As The Bull rages, The Street re-invents itself.

October 29, 1995 was as much of a positive wake-up call to real estate investors as October 17, 1987 (Black Friday - which ominously celebrates its 10th anniversary this year!) was negative to Wall Street traders. It was on this glorious day that Governor George E. Pataki signed into law the Downtown Revitalization Plan and opened the oxygen tanks to what almost everyone assumed was a dead Lower Manhattan.

Since this time, the annual dollar value of real estate transactions within the Lower Manhattan marketplace has climbed dramatically. In 1995, the City began to hear a weak yet noticeable pulse. In 1996, the recovery pushed ahead as the rush to capitalize on what could be the next great investment cycle for real estate investors commenced. According to one industry report, the total dollar value of real estate investments in Downtown Manhattan for 1996 surpassed the aggregate value of real estate investments for the period 1991 through 1995.

The Carlton Group is intimately aware of this delicate heartbeat - as we have closed, placed under contract or are marketing over $800 million of finance and sales transactions within the Downtown marketplace. As an exclusive advisor to some of the most aggressive and dominant players in Downtown Manhattan, we have eagerly witnessed the turn-around of this soon-to-be thriving neighborhood.

In short, the Downtown Plan provided numerous financial incentives, which in turn made the economics of real estate investment in Downtown attractive, profitable and exciting. The plan offered, among other things, a 14-year phased tax abatement program for conversion of office properties to residential use; 12-year phased tax abatement programs for commercial renovations and mixed-use conversions; a 12-year phased program of reductions in electric rates for commercial owners who make improvements costing at least 20 percent of their building's current assessed value; and an eight-year phased tax abatement program for construction of new buildings that are computer-ready. The law also aided buildings that are not able to jump on the conversion bandwagon by providing a five-year phased abatement program for real estate taxes and commercial rent taxes, applicable to newly leased space or renewals in commercial office properties built before 1975.

The combination of these financial incentives, coupled with abundant capital from a few select providers, a residential rental vacancy rate city-wide of 1 percent, a sizable 20-percent differential in Midtown vs. Downtown lease rates and an improved living environment in New York City, have all provided the stimuli that the once-ailing financial center of the world required.

While lease rates and occupancy levels have increased, no other measure is more reflective of the confidence and belief in Downtown than a purchase by a major Fortune 500 corporation of a building to be used for their own employees. There have been three of these purchases in the last 12 months.

First, AIG - the giant insurance and financial services company - purchased 175 Water Street, which was formerly the National Westminster Bank Building, for $52.9 million or almost $90 per square foot (psf). The building had a sizable vacancy, but is of 1980's construction and considered a premier Class A office building.

In October 1996, MTB Bank purchased 90 Broad Street, a venerable Class B building at the corner of Broad and Stone Streets for $15 million or $43.66 psf. Then, only recently, it was announced that Merrill Lynch & Company had entered into an agreement to purchase 222 Broadway, a monster of a property with almost 756,000 square feet. The firm has not announced any specific leasing intentions, but was known to have been in the market for more space. In addition, it is reported that Goldman Sachs & Company may be taking close to 500,000 square feet in a lease transaction at 10 Hanover Square.

Perhaps the most telling statistic in the revitalization of Downtown is the price per square foot paid for what only a few years ago were considered "dinosaurs." Whereas initial building sales traded for approximately $5 to 20 psf, a Downtown building that has all the qualities of a good office building or the potential for a residential conversion can now trade for up to $70 psf (as evidenced by the recent contract signings at 17 Battery Place and 21 West Street).

Lower Manhattan, which has been reinvigorated by the Downtown Plan and substantial investment activity, is no longer a pioneering effort but a reality. It offers real estate developers and investors a tremendous opportunity to capitalize on what is currently the City's most dynamic and profitable market.

The Carlton Group has carved a specialized niche in advising Downtown buyers and sellers, including The Dutch Reform Church, Board of Directors of The Downtown Athletic Club, the recent purchasers of 100 Church Street (a one million square-foot office building) and many other institutional owners and developers.

We fully expect the Bull to continue on its wild fide, however the current journey will produce profits made of bricks, and mortar and not the paper profits seen on the Street.