I think they need this plan resolved first and then they can look at allocating those funds.

Waterman: I guess the question is if the two incidents become one incident -- can you truly build what you need to build with the settlement? Or will the settlement dictate who ends up with control? Because how much in funds are going to be available with insurance money can drive who is going to develop that area and how it gets developed.

Fowle: I haven't got the answer, but I know they are saying that if they have the double-hit insurance, then they will be fine. They can basically build everything they need to do.

Waterman: Right. But, if they don't, I think that will play into who ultimately decides what happens with the site. If there is one claim, there may not be enough funds to truly do what needs to be done down there. Then it becomes a whole other issue, a governmental issue as opposed to a developer issue.

Mendelson: Because the developer is going to walk away.

Fowle: If they can open it up to be demand driven, if they can open it up to private development, then it could have a very positive...

Danehy: There is no demand for commercial space to the extent that it existed before. Something else will develop in its place, cultural institutions, residential, parks, retail. The opportunity, I believe, exists over a period of time certainly in excess of five years.

Mendelson: We have seen a few retail deals Downtown. Borders went into 100 Broadway. We put them in the trade center and it was one of their best performing stores. Whether they are going to be successful at 100 Broadway is a question. But I hope they will be successful. You pay rent 24 hours a day, 7 days a week and can only do business five days a week from 9 to 5. Right now the only draw Downtown is the gawkers that come down to see Ground Zero. I'm not sure if that is a big book buying population or not. The residential down there seems to be doing okay. Worldwide just finished 110 Church, which is now on the market. The apartments are wonderful, they are renting well. The commercial space is starting to lease. We are doing their leasing for them. Residential prices have remained because of the government subsidies. Otherwise no one would be in those apartments at all. You are looking at people who can now live in an apartment twice the size as the one they were living in before for the same price. That i s a wonderful thing. At some point in time that is going to end.

Danehy: You are talking about Battery Park though.

Mendelson: No, I am talking about anything Downtown below Canal Street. If you are renting an apartment Downtown below Canal, especially as you get farther down, the incentives become greater. You actually get a reduction in your rent where the government is paying 25-30% of your rent.

Fowle: Whether it is an existing building or not.

Mendelson: Whether it is an existing building or not, if you have a new lease. If you open up a commercial business down there, they are paying you $3,500 to $5,000 an employee to bring new business down there if you sign leases for over five years. So, I think without the subsidies those buildings were empty. Every building down there had rent strikes.

Waterman: See I don't agree with that because...

Mendelson: No, I am talking about residential buildings. All the Worldwide buildings, they were not collecting enough rents to cover their expenses.

Waterman: The old 17 Battery was 100% rented.

Mendelson: These are all 100% rented.

Waterman: I'm talking about right before Sept. 11.

Mendelson: So was I, but right after Sept. 11 people stopped paying rent and they moved out. And they all went directly to the landlords and said they want a rent reduction if we are going to stay here. A lot of them didn't need the rent reduction. It wasn't a matter of them being hurt financially. They just weren't going to get the services and it wasn't as pleasurable to live there, so they didn't want to pay as much. Then the government came in with the subsidies for anyone who was renewing their leases or staying in their leases to pay a portion of their rent. When that ends, I don't know.

Waterman: That was almost like a stampede mentality.

Mendelson: You had buildings right around the trade center that really got clobbered. You couldn't get in to them. There was no water, you couldn't live there. Those people were getting...

Real Estate Weekly: We are running short on time, so I wanted to finish up by having everyone look into their crystal ball and gives us their thoughts for the future. What do you think will happen in 2003? It is a pretty broad question.

Fowle: From the architectural side, we have certainly seen a major slowdown in new construction. Buildings that are already up there are still looking for tenants, so there is very little expectation unless some clients or tenants are delivered from heaven. However, I think that there is this funny phenomenon where the residential seems to keep going. My personal gut feeling is that a lot of people around the world have a very different feeling of New York than they used to have. After 9/11 they realize this is a city of caring, warm people. It is a humane place and an exciting place to be. And I would imagine that as soon as the economy starts to come back that NYC is going to benefit greatly by this new spirit about the place.

Danehy: I would say that 2003 will continue to be a challenging year in the commercial market from the demand side of the equation. There is going to continue to be limited demand to the extent that there is it will be with the higher quality product and it will be with tenants that are trading from lower quality space to higher quality space. You expect to see the market start to turn back over 2004.

Mendelson: I expect that our market is going to continue to increase in value. There is not a lot of availability. Major transactions in retail set a new benchmark for rental levels. No one is saying the market is $100 dollars a SF, so I pay $100. The market is a $100 a SF and then the next tenant is paying $125. That is an insulated marketplace, but that marketplace continues to flourish. We are seeing markets move. With Fifth Avenue, for example, we are seeing a lot of activity starting south of Rockefeller Center. You never saw anything getting to Rockefeller Center. There is a thought process that, if owners are careful about how they lease their space, they can continue Fifth Avenue upward all the way down towards 42nd Street, which would be something unique and new. We are seeing a lot of the older tenants that weren't making financial sense leaving and new tenants replacing them that can splurge on places at rental levels that are substantially higher than the other tenants. So we are seeing a very act ive marketplace to the extent that there is not an oversupply of space that comes on the market. We think the market is going to increase in value all over the city. At the same point in time, we think there is going to be a lot of space in areas outside the city coming on the market that has to be rethought and re-tenanted. So, I'm optimistic for Manhattan and the urban environments and less optimistic in the suburban areas. But, we think it is going to be a very good year.

Stolatis: Having lived through several cycles - from the late 70's to today we will come out of this cycle again. I agree with Kevin though, that 2003 is likely to be one of just bumping along the bottom. There will be some upticks. There will be several downticks as well. 2004 is probably the earliest we will see any tangible stabilization that people can point to and say, 'ah, yes, we have now hit the upslope.' It is a true upslope vs. the typical up and down that we will be seeing over the next 12-18 months. I think we continue to optimistic about the real estate economy because it has always come back. New York is very vital and flexible in response to its challenges. Back in 1978 - 1979, I remember the Downtown doom and gloom environment that existed, then disappeared. It came back in the late 80's, it disappeared in the mid 90's, it is now back. It will recover. I think the NYC real estate community is especially creative in responding to the challenges. I think we will all be surprised as to what ultim ately comes out of the ground there. In five or seven years we will sit here again, hopefully, and say 'why didn't we see that.' And that will be the solution. I don't think we can safely predict what will be there, but it will be a very intelligent choice. New Yorkers are sharp that way.

Waterman: If you look traditionally to what has happened in the real estate market and how they have trailed the economic markets, we certainly are trailing what is going on in the economy. I think you have at least 18 to 24 months of running flat in this market. The tertiary markets will continue to suffer. I think the flight to quality is absolutely there. Owners that have positioned themselves for this environment, that have actually taken the time when the economy was great and the cash flow was great to spend the money are going to reap the benefits in this marketplace. Will the market bump along? I agree that the market is going to go down a couple of points and then up a couple of points, but I think we have 18 to 24 months in this cycle before we see any type of rebound. It is going to be interesting to see what is going to happen with the sales prices, which is something we didn't talk about. You could see some depressed sale prices. I don't think we will be seeing the big numbers that we have been s eeing the past year or two. The market is starting to show that some of these assets are getting pulled off because they are not achieving the sales prices that they want to. That will also dictate what happens in the next 12 months. I think we should come back in 12 months and see who is right.