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Meeting the challenges of changing times.

New Yorkers must face reality: The times are changing, but not necessarily for the better. Due to the recession, the real estate decline, and advances in technology, corporations are finding that a New York presence is no longer as critical as it was in the past. To counteract the exodus of companies leaving the city, we must face our problems with a new sense of urgency.

Our real estate taxes still remain the highest in the nation on a per-square-foot basis. Whenever the budget is short, the city responds by raising real estate taxes and transportation costs, and cutting back on essential services such as the police and the fire department to make up for the shortfall. The resulting costs are passed along to consumers and businesses, driving people away.

Today, New York City office tenants are paying $30 to $44) per square foot for space that currently rents for $20 to $30 per square foot in areas with lower taxes and better quality-of-life benefits. Con Edison is one of the nation's most expensive utility companies, and this cost combined with our rental rates and real estate taxes have made the cost of operating office buildings more expensive than those in virtually any other metropolitan areas.

When a major corporation threatens to leave, the city usually responds with incentive programs. But what about corporations that are here and provide jobs? Where are the incentives for them?

In the past, every major corporation felt that having a New York location was imperative to the success and prestige of its business. As one of the world capitals for finance and industry, it seemed as though New York City would always be a contender.

But now, countless companies have relocated back office operations elsewhere because there is no incentive to remain here. After all, advances in computers, faxes and modems permit a company to serve its business just as well from back office space in less expensive areas.

Another problem that has contributed to our high vacancy rate is the plethora of sublease space on the market. Now, developers and owners not only have to compete against one another to lease direct space but against their own tenants. In order to make the real estate market competitive, owners must work as allies instead of adversaries with tenants that are trying to sublet space.

In addition to freezing or lowering real estate taxes, the city should enact a moratorium on building permits so existing vacant space can be absorbed. While Class A space is renting in this market, it is because Class B and C tenants are taking advantage of today's lower rental rental rates upgrade their space.

For most owners of Class B and C space, the cost of upgrading rundown buildings with high vacancy rates to attract new tenants is, for the most part, prohibitive. In light of the city's serious housing shortage, it almost makes sense to convert these properties into affordable housing. The city needs to address these problems and offer incentives for owners to pursue this course of action.

In addition to creating cost incentives, the city must also deal with serious quality-of-life issues. New York is still one of the most expensive places to live, and few companies are able to pay salaries that cover the cost of living here for the majority of their employees. New York's public education system, crime, homelessness and racial tension also put this city at a serious disadvantage when other metropolitan areas are using quality-of-life issues to attract corporate tenants.

Unions have also played a role in driving numerous businesses out of New York. As specialists in the entertainment industry, we have spent years trying to raise awareness about the problems the motion picture industry has with New York in terms of the cost of doing business, unions and the difficulties of shooting films here. We recently arranged a relocation for the New York office of The Motion Picture Association of America to Encino, and, at this point, Paramount is the only major motion picture company with extensive New York offices.

While there has been a recent upsurge in New York City leasing activity, it still takes a long period of time for tenants to actually sign leases. Where there is activity, there is hope for absorption, but it will be a slow process and much will depend on how the new administration deals with the economy in general and this city in particular.

New York has always been an extremely resilient city despite its many problem, and we remain one the major gateways to Europe in terms of location and accessibility. However, other cities on the Eastern Seaboard also have much to offer and fewer negatives. In order to retain our competitive edge, it is imperative that New York deal with its problems now.
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Title Annotation:Review & Forecast, Section II; New York, New York real estate market
Author:Irlander, Ben
Publication:Real Estate Weekly
Date:Jan 27, 1993
Previous Article:Some good news, some bad.
Next Article:Affordable housing: a look at the numbers.

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