RELA hears how sloppy lending could cost city.

If the New York real estate market crashes, it will be the fault of sloppy, irresponsible lenders. At least such is the opinion of Daniel Rose, president of Rose Associates.

Speaking at the Real Estate Lenders Association breakfast on November 9, Rose noted that lenders should exercise restraint in providing money for new projects, making sure that the builder has enough experience to succeed and that there will actually be demand for the development.

"There is a wide-spread misconception that lenders finance what builders build. In reality, builders build what lenders finance," Rose said. "If you will agree to finance a bridge to the moon, someone will start buying the bricks. Every time this industry has come to grief it was because the financial industry financed projects for which there was no demand. Every lender should understand that past problems have come from sloppy lending."

Barring a full-force lending frenzy, however, Rose does not think that New York residential market will slow down in the near future. He cited the report Business 360 as saying that residential prices will rise 10% a year for the next three years and 8% a year after that.

"As we speak, there are two proponents of the real estate bubble theory--The Economist and Barron's. Both of them have been speaking about an imminent decline in the market for two-three years," Rose said. "Meanwhile, prices in New York have risen. So you have to see the other side of the coin."

Rose thinks that the New York residential market will continue to prosper--the question is: who is going to be the average consumer? According to him, exorbitant rent prices and failing schools are forcing middle class people out. If nothing is done to correct these trends, Manhattan may end up as an enclave for the very rich.

"The thing about the New York market is that many of our problems are self-inflicted wounds," Rose said. "We have all kind of things that need improvement, but they can be put right. What we should keep in mind in [planning for the future] is that the financial services industry is under great pressure for geographic dispersion. And in all the planning for downtown and the West Side, we need to contemplate the amount of demand what won't be there."

Rose noted some positive development, however, in the spread of renting activity throughout the city. It used to be that people would only want to live on the Upper East Side, he said. Today, such neighborhoods as Brooklyn's Park Slope and downtown's Tribeca are considered just as prestigious. "The entire city is becoming gentrified," he said. "Instead of just focusing on the neighborhood, people are focusing on transportation, on accessibility, on entertainment. Residential activity now is much more dispersed."