Banks tightening credit standards, but capital still available.

With the year 2000 in the record books it is the time to be thinking of what will become of the economy and for the real estate business in the coming 12 months.

Last year brought many records in leasing and sales. Some were left wondering if this was the top or if there was more steam in the market. In December, the economy appeared to falter, at least in parts of the country, with many layoffs, suspended expansion plans and concerns over a possible recession. As of February 2001 we are still wondering, even after two substantial interest rate cuts, if the economy is really going to slow down.

One thing is for sure: banks are tightening credit standards across the board and this certainly applies to the real estate business in New York.

Of course, bankers are trying to think ahead and slow down lending given the perception of a looming recession. Caution is the word as bankers are attempting to figure out if we indeed are entering a recession or if we will simply have a mild slowdown. And, if credit continues to be more difficult to obtain, this will slow the pace of the real estate market even more.

For the established borrower seeking conservative financing, however, there continues to be an abundant supply of capital. And with competition keen among banks, these borrowers will be highly sought after. This is due to the fact that many banks still have very healthy balance sheets and, barring any major economic problems, should continue to perform well in the future. Indeed, a lower interest rate environment is always good for banks.

On the owner/developer side plans have been scaled back for "spec" office/commercial developments or changed their use to residential. Owners of residential buildings are also taking the recently unheard of step of offering discounts to prospective tenants and paying brokerage commissions. Office properties are seeing more sublet space become available and leasing has slowed from last year's pace. Importantly, many "dot-coms" are drastically reducing their work forces which will further soften the demand for mainly Class B space. The fluff is definitely out of the market!

In the next 12 months borrowers should be cognizant of tightening of credit and should factor it into their plans and bankers should be on the lookout for leasing problems and loan delinquencies.

If the general economy can stabilize itself, with the help of further interest rate reductions, then we will probably avoid any serious effects to the New York real estate market. If not, and if Wall Street sputters, we will certainly see more fallout.