Owners must commit to constant improvements.

The future looks brightest for properties with strong ownership, aggressive modernization programs, and convenient links to public transportation that are located within a successful business improvement district. We have already seen the bottom of the Manhattan real estate market. Buildings are filling up and companies are making long-term commitments to New York.

Though large blocks of office space are still available, rents are moving in the right direction. Rent credits and work letters in lease negotiations are becoming less generous. In the short term, we may never see the type of market we enjoyed in the Eighties, but, in general, the future looks good for Manhattan real estate.

The current competitive environment requires owners willing to raise capital and spend large sums to upgrade the infrastructure and public spaces of their properties. Buildings, even ones no more than two decades old, must be in an almost continuous state of improving their physical plant. Strong ownership, with the ability to commit the resources required to make these and other infrastructure improvements, will become more of a consideration in signing new tenants and retaining current ones.

The ownership of One Penn Plaza has commenced the work under a $25 million capital improvement program. The building, opened in 1972, is getting new public corridors, new lobbies, new entrances, upgraded heating and cooling systems, a refurbishing of every elevator in the building, and new amenities for the public plazas. Our goal is simply to make One Penn Plaza a Park Avenue building on top of Penn Station, which may be one of the reason that, over the last 36 months, we've signed 200 leases for over 1,250,000 square feet.

Transportation connections are another ingredient in marketing office space in the years ahead. Many companies that have moved their back offices to New Jersey, Westchester, Long Island, or the outer boroughs, must still maintain a presence in Manhattan. The ability to get to Boston or Washington by high-speed rail or to other cities by air is now a key determinant in making real estate decisions. Such companies will be looking for offices that are convenient to rail transportation, affording buildings at transportation hubs such as Penn Station a distinct advantage in the years ahead.

If building owners are required to make major infrastructure improvements to sign and keep tenants, government must be willing to do the same to keep business in the city and maintain a strong tax base. Improvements to transportation will be required to keep New York City competitive, such as the $200 million in improvements that the Metropolitan Transportation Authority is making to Penn Station or Amtrak's hopes for a $300 million program to relocate across Eighth Avenue to the McKim, Mead & White main post office. Modernizing equipment along the lines of Amtrak's purchase of high-speed trains or a direct rail link to airports will improve the marketability of Midtown.

A bright future for Manhattan real estate can also be seen though the proliferation of Business Improvement Districts modeled after the Grand Central Partnership. Companies that leave the city for outlying suburbs cite crime and dirty streets as two reasons for making the move. Business Improvement Districts have proven their worth by reducing street crime and removing tons of litter from sidewalks. Their capital programs are rebuilding our sidewalks and re-lighting our streets. Business Improvement Districts have also united retail merchants, office tenants, and property-owners in ways not previously envisioned and have set up direct lines of communication between business and government that have led to numerous quality-of-life improvements in New York City's streetscape.

Business Improvement Districts afford property-owners the ability to influence the streetscapes of their neighborhood. Active participation can improve an area, making it more desirable for tenants. The improvements in Bryant Park have created higher asking prices for landlords. The 34th Street Partnership's plans for Herald and Greeley Squares will improve the real estate climate all along 34th Street. Unquestionably, this has helped us at One Penn Plaza.

I have no doubt the real estate values will continue to improve. Properties with strong ownership that take an active interest in their surroundings will fare best in the very competitive days ahead.