Are we there yet? Economic indicators point to recession.

No matter what role you play in the real estate industry, brokers, owners and savvy tenants all have the same questions racing through their mind ... Are we in "the" recession?

Is the fact that New York City office rents seem low when compared with other global market rents justification for paying $200 per square foot? Can hedge funds and banks continue to afford the high office and retail rents respectively or is the credit crunch putting everyone in check? Is the new office product being built really going to be so readily absorbed?

It seems that these questions are on the minds of tenants, brokers, developers, investors, industry watchdogs and even the average Joe, unfortunately none of whom have the answers.

Although we don't have a crystal ball to see into the future, my advice to clients has been to ride their existing lease obligation until the storm passes, and try to delay securing a new long term obligation in the current market.

Recently, a large investment firm renewed its lease in Rockefeller Center at a "retro active" market rent of $130-per-square-foot. Although we have recently heard of deals being done in this range, the complex deal structures being completed with such unfavorable terms for tenants should be a clear sign that the market is ripe for a correction.

We witnessed this kind of activity in 2001, when the market was over-heated and deals were being completed at unheard of rental rates hitting close to $100 per square foot, when the average Midtown rent at that time was $74.54 per square foot.

We are in a situation that is very familiar--luckily there is no tragedy like 9/11 that extended the downturn, but the economy now does shadow that of second quarter 2001. The dynamics may be different but the environment is the same.

This momentum of the real estate industry is based not only on consumer confidence, but also on the ease of access to capital and ability to invest that capital into assets.

Tenants have begun to feel the effects of the "bank blowup"--a new term I would like to add to the likes of the "credit crunch". Layoffs, earning woes, and scaling back of real estate are now all factors of this economy that clearly show we are in a recession.

The corporate mindset has also been rattled with the departure of CEOs at firms like Citi and Merrill Lynch. Due to increasing costs and tremendous losses, these companies will revert to tighter cost controls which directly impacts real estate decision making.

The questions I leave you with will be at what cost will Merrill move ahead with relocation to Penn Plaza? How long will it take to truly rebuild and occupy the new World Trade Center? Will the Eighth Avenue corridor revitalization continue at the speed it has begun with from the spark of 620 Eighth Avenue?

BY JORDAN MANDEL, VICE PRESIDENT

UGL EQUIS CORPORATION