Impact of changing world economy on retail brokerage.

The present volatility in world and domestic financial markets is clearly a concern for the retail brokerage community. While third quarter retailer profits generally remained strong here in the United States, it now seems obvious that there will be some contraction in the frantic pace or expansion that has characterized retailing here over the past few years.

Chairman Alan Greenspan's unprecedented decision to reduce the Fed's rate of interest for the second time in less than a month is an ominous sign that a softening economy will impact every segment of the real estate industry. When Credit Suisse First Boston, Lehman Brothers and other investment bankers withdrew from originating new commercial mortgage backed securities and commitments, a number of major deals went "dead in the water." With Merrill Lynch and a score of other financial market based mega corporations laying-off thousands, the ripple effects will eventually trickle down to consumer levels across the board.

Yet in a time of economic uncertainly, caused largely by events in Asia and other emerging markets, we believe that the prosperity we have enjoyed in retail brokerage in the Metropolitan New York area will continue - with qualifications.

One of the most actively expanding chains in our region is Duane Reade, for which we serve as "exclusive broker." With its recent acquisition of Rock Bottom's 38 stores, this impressively successful drugstore operator will also continue its program of new store growth. Now aggressively penetrating urban and suburban markets on a regional plan, the company's pricing patterns and SPSF performance is better than those of the national giants, while the company is developing patron allegiance in the process. The demand for the products and pharmacy services that they provide the consumer will continue to increase for the foreseeable future.

Amongst the array of "name" retailers we represent, the likes of McDonald's Corporation, Starbuck's Coffee and Blockbuster Video will continue their expansionary game plans. They will not only weather the fallout of an economic slowdown as their competitors struggle, but will enhance their market positions because of their professional management expertise and depth of financial resources.

We are fortunate to represent institutional owners like The Chase Manhattan Bank, whose portfolio quality and ability to make timely adjustments in strategy insure their continuing preeminence in the markets in which they serve. While the consolidation trend in the various sectors of commercial banking will continue, and in retail services particularly, an increase in retail opportunities will be the result. Finding new locations and providing disposition services, as the case may require, will create an increase in demand for professional brokerage capability.

One does not have to be a rocket scientist to determine which retailing segments are most vulnerable. Goods and services retailers that are dependent on "discretionary income" to generate sales for big ticket or luxury items, will be the first to rethink aspirations for growth. We see vulnerability in the electronics/computer sectors, as the largest independents and major chains consolidate to achieve economies.

In apparel, those stores that rely on the upwardly mobile Yuppie and Generation "X" consumers will feel the pinch in sales of expensive clothing and jewelry. Specialty stores and chains that cater to this type of clientele will be susceptible to an impending decrease in demand for these types of goods.

As has been the proven case cycle after cycle, retailer brokers that are innovative, hardworking and professionally competent, not only adapt, but thrive as economic conditions change. There are still a plethora of well-conceived retailing concepts that are well funded, and that will continue to implement expansion programs. We believe that opportunities for retail brokerage will continue to abound in our region and in selected areas around the country, even as the economy seems to be stalled.