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Further decline foreseen for office building prices.

Although commercial building sale prices in New York City already have dropped precipitously, they will continue to slide for at least another year, predicts Henry Gallin, executive vice president of Joseph Hilton & Associates, a Manhattan-based commercial real estate brokerage firm.

"However, those expecting extinction for New York City are mistaken," said Gallin, "and building prices will rebound, along with the city, later in the decade."

The main cause of the lack of activity in investment-grade property sales is the absence of both bank and equity financing, said Gallin, although that is abetted by the poor image of New York city itself.

"Everyone knows that the banks are in serious trouble, but equity is not filling the void, for two reasons," he said.

"Number one, the Tax Reform Act of 1986 killed the incentive for many passive investors. All those doctors and lawyers who used to invest in real estate limited partnerships have dropped out.

"And number two, no matter how inexpensive properties are, prospective owners fear they will have to carry buildings for too long, with too high a vacancy rate. The down time is too great."

Nevertheless, while some of the conditions today are different, Gallin sees a considerable similarity to what was happening in the city 20 years ago -- with the expectation of a comparable resurgence.

"In the mid-7-'s, when New York also appeared to the terminally ill, many people though Olympia & York was crazy when it bought the Uris portfolio in Manhattan," recalled the veteran broker. "But that's how O&Y made billions.

"No one knows who the next O&Y is, but you can be sure that some smart

investor will be buying in the next couple of years."

And the reasons are sound, said Gallin. While financing will be difficult to obtain for awhile, vacancies eventually will decline, and Congress is considering restoring tax advantages to passive real estate investors.

In addition, believes Gallin, New York City itself is bound to revive.

"All cities are having the same problems as New York," he noted. "Because New York is so much bigger, its problems tend to be more publicized than those of other cities.

"But those cities don't have, and never will have, the advantages of New York -- its intellectual capital, its accessibility as a transportation hub, its cultural advantages, its restaurants and its sheer energy."
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Publication:Real Estate Weekly
Article Type:Brief Article
Date:Jan 15, 1992
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