Suburban relocations on hold until NYC absorbs existing space. (Suburban Markets).

Presently, there are approximately 100 New York City office leases (in excess of 100,000 SF citywide) that are anticipated to be expiring or approaching their renewal window in the near term. This limited activity (coupled with the presently reported office availability which includes sublease and direct space of over 45,000,000 SF) represents more than a 13% overall vacancy and may prove problematic.

Additionally, the average asking rents have dropped (at the close of the second quarter) by over $11 per SF. These are just some of the reasons the suburban market should anticipate limited, large-block, New York City relocations, for quite some time.

This conclusion is best proven by the lackluster absorption of large blocks of space in excess of 50,000 SF during the last number of months in both Westchester and Fairfield Counties.

The largest transaction in our markets were limited to the lease signing of only two NYC relocation tenants in the second quarter: Andor Capital Management at the Greenwich American Center for 144,000 SF and the law firm of Skadden Arps at 390 Hamilton Ave. in White Plains (owned and managed by Reckson Associates) for approximately 48,000 SF.

While Westchester and Fairfield County's overall, combined average, vacancy rate parallels New York City at approximately 13%, our asking direct rental rates have not experienced such dramatic percentage decline. Even more interesting is that Westchester's asking rental rate has increased over the last 12-month period by over 3% while Fairfield has only fallen by approximately 9% or less.

Another major problem that will hinder the velocity and timing of the potential backfilling of our large blocks of vacant space (in excess of 50,000 SF) in both markets is: New York City owners are presently, once again, extending concessions and increased workletter contributions.

These factors are not reflected, during the last 12 months, in the approximate 12% decline in the present, overall, NYC asking rental rates.

The continued lack of absorption in the sublease sector is the greatest variable which will continue to put pressure on the net effective effectuated per SF price of direct transactions in each of our markets (including New York City). I anticipate this to continue through the first quarter of 2003.

This interim shake-up in each of our markets is creating an interesting opportunity for existing tenants with leases in place. This opportunity is the ability of the aforementioned tenants to recast their transactions and lock in long term leases at favorable rental rates and in most cases, with work letter contributions and other concessions that were unavailable less than two years ago.

Historically, Fairfield and Westchester County's re-building has always come not just from the large block space users, but from the mid-market private sector with space requirements between 7,500 and 25,000 SF. In the 80's, there was a New York City exodus by varied shipping concerns to the Greenwich area. In the early 90's, we saw the relocations of large management related concerns and the next sectors. Both of these entities have begun to emerge as two potential, dominant catalysts to our rebuilding and have come from both the financial sector and law firms, as witnesses by the most recent Skadden Arps relocation.

This financial sector includes money management companies, Hedge Fund groups, and other related financial service concerns who I believe will ultimately assist us in the near term backfilling of our vacant space.

While almost every real estate market is cyclical, our market has always lagged behind that of New York City, by up to one, to two quarters. In my opinion, the greatest two components which will aid in the expeditious stabilization of occupancy levels and ultimately increase the effectuated rental rates are:

The lack of new construction in our region and the ability of New York City's existing owners to recast their current building financing at interest rates not experienced for decades.