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Review & Forecast roundtable.

Real Estate Weekly: Last year was almost two years, before Sept. 11 and after Sept. 11. I guess we could start by talking about what was happening in the market prior to Sept. 11 and then talk about the impact of the attacks and what was happening in the market after Sept. 11.

Steven Swerdlow: From Jan. 1 to Sept. 10 we had seen a gradual erosion of the market from what was an historically tight situation. We hadn't seen vacancy rates as low as they were at the end of 2000 for 20 years. It was December 1980 when we had the last historically low vacancy rates. Vacancy rates had gotten as low as 2%, which is below functional vacancy. There had been a commission formed by Sen. Charles Schumer to figure out how to respond to the space shortage. Then, with the collapse of the dot-coms, we started to see erosion gradually through the year. Then Sept. 11 came along and there really was a decline in the market. Vacancy rates have now gone - over that 12-month span - from roughly 2% to up over 8%. Significant amount of sublet space has been moving onto the market; at least half of that increase is attributable to sublet space. We expected (and we were wrong) right after Sept. 11 that the space being taken out of service, roughly 30 million SF, that there would be a tightening in the market . It was counterintuitive because the market softened further. A lot of people had been sitting on vacant space and, after Sept. 11, they brought it to market.

Mark Jaccom: Just to follow up with what Steve is saying, I think companies were in the process of lying off a tremendous amount of employees. I don't want to say that Sept. 11 kickstarted it or gave them a reason to do it, but after Sept. 11, we saw a tremendous amount of space come on the market. At this point, the Downtown tenants that went through Sept. 11 are not looking to stay down there, but are looking for space in midtown. The problem they are finding is that the space in Midtown is still leasing at a high rate. They're coming off deals of $35-$45 and looking at space in midtown of $70-$80 a SF. It is a religious experience for them that they would want to move, but economically they can't. The city and state, at this point, have not given a clear picture of what will keep these tenants Downtown - what incentive packages they are going to need to seduce them to stay in that marketplace. A lot of us are saying 'stay tuned,' a lot of us have clients that are kicking the tires in midtown. Psychologica lly the tenants want to leave, but they cannot break these leases because of these prior commitments.

Carl Weisbrod: I agree with what has been said. There was a disconnect in the market prior to Sept. 11 and even after Sept. 11, to an extent. I don't think we've seen the number of layoffs that is commensurate with the loss of space. In fact, many companies had an excess of space prior to Sept. 11 and prior to layoffs. Everyone was surprised to see how much vacant space was in 7 World Trade Center. So, not all of the give back of space and the increase in the vacancy rate is due to layoffs either prior to Sept. 11 or post Sept. 11, but rather to a lot of companies having excess space that they have not yet formally put on the market. Second, I agree that a lot of companies are waiting to see what will happen on the state/city with incentives. I think that will develop over the next few weeks, probably by the time this article gets published. I think it will have a major effect in stabilizing the current Downtown market because many companies that may be willing to come Downtown now because of cheaper rents a nd might be willing to stay if the price is right. Given the sticker shock they are already experiencing with Midtown space, they will do so once the incentives become clear and particularly if they are 'as of right' which I expect most of them will be.

Stephen Estroff: As an attorney, I see the transaction when it is a transaction. I would describe the market before Sept. 11 as slow. In the leasing market there was an awful lot of sublets and surrenders. There, were a lot of people cutting back especially from the dot-com period. After Sept. 11, there was an immediate flurry of activity with emergency space, deals that were done within 30 days and now it is absolutely horizontal. My clients are telling me that there is a mismatch between expectations. They are not consummating deals, it's sticker shock as you described. The bottom line is that I am experiencing a horizontal leasing market, very little activity.

Richard Anderson: Members of the Building Congress are predominately in the design and construction sides of the industry and they are mostly ahead of the curve. They were in a very robust situation before Sept. 11 with overload, extensive backlogs and a lot of activity. Since Sept. 11 there have been slowdowns, but they have only been in certain sectors such as interiors. People that are doing public work have yet to have any kind of a pullback that could happen with the budget pressures within the upcoming year. The institutional work, such as some of the universities, medical facilities, have been very, very strong. The outlook, while it is guarded for the upcoming year, is still very active for most architects, engineers and contractors.

Real Estate Weekly: Has there been a staffing shortage because of the amount of workers that are at Ground Zero?

Anderson: Absolutely. Now it has lessened, but before Sept. 11 it was a real problem in certain areas, like union electricians, and certain trades people, certain project managers. Now you are finding that the unions have a few people, but not a lot. This is still a full employment situation.

Estroff: Do you have a predictable pipeline as to how long?

Anderson: We do a piece that we started last year called 'Outlook.' We add up building permanent data, public capital programs like the MTA, the Port Authority and others and that still looks quite good. Some of the housing work it is not up to 16,000 units like it was in 2000. Now it looks like it is going to be a little bit less, but we are not going back to 4,000 or 5,000 units like it was a few years ago. Some of the anecdotal stories about how bad things are in terms of actual building activity are not born out by the numbers. So, what we are really guarded on is whether some of this leasing experience is going to translate into the downturn in actual construction.

Jaccom: If you look after Sept. 11, there was a surge of companies that needed to do something immediately, so that definitely spiked up construction and architectural work for space they needed to occupy in 30-60 days. I would think that a lot of that type of work is settling m. The real question is, with those companies settling in and with those companies still not knowing what they are doing downtown, the backlog of work is from years ago. We have been tracking over the last 3 or 4 months the activity of deals. We are finding that, with deals from 10,000 to 50,0000 SF, there is still a tremendous market. These users are fill-in tenants and I think that activity is going to continue. What I don't see is the larger deals. A couple of years ago we had a tremendous amount of deals being announced in Times Square and different new developments. I think we have seen that slow down tremendously and we don't believe in any spec buildings uptown. If anything, the new buildings will be built Downtown. Again we wil l have to see what is going to happen Downtown.

Weisbrod: As you noted earlier, all of us were surprised after Sept. 11 by the lack of need for new office space. I think that has actually worked to Downtown's long-term advantage. The reason we are not seeing large deals is because companies are not expanding and are not outgrowing their existing leases for space. The largest deal we have seen this year, probably the largest we will see in 2002, was the UFT's deal that was well in the works before Sept. 11. That is a 700,000SF lease and purchase deal for leasing 52 Broadway and buying 50 Broadway. It is a big deal under any circumstance, but is certainly a big deal in the wake of Sept. 11. I also believe that state and city incentives, particularly state incentives with federal money, ought to be principally focused on that middle range tenant (the 10,000 to 50,000-SF or, the 10,000 to 100,000-SF tenant.) That is where the activity is going to be next year. Those are tenants that will need some sort of certainty about what kinds of public benefits will be available. While the 100,000-SF tenants ought to be able to go in and have tailor-made deals that will keep them in the city and particularly keep them Downtown.

Estroff: Is there any precedent for providing benefits to that size tenant?

Weisbrod: Oh, sure. The lower Manhattan revitalization program was successful. It was not so much the amount of money it provided, but the fact that it had the only 'as-of-right' tenant-oriented program we have ever had. The key was that it was 'as-of-right' and only applies to buildings built before 1974. The ability of brokers and owners to market, this you get automatically. You don't have to hire an attorney to do it.

Estroff: You are thinking of an expansion of that type of 'as-of-right' program?

Swerdlow: We need it now; we have tenants that are waiting to see what will develop in the incentives. It is hard enough to get commitments right now, with the economy and the state we are in right now, people are slow to make significant capital commitments. With that, compounded by the situation Downtown, everyone is waiting to see if a momentum develops and the first step is the incentive program.

Weisbrod: Yes. From my prospective, especially for that middle range tenant that you are talking about, where the activity is going to be in the next year. That is really an important public policy.

Weisbrod: I agree.

Real Estate Weekly: While we are on the subject of tenants...what are the tenant's expectations nowadays? Are they looking for deep discounts in rents to move? What is it that is going to get them to move on a lease?

Jaccom: The problem is the unknown right now. There are many balloons being floated about what the city and state are going to do Downtown. We analyzed it - don't hold me to the numbers - but we came to about $2.30 per SF on the package on a yearly basis. You could still go to Jersey City today and get an $8 SF package. If that is what is floating around as the incentive program to get people to go Downtown, it is not going to work. It could not work because it is not enough dollars, so what people are doing is sitting on the fence. They don't know it's unknown right now. You have space going, Merrill Lynch is offering- space Downtown in a beautiful building -- the World Financial Center. Speaking to the broker the other day it was $40,- $100 installation, a year's free rent, and that is even before I started negotiating. But again, what is going to happen with the other part of the picture? People are going to wait and see. So with the sublease market, landlords try to stimulate the tenants to make deals Dow ntown, but I don't think anyone can do anything at this point until they really know what the city and state programs are going to be.

Anderson: How much of the situation in the city is the overall market and how that rebounds related to the national market? And how much of it is what specifically is done to create incentives for Downtown? Isn't most of it the former? The market has to improve overall and then you can do certain things to help the Downtown situation.

Weisbrod: I think the softness of the general market has helped Downtown. In a standard environment, Downtown does best when the market is tight. Now Downtown is holding it's own and has a base to recover. It has a base to be the first out of the box in a recovery because the overall market is soft and building is not occurring elsewhere in the city. The market is soft, but it is not of the cataclysmic nature that it was in the early 90s or in the 70s.

Swerdlow: I think the incentive plan will prime the pump in the short term. Once the incentive plan goes into effect, I think you will see people make commitments. For the medium term you do need to have the financial services sector recover. They are continuing to lay people off, as Mark mentioned, and if they lay people off you are not going to see that absorption of space. If the economy recovers and the stock market has a real recovery, you will see them hiring again. That will effect the medium term. In the long term, we would talk about the longer-term plans for Downtown.

Anderson: That is a very important factor, we can't be so focused on the coming year and what needs to be done Downtown and lose sight of the major factors that have been the constraints on the market in New York. Things like energy supply, which will be a real issue if we don't get some power plants built in this city over the next few years. The availability of housing, which has been the Achilles heal in this city for years, and our infrastructure not keeping up with the private economy are also factors. Those kinds of multi-year things are especially important in a year where we are so focused in the aftermath of Sept. 11.

Weisbrod: I agree with you. But I think the things that you are rightfully saying we need - given the resources available and given the general political consensus of the city -- are going to happen Downtown first. The infrastructure improvements, the transportation improvements, the telecommunications needs, the housing...all of that is going to happen in lower Manhattan first. Whereas before Sept. 11, every one of us would have said that is going to happen on the West Side of Manhattan. That is the fundamental change in the overall real estate market in New York that Sept. 11 created.

Estroff: Implicit in that is the overriding question of what is going to be done with the World Trade Center site and the impact of that on the market. That saga has to be played out and resolved in court. You have two states involved.

Weisbrod: I think that is only partially true, there are three things that are really continuing to affect the instability of the Downtown market. The three core things that are affecting the Downtown market are: 1. Transportation. In particular the absence of the Path trains. That is going to go ahead very quickly without regard to what happens with the WTC site. I believe we will go ahead and create a transportation hub at the very least that was better than was there before Sept. 11. 2. The absence of amenities, particularly retail, which we lost in the WTC, and how quickly that comes back depends to some extent on the WTC site, but not entirely. 3. The trauma that everyone Downtown. experienced on Sept. 11. A lot of the demand to leave Downtown is not employer. driven, it is employee driven because of. transportation issues, quality of life is sues, air quality issues and just the memory of Sept. 11. Those issues fade irrespective of what happens. with the WTC site. The WTC site is very important, but those other factors will play a major role, even before we know what is going to happen with the site.

Jaccom: On the positive side, the cleanup is ahead of schedule, getting the IRT up is ahead of schedule, the Path is way ahead of schedule. You are right, there is a psychological factor of the tenants who were down there. I represent Oppenheimer Funds and people refuse to go down there. Now saying all that, we took some space in Midtown in the mid-$40s. They are going to search out the marketplace and look at Midtown and Downtown space. My opinion is, at the end of the day, they are going to end up back Downtown. The pressure of the leasing pricing in Midtown could be double what is offered Downtown. So psychologically, people will get over it, and then the economics of the deals will force most tenants to go back there or stay there. If you look at everything from day to day, a couple of months ago it was gloom and doom and as time goes on it is a more positive picture. I think, it is our job to paint a better picture and to educate tenants and the politicians about what is going on down there. I don't thin k it is so gloomy down there; the real question is how much more space is going to come on the market? What are the programs going to be? And then we can start charging away, trying to make those deals. I don't think that we are going to get out of the box until everything is in place, but things are changing and I believe in a greater and more positive way.

Anderson: I think the biggest challenge facing the city within the next couple of years are the unbelievably difficult choices that are going to have to be made. All the infrastructure projects can't go forward. Sport stadiums vs. other kinds of investments, the operating budget is going to be under enormous pressure with. at least a $4 billion dollar budget deficit. The new administration and the City Council are faced with these -unbelievable choices that they have to make. These choices really affect the market. Of course overriding this whole thing is the under appreciated role of lower Manhattan in the economy. People used to talk about $13 billion in bonuses from Wall Street, but you know what that meant to the economy? To have the previous mayor say that the economic importance of major sports facility is the same as the New York Stock Exchange was ludicrous. The NYSE is so incredibly important to this economy, for lower Manhattan, for the city, for this trillion dollar tn-state regional economy - one of the five largest in the world. I don't think that whole context is fully appreciated. The strategic choices that will have to be made are more important in the next ,couple of years as they have ever been for the city.

Weisbrod: Even though there is a consensus that lower Manhattan ought to be rebuilt, there are some major political questions. It is easier to create that political consensus than it is to realize that in order to achieve the rebuilding of lower Manhattan, x and y have to be sacrificed. I think there has to be a continuing reaffirmation of lower Manhattan's role as a financial center. Eventhough we know. that many financial firms are in Midtown, there is always going to be some sort of flow. Even before Sept. 11 we saw Chase/JP Morgan coming to midtown, we saw Deutsche Bank going Downtown, the key anchors of that financial center the NYSE and other exchanges, the Federal Reserve Bank and the like are committed to lower Manhattan. I think it is critical for NYC's role, as a financial center of the world, that there be a geographic visible center as epitomized by the NYSE. A reaffirmation of that is critical. The diversification of lower Manhattan is intended to underscore and secure Downtown's role as a financ ial center, not to move away from it. I think that is an important thing to understand.

Real Estate Weekly: How important do you think having new office space on the WTC site is to the overall economic development of lower Manhattan? There has been a lot of talk about what to do with the site and there is going to be a lot of pressures from a lot of different areas.

Weisbrod: My own view is that we lost 15 million SF of commercial office space permanently and another 13 or 14 million temporarily. Not all of that 15 million SF has to be replaced immediately. And even that which is replaced doesn't have to be replaced on the WTC site. My guess is that there will be some office space on the WTC site, but the site itself and the complex itself served many functions. First and foremost, it served as a transportation hub and that is key to Downtown's future. Second, it was the major retail hub, the loss of that retail space is very important. Third and maybe this should have gone first there has to be a memorial and the memorial is going to take up a substantial amount of space. Fourth, there is an opportunity to improve on Downtown circulation of both vehicular and pedestrian circulation. The site served as a block between the World Financial Center and the rest of Downtown. There is an opportunity to use this physical place as a means to connect all of that, which is very, v ery attractive. So, I think office space plays a role, but it is not necessarily the driver of what happens on the space.

Jaccom: Prior to Sept. 11 Downtown was going through a period of trying to develop residential and give itself some nightlife. In the past, everything shut down at 5 p.m. Then, with Battery Park City, there was some kind of momentum with retail stores and clubs. So, it's not just office space, the whole environment has to change. Keep in mind that when we are talking about the WTC or 7 WTC, it is a 3- or 4-year target date. If they start breaking ground today, this space won't t come up for 3 or 4 years. What you don't want is to build 10 million SF of space and then have no tenants. I think that would cause an even bigger rippling effect. There is enough space Downtown today that has to be absorbed and there is a limited amount of space in Midtown-Midtown space is being absorbed at pretty high dollars. So, what they would have built Downtown prior to Sept. 11, they still have to consider today. It has to be mixed-use, it can't just be office space. People talk about building sports complexes, stadiums, and t he memorial must be there. The problem is if you ever go into the city and state meetings and sit on the sidelines they scream at each other, nobody knows who's on. first Nobody. really wants to spearhead, although there were many that said they were spearheading, many said that they have the attention of the governor and the new mayor, and it is still in flux. Until somebody finally takes the bull by the horn and says, ok I hear you, I hear you, but this is what we are going to do, it is going to be very fragmented.

Anderson: What encourages me about the outlook for the WTC site is that it is a shared responsibility. I think the senior decision-makers are going to be more on the same page then we have seen in recent years. It is not going to be a situation like it was 40 years ago when it was done unilaterally by the Port Authority and without a lot of public input. To me, you have to meet certain tests of what goes there. The most important test is going to be that this will be one of the most visited sites in the world. It has to be designed with that in mind so that the memorial and the reflection of what happened is uppermost. People must be able get to it and see it. The second big test for me is how this supports lower Manhattan, the city and the region. You want to have a mix of activities that really work long-term with that in mind. When you come up with that kind of mix, office and economic activities should be part of it, but they are not the only part. And I think this is all something that is not going to be decided quickly. The real issue is that you have a hole down there and in the coming months ... what happens in the interim?

Estroff: You also have ownership rights and I don't think we can pass over that. You have the Port Authority's position and you have the tenant's position. There is a lease and insurance issues must be resolved. To a large extent, I'm recognizing the need for some sort of public memorial - I'm not in any way belittling that - but economics have to drive it. You can't build anything down there unless someone is going to occupy it. In the long run I believe that, outside of the public sector's desire to correct mistakes of the past, economics will drive it.

Anderson: But that didn't happen originally. Originally it was not an economically viable project.

Estroff: That is right, they had the total ability to override all issues and override zoning. I don't know what the situation is today but...

Anderson: But economics can't fully drive it this time. I agree with you that it will drive it more than the original one, but the pressure for this memorial will be enormous.

Estroff: I don't think it will be totally (driven by economics.) But when it is finished, what will be built there by the private sector will be-- what can be done financially.

Weisbrod: Even before we get into tax incentives and PILOT payments, we know that the lessee will get somewhere between a payment for one or two occurrences and a lot of insurance money. Plus, he can build on the site with tax-exempt debt. To what extent will that make this new office space competitive?

Estroff: Why are you saying tax-exempt debt? It would be leasehold mortgage financing. Would you say that it would be bonds of the Port Authority?

Weisbrod: Part of the federal legislation is that there is a certain amount of money set aside for new construction in lower Manhattan with tax-exempt debt. So, there isn't federal tax-exempt authority for constructing in lower Manhattan.

Swerdlow: I think the debt carry is important. I was looking at the way construction costs have been raising over the last several years. You have an index of 100 in 1995 and the year 2001 was at 130 Unsubsidized office space, whether it is Midtown or Downtown would require $70-80 a SF in rent. I don't think the carry, the enhancement from public financings, is going to close that gap.

Weisbrod: Even with the insurance proceeds from between one and two occurrences?

Swerdlow: Well, the proceeds are going to be implied. Someone still has to make a judgment that there is a fair return on the investment of millions of dollars. I really think it is going to come down to that. I also think certain lenders are going to be involved in that decision as well, they want to make sure that they get something out of this.

Jaccom: They don't want an empty box.

Swerdlow: Dick mentioned the impact that the WTC had in the mid-70s. It was really like a double whammy that NYC was in the middle of a recession and the WTC. Downtown was down then, it was down in the 60s, when Chase was built, it was down in the late 80s early 90s and then we had this resurgence. We have something to build on. I think we need a vision for that site that everyone can get behind. We really need leadership at the city and state level right now to organize a redevelopment team to create something out of the ashes that can satisfy all of these needs; something we can really get excited about. Right now, we are in limbo. Even if the office construction is years off and I hope it's not - at least there is a vision out there that people can get behind. Maybe we could start moving residential down there, it is probably easier to build residential than it is to build office down there.

Jaccom: When the new buildings were going up in the Times Square area, one of the sites that I looked at when we did a financial run, by the seventh or eighth year, was up to $80-90 a SF. If you are going to build downtown now with all the incentive programs, downtown has always been, at the high end, a mid-$40s deal and, at the low end, a mid-$20s deal. So I think that Steve is right. If you put up a major structure, even though it is three years down the line, where are you going to get tenants to pay those type of prices? Again, it is going to have to be a pretty fat program with state incentives, cheap money bond, whatever it may be. Because, at the end of the day, I don't believe there

are tenants that are going to go Downtown for the dollars they would pay in Midtown. There is no reason.

Estroff: The variables would be that the rent would have to be restructured so it's lower. The land cost, the tax-exempt financing (if that's available) would be significant. A PILOT that works so that the real estate taxes are lower than normal, you would have savings in sales tax and mortgage taxes and that type of thing. But, you are still getting back to the cost of construction and I don't know how that would pencil. But my clients tell me that, with the total cost, it is going to take a lot of subsidy to get those buildings to the point where rents are competitive.

Swerdlow: And, by the way, we will need that inventory. The economy will come back, we will be back into a very tight market situation. And going back to the Schumer panel, we were looking at how to address how tight things were. We will be back there by 2004 and we will desperately need that inventory. It is tough to develop sites in Midtown, there are very few sites. So, office space has to be part of the equation to keep tenants, to keep businesses. We were concerned about that just a year and a half ago. And also, I find what New Jersey is doing to lure these tenants is unseemly. Both public and private sector, the efforts that they are making to pull tenants out of lower Manhattan, I find unseemly. Our leadership needs to stand up to NJ and say, 'you are not going to do that. You can't do that at this time, we all need to pull together.' It is important to the whole region that people stay in lower Manhattan.

Weisbrod: Let me comment on that, although it is going to sound odd coming from me spending a large part of my career battling with NJ. I believe that NJ does realize - the events of Sept. 11 really hit home in NJ - and they do realize that they never appreciated before how important lower Manhattan's health is to the NJ waterfront. Second, I think that the NJ public officials -- not in all instances -- have been somewhat restrained, much more than in the past, in luring or taking advantage of the situation. For the very reason that they are aware of how critical it is to keep lower Manhattan healthy. Third, you are right on the private side. On the private side everyone is out for themselves trying to get as much as they can. But I do think it creates an opportunity that hasn't existed in a very long time, if ever, for the mayor, governor, and the governor of NJ to develop a regional approach to development and tenant retention. We have not been a region that has worked well together compared to other regio ns in the country. The metropolitan region has suffered a lot in Washington because of that.

Anderson: Let me underscore that because Carl is right on with this one. I think the existence of a lot of office space in Hudson Country is a benefit to lower Manhattan. What is counterproductive is subsidizing it in any way. It shouldn't have to be subsidized because it is going to be lower cost by definition. A little lower cost over there can compliment what you have in lower and Midtown Manhattan. In many ways Hudson County is the sixth borough that is tied together by a public transit system and the office space in both places reinforces each other. We have to -- and I really think the political environment is getting more aligned -- get everyone to work together because this is one regional economy and we sink or swim together. So, trying to steal from one another by unreasonable subsidies just doesn't work.

Weisbrod: It has just been a massive transfer of public resources to the private sector.

Jaccom: But unfortunately if you look at what is going on - and I don't mean to be a devil here - with the election year coming up for the governor and with the governors right now not seeing eye to eye, I think it would be beautiful if we could all work in harmony. You get your fair share and we get our fair share. The reality is that NJ has a very aggressive program. While they will do their political politeness they are still going after these deals. While we stand by that market is absorbing and taking a lot of our tenancies, which we won't get back.

Estroff: Listening to both of you talk about the importance of the regional economy...isn't the key to downtown NY staying at the center of this regional economy the NYSE? Don't we have to do an all-court press on making sure they are here for the next 100 years?

Weisbrod: That is why I certainly agree with Dick on the stadiums, I think that's bad economic policy. But I think what Mayor Giuliani did with the NYSE was good economic policy. It is the anchor to Downtown's economy, to the region's economy. He is also right that, in a way, post-Sept. 11 we benefited from that Hudson County concentration. I am sure you'd find a lot of tenants that would normally leave Downtown and go to Midtown but won't because they have operations in NJ that make it easier for them to operate jointly Downtown and in NJ. I also think that, as Dick said, this notion of the sixth borough, one of the issues with Downtown Brooklyn and one of the reasons downtown Brooklyn depends on a healthy lower Manhattan. They have to advertise themselves and market themselves more as part of the lower Manhattan economy rather than something different and apart. That also will be a help to them.

Jaccom: I don't disagree with the cooperation, but at the end of the day, if you look at the numbers and you go to class A space in Jersey City, you can make a high $30s deal and with the programs get it down to low $30s. Then you look at the same class A space in Downtown. The price is going to be $10-15 higher. At the end of the day, economics is going to drive these deals.

Anderson: Look at Goldman Sachs. They have got this big project in Jersey City. Isn't that reinforcing the presence of this major organization in lower Manhattan?

Weisbrod: It means Goldman Sachs is not going to go to Midtown.

Anderson: They are not going to go to Midtown and they are not going to go anyplace else in the country, which is enormously important. I think the single most important project in the world right now is the NYSE. We've got to get that done, we've got to get it right, satisfy everybody. That is the most important anchor; there is no other anchor like that.

Jaccom: There is also the NY Board of Trade. The NY Board of Trade has been threatening to go back and forth like that. It is not going to be the NJ Board of Trade but I think, if you speak to these people, they are not getting incentives from the city and state.

Weisbrod: I think at the end of the day they will do fine.

Jaccom: I think they will get it, but my point is if you sit and talk to them it is still in flux. Someone is going to have to start charging these programs. The talk is talk and hopefully over the next couple of months -- I say the next couple of months, but I mean the next couple of years -- this will all be flushed out. What is going to happen Downtown? What are going to be the incentives? What kind of advertising program are we going to do to keep companies in New York? And hopefully all the people in this room and all our partnership outside will have a positive spin...taking lemons and making lemonade. But I think, at the end of the day, it's our job. But if you ever negotiate between NJ and NY it gets down and dirty. We can all be polite, but we have to. come up with some pretty strong programs.

Weisbrod: I have had monumental baffles with NJ, both in public career and my private career. I am well aware of how difficult it can be. I am just saying that now we have an opportunity. It's not going to be easy, and it's not going to be perfect, but it is an opportunity to ease that tension and to work for the betterment of the region as a whole and to keep public resources that we need for infrastructure available and benefiting all of us.

Anderson: Let me ask you a question in the time that we have left, how people see the implementation of the Schumer report. The Schumer report recommended that downtown Brooklyn, the west side of Manhattan, Long Island City to a lesser extent including Queens West and to a lesser extent Jamaica be set aside for development activity. This, of course, was pre-Sept. 11. How does the industry see the potential of those areas given what happened Downtown? Do they have in the near term, the next five years or so, a significant role in the office market?

Jaccom: Personally, I don't see the surge in the Brooklyn or the Queens market. When I speak to developers a lot of them backing down. I hear what the Schumer panel is saying, but I still hear a lot of tenants say what is going to happen Downtown? Even though those markets are going to keep tenants in the city or the boroughs. If I have 20 tenants that I am working with, maybe one is looking in Queens. If you get them over there, there is still a psychological problem. If you get them over there it is still not built up. Now I am not saying that, as time goes on, it won't change. But if you go to Jersey City it is there, it's happening, you can smell it, feel it, and touch it. You don't feel that as much in Brooklyn.

Weisbrod: I think it will be on the back burner for the next few years until Downtown becomes well on its way. I think what the city ought to do in the next few years, make the soft investments on the Queens Brooklyn waterfront, particularly the Greenpoint/Williamsburg waterfront, that NJ made with such a positive effect in the early 80s. The city should do the environmental impact work, do the zoning reviews, do the kinds of things that would make that waterfront more receptive. Maybe even look at transportation improvements. We'll be taking the Schumer report off the shelf four or five years from now and saying, 'now is the time for it.' But I think it is not the time for it now.

Swerdlow: It is a great opportunity to put us in a good position when we do need the space, and we will need the space in the long term. So everyone agrees that it is a longer term thing, but doing the soft work and even some of the hard work like Queens West, getting the State Park and...

Weisbrod: But it is not going to be big dollars. Now is the time to make the kinds of investments that take time as opposed to the kind of investments that take dollars. Now is a good opportunity to do that. I think that the action for the next few years will be with John Whitehead and Lou Thompson and I think that is a good team and they will do well. A vision is going to be very important.

Swerdlow: I hope Queens West doesn't get lost in the shuffle now and that we will find five years from now that it would have been a great solution five years ago.

Real Estate Weekly: We are running out of time. Any thoughts, predictions for the rest of the year?

Anderson: If you want to talk about the area of the industry that has been ahead of the curve and in better shape, it's the designers and the contractors. I think there is a reasonable basis for optimism as long as the national economy does recover in reasonable time, as is generally predicted, and the governments infrastructure programs are not severely cut back because of severe budget cuts. If the school construction authority gets hammered, if the MTA capital program gets reduced significantly, then our outlook could be less. But otherwise, we have reasonable cause for optimism.

Jaccom: My firm is a tenant rep firm and I think that it is a great time for tenants. Over the last couple of years it has been tough with the landlords - leopards that don't change their spots. They have really gotten some great dollar rentals on tenants, but I think it is going to reverse. If you are a tenant today looking for space, whether it is 10,000 or 100,000 SF, you can make an incredible deal. If you are a tenant today that has term left you can go back to renegotiate early, which we haven't seen for awhile. And if you are a tenant looking for something, this is the environment, even though the city and state don't have it together yet it is going to happen fast. Whether it is job credits, whether it is cheap dollars, whether it is building a building I think deals are going to start coming about. We have tracked over the past few months, I think people are just waiting and you are going to see some incredible deals out there. If people take advantage of this, then it will help them in the future t o keep their rental rates much lower than they have the past couple of years.

Weisbrod: I'll just say that I think 2002 will be a hell of a lot better than 2001.

Estroff: Long term I am optimistic, the cycles of NYC are relatively predictable. Short term I am not quite sure. As I said before it is very flat. There are a lot of deals that I have heard about, construction deals, office buildings going up...but the key is the demand for big space by the tenant. Long term I am optimistic. Short term, I am not quite sure, I have to see whether we are going to start seeing some deals.

Swerdlow: The brakes were already on early in the year. When Sept. 11 hit, the brakes got put to the floor and everything stopped. Now things are just being eased up a little bit, we really do need an economic recovery. People are optimistic about that, but we have seen very little evidence of that. We need a real strong footing for the stock market to recover. The real estate market, although it could be a good indicator, tends to lag. I have already told my architectural and construction friends that they should expect a tough year for 2002. We had a very tough year in 2001. We think that, in our end of the business, we will see some light at the end of the tunnel come the second half of 2002. But it is going to be rough for some of the other people in the industry.


Richard Anderson

president, New York Building Congress

Stephen Estroff

attorney, Jenkens & Gilchrist Parker Chapin LLP

Mark Jaccom

executive vice president, Julien J. Studley, Inc.

Steven Swerdlow

president eastern division, CB Richard Ellis

Carl Weisbrod

president, Alliance for Downtown New York, Inc.
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Publication:Real Estate Weekly
Article Type:Panel Discussion
Date:Jan 30, 2002
Previous Article:2001 a strong year for New York City retail market.
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