The value of NYC real estate: it's more than bricks & glass.

The past, the present and the future state of New York City real estate has always and will continue to be a product of international, national and local influences on the market. Almost anything that occurs reflects on the fortunes of property owners in New York.

In the commercial property sphere, as landlords we provide rental space to our tenants in every conceivable industry, our fate rests with the products they sell to the world's markets. If our building happens to rent to the garment industry, and they suffer because of a change in the tariff laws, then we too will find our bottom line affected.

After the Wall Street debacle of the late 80s, the high-end residential market suffered because of the many well-paid traders and executives that lost their jobs. The crash affected businesses across the board. Lack of consumer confidence only made matters worse. Our products, in this instance, apartments, condos, co-ops, homes and office space, remained the same, but the demand shrunk, due to market forces beyond our control.

Similarly, we can see drastic changes in our industry: when the government changed the rules regarding real estate investment and when congress re-wrote the laws regarding the deductibility of gains and losses, overnight the feasibility of real estate investment changed. Without regard to the billions of dollars already committed, our lawmakers decided that a new strategy was needed and it would apply to all real estate - the old investments as well as the new. For many of us this amounted to the devaluation of our investment.

At this juncture you are probably asking "What does this have to do with a review of the market?"

We know as professionals where real estate has been, but where is it headed in the future?

I have just illustrated examples where the nature of our real estate investments have been altered without us changing the product. Too often, just as generals prepare to fight the last war, we gauge our decisions on outdated information,

What developments should we be looking at to forecast the future?

Closest to home is the seriousness of the City's financial problems. Those of us who lived throughout the early 70s remember the predictions of the city's bankruptcy, which of course never happened. We bounced back with renewed vigor because of a strong commitment by all in the city to sacrifice and the help of the federal and state governments. Though there is no talk of bankruptcy this time, I don't foresee the willingness of the concerned parties to work together, nor do I anticipate help or even leadership from Albany or Washington. Without such, New York City will lurch from crises to crises and continue to decline in prestige and stature, which will affect real estate values.

The changing nature of the workplace will also make a difference on how the commercial and residential markets operate. Just as we have seen our manufacturing job base erode, we will see our service sector employing fewer people. Within a generation, the workplace will be dramatically different, which will change the nature of requirements that we offer.

The facsimile machine, cellular technology, laptop computers, modems and other sophisticated equipment and software have already made their unchangeable mark on today's office. Already, industries like design and architecture have been totally transformed by this technology, resulting in a loss of jobs for draftsmen and others, which means we rent less space.

Finally, we should be anticipating that congress will drastically alter the income tax and how those changes will affect real estate. The Sacred Cows of depreciation and deductibility of mortgage interest, local property taxes and state and city income taxes will be curtailed or eliminated. In New York, where the cost of a condo or co-op is astronomical, a large mortgage is a necessity. New Yorkers are also saddled with the highest property and income taxes in the nation.

Any change in the rules will have many unforeseen consequences to the market. In planning or forecasting the future of our industry, it is easy to annunciate the immediate statistics and latest deals. That is not helpful for the long-term prognosis of the market. The wise investor and owner must contemplate the more far-reaching trends of the future to make sound decisions for the next decade.