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Despite some light, dark days to continue.

The pulse of today's Manhattan commercial marketplace provides good reason to anticipate that 1993 will be a more favorable year than 1992.

On a practical basis it would appear that we are turning the corner, having hit bottom. The City itself has renewed energy, consumers are again spending money, hotels are doing increased business and there exists a sense that the darkest days have been left behind.

Tenants have come to realize that business needs must receive attention and expansion decisions, which have been on hold, must now be considered. Properties have been transferred from weak to stronger hands and the marketplace generally has moved from a death-bed status to that of guarded recovery.

The aforesaid having been said, it is necessary to understand that our problems are far from over. There still exists major vacancies throughout Manhattan. Additional relocations to other geographic areas will take place, institutions still have significant problem properties in their portfolios and sectors of Manhattan such as the Financial District and West Side north of Time Square are drowning in vacant space.

We are witnessing what is tantamount to a pause, to be followed by an especially slow upward move. It is entirely possible that our market will suffer additional sporadic dips, other horror stories will unfold but stabilization will replace a downward trend.

As the process of stabilization continues, it is likely that financially sound professionals will increase holdings and those without the expertise and appropriate financial capacity will drop by the wayside. This, in turn, will result in the refurbishment of older, well-located properties and create a more desirable product base.

Coupled with the above is the fact that new construction has virtually ground to a halt. As economic ills are resolved and business expansion commences, a scarcity will eventually develop in new office space. The combination of these two ingredients will serve to strengthen an otherwise lackluster marketplace.

Tenants have an unparalleled window of opportunity by entering into commitments now which may well seem remarkably inexpensive in three to five years. By acting in a down market, they can negotiate deals which would not be possible in a stronger period.

It is important to understand, however, that tenants should consider buildings wherein landlords are financially capable of honoring all facets of a commitment. It does little good to secure a lease on seemingly bargain terms only to find that the building's operation and/or its future ownership, is in peril. The cheapest deal is not always the best deal. Care should be taken, and professional assistance sought, to endeavor to complete transactions with responsible, experienced and financially capable landlords.

Tenants would be well advised to avoid deals that seem too good to be true. They probably are. It is counter productive to contemplate a lease which has absolutely no economic benefit to a landlord. Such a transaction will undoubtedly prove to be inundated with heartaches for a tenant.

The soundest advise to be offered tenants in this market is to take advantage of our present downturn by negotiating a fair and sensible lease. Surely, it is important to seize opportunities created by market weakness but an overzealous approach can be fraught with danger.

It is also purposeful to consider the sublease market where bargains abound but must be carefully evaluated. Is the sub-lessor of sufficient financial capability to insure that it will be viable throughout the entire sublease term? If not, the sub-tenancy can end if the sublessor fails, in the absence of a nondisturbance agreement, which will usually not be available. Will there exist a cooperative relationship between the sublessee and prime landlord or will there be a lack of cooperation? Such a situation can make occupancy extremely difficult in terms of additional space requirements, extension of term, extra services and unanticipated future needs.

There must be a careful evaluation as to whether a discounted sub-tenancy is really worth the complications which can arise. As in all other aspects of life there seldom is a "free lunch".
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Title Annotation:Review & Forecast, Section V; commercial real estate market in New York, New York expected to improve in 1993 with persistence of continued problems
Author:Goldenberg, Charles L.
Publication:Real Estate Weekly
Date:Jan 27, 1993
Previous Article:New year, new regime, new optimism.
Next Article:Experienced prosper.

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