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Roundtable: No consensus on industry's near future.

With corporate America in a holding pattern in regard to real estate decisions, leasing activity in the New York City area has slowed considerably during the first half of 2001.

But few in the industry appear to be panicking as a result of the decreases, said executives at a June 14 roundtable discussion hosted by Real Estate Weekly. In fact, the slower environment is providing opportunities that weren't available during the frantic climate of the past two years.

"It is clear that corporate America has slowed decision-making. I think they are looking to manage quarter to quarter," said Bruce Mosler, president of U.S. operations for Cushman & Wakefield Inc. "On the other hand, we are viewing this as a time to increase market share. We are acquiring Cushman Realty Corporation on the West Coast. On the East Coast, we are planning some new initiatives, including our growth into retail, our reemphasis on industrial and our growth of multi-family housing."

Participants at the midyear review roundtable held at the Players Club were Mosler; Robert Futterman, chief executive officer of Robert K. Futterman & Associates, Inc.; Peter Riguardi, vice chairman of Colliers ABR, Inc.; Julien J. Studley, chairman and chief executive officer of Julien J. Studley, Inc.; and Robert Von Ancken, executive managing director of Landauer Realty Group.

Riguardi said the company is spending more money, not cutting back, to capitalize on what it views as an "opportune time to advance and grow." But the company has also had to educate younger brokers who may have gotten used to the "making commissions easily."

"It's surprising to me how many brokers don't know what EBITDA (earnings before interest, taxes, depreciation and amortization) is," he said. "The business is changing and, if you are not prepared to understand it, you are not going to be able to restructure deals."

Unlike the executives who operate in the office leasing sector of the market, Futterman provided a much different viewpoint concerning the retail leasing market.

"In our business, which is retail, we've been seeing pretty much the opposite of what everyone else has," he said. "The downturn has created available space and there is great demand for retail space in New York City. Rents came down and it was easier to make deals."

The net effect of the decrease in demand for office space is a market that is closer to equilibrium, which most companies define as one with a 7 to 9 percent vacancy rate. With tenants and landlords on more equal footing, negotiations become more important and brokers have the opportunity to "add value" to a transaction, roundtable participants said.

"Deals have been made on sublease space quicker than on rent space. It is an indication of the strength of the market and I think owners would be insensitive if they didn't watch very carefully," Studley said. "It is a much freer market than the landlord market and they want to preserve a kind of value in their building."

The roundtable participants also discussed development potential in the city's outer boroughs, particularly in light of Sen. Charles Schumer' s recent report by the "Group of 35" that called for creating new business districts in outlying areas like Long Island City and downtown Brooklyn.

According to a study recently completed by his company, there is 10 million SF of space in Queens, about 4 million SF of Class A space and 6 million SF of Class B space. In 1999, the vacancy rates were between 15 to 18 percent and, as of April, they had dropped to 2 percent for Class A space and 3 percent for Class B, Von Ancken said.

"Now you have MetLife moving out to Long Island City, which eliminates the vacancy rate," he said. "There is a 20 block area where another 20 million SF of space could be created."

Most executives supported the broad concepts in the report.

"I think that we have to support it, it is an excellent idea, it is high time the government got aggressive in looking to put that land in a position where it can be developed 'as of right,"' Riguardi said.

When asked to make predictions about the rest of the year, participants said they expected economic conditions to be slow through the end of 2001. Economic conditions would probably not pick up until the beginning of 2002, some said.

"I think the key is when corporate America feels that we have hit the bottom of the cycle. When they are comfortable and confident in moving forward with their decision-making process, we will see the real estate economy move forward again," Mosler said.
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Publication:Real Estate Weekly
Article Type:Brief Article
Geographic Code:1USA
Date:Jun 27, 2001
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