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Commercial leasing faces pair of crises.

As the first quarter comes to a close, it is very obvious that the remainder of the year will be affected by two unexpected developments: The explosion at the World Trade Center and President Clinton's wide-ranging call for increased taxes. The local real estate industry's response should be very obvious, for the answers to the challenges posed by these crises are clear for those who care to look.

It is safe to assume that New York (and the rest of the country, for that matter) will not become an open city for bomb-crazy terrorists. Yet while the media and the public responded to the World Trade Center tragedy with an emphasis on the geo-political, the real issue now is how safe Manhattan's celebrated skyscrapers really are.

Television's coverage of the explosion showed how ill-equipped the World Trade Center was to handle a calamity: stories of children trapped in elevators for hours, scenes of people staggering out of the World Trade Center with soot-covered faces and a very obvious air of exhaustion from descending up to I{K) or more flights of stairs. While the design flaws in the Twin Towers may have been unique to the complex, all property managers need to reconsider their own facilities' infrastructures and evaluate the outcome should disaster strike.

The questions that need to be asked are simple: Is your building equipped with a proper uninterruptible power supply (UPS) that will keep the lights and power on when disaster strikes? Will your building's telecommunications infrastructure permit phones, faxes and E-mail to continue operating in the event of a disaster? (How can you call for help when the dial tones disappear?) Is there a credible emergency evacuation plan which is tested with some degree of frequency? (Why did the people in the World Trade Center have to grope their way down the stairways in the dark?) Are your air vents pressurized so as not to become clogged with smoke during a fire? Is your building's security system able to prevent attacks or respond should an attack occur?

Ultimately, are your tenants really comfortable within your property in light of recent events? Have you stressed the safety of the facility or invited them to tour the infrastructure to see that the property can and will stand up to disaster, whether it be a terrorist's bomb or a fire in a basement transformer?

In real estate, as in life, most people never seriously consider issues of safety or security until the unexpected strikes. The lesson learned from the World Trade Center's inability to consider the possibility of the unthinkable was twofold: the sudden exodus of tenants seeking offices across the Hudson and, more important, the loss of life and multitude of injuries which could have been avoided. The tragedy of the World Trade Center is the blunt fact that it could have been avoided.

The Clinton Tax Plan

How do you commit political suicide? Up until February, it used to be by raising taxes or even suggesting a raise in taxes. However, President Clinton's popularity has not plummeted following his sweeping proposal to boost individual and corporate taxes. If anything, public reaction suggests a new maturity that recognizes the severity of the current economic situation. But what will the new tax hikes mean to local commercial real estate? First, the industry will need to separate the psychological jitters from the dollars-and-cents reality. When the tax increases finally become law (and no one thinks Congress will pass the president's program without a few nips and tucks), the net effect on the economy will not be felt for 12 to 18 months. Also, we have yet to see how interest 'rates will respond to a higher tax climate -- Alan Greenspan's alliance with President Clinton could easily be severed down the road. In other words, don't panic now because there's time to panic later.

New Jersey's comprehensive Urban Enterprise Zone program will certainly benefit from the president's tax plan. Companies seeking real estate sanctuary from increased federal corporate taxes will greatly appreciate the diverse tax abatement features of these business-friendly zones. The New Jersey Gold Coast will definitely gain more business because of the Urban Enterprise Zone in Jersey City.

One of the more serious aspects of the Clinton program is the proposed energy tax. This will certainly have a negative impact on the costs of managing office and warehouse space, and the scope of the plan could easily be viewed as yet another example of government using the private sector to fund its programs. However, President Clinton's insistence on sacrifice at all levels may convince the industry to grumble and bear it. Again, it's wait and see time.

The proposed tax increase on foreign corporations operating in the United States will have an interesting effect on local real estate. The global economy is still reeling. Not surprisingly, the last thing foreign businesses want is a new tax hike here -and the threat of a disappearing foreign-presence in local real estate is real enough for Mayor Dinkins to fly to Tokyo last month to maintain good feelings.

Yet while the rest of the world is still in the economic doldrums, the American economy is on the road to recovery - albeit via the scenic route and not the express lane. Still, any real estate withdrawals from foreign companies should be well covered by American companies responding to domestic economic growth. Technology and environmental science firms in particular will be the growth industries to watch and attract.

Reaction to the World Trade Center explosion and the Clinton tax program will probably reconfigure the notion of business as usual. If anything, the next three quarters will not be boring.
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Title Annotation:Commercial Sales & Leasing; New York, New York real estate industry faces challenges posed by 1993 bombing of of World Trade Center and prospect of increase in taxes under Clinton administration
Author:Bowman, Ronald
Publication:Real Estate Weekly
Date:Mar 24, 1993
Previous Article:As leasing goes, sales will follow.
Next Article:Happy tenants will stay 'at home.' (emphasis on service and basic maintenance proves effective means of retaining commercial building tenants)...

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