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Waiting for a jump-start.

The engine is not yet purring but activity has picked up across the board for property owners and sellers. The credit crunch is keeping the co-op market from fully recovering, while at the same time, remaining an obstacle for developers. Retail leasing remains strong in the best New York City areas and commercial office tenants are finding a shopper's market to the consternation of owners who are worried about longterm viability in the face of too high a real estate tax burden.

Developer Seymour Durst said he doesn't like to make predictions because he is "still trying to figure out what happened two years ago." Durst said they have not sought financing recently but noted, "the banks certainly aren't lending on real estate."

Niel V. Grondahl, P.E. national director of consulting services for Levien-Rich, a construction management company, said there is still a two-fold problem, which he labeled lack of inertia and the herd mentality. "When they slow down they say it's really hard to get it going again," he explained since one can do no wrong by doing what everyone else is doing.

Grondahl said his company, which oversees feasibility and construction monitoring for lenders, is seeing a lot of good deals begging for financing, "while the contrarian lenders are doing the deals that the herd mentality lenders are afraid to do."

Among the active segments in construction are strong retail deals, some residential building and some health related facilities. The company is also following the construction of three new sports arenas and could pick up a forth in the next week. Grondahl said there is a great deal of rehabilitation of older mall centers and financing of new centers "where it makes sense." The Boston lenders, he noted, are aggressively looking for deals. "The herd should take a look," he said. We're not back to late 80's yet but it has improved."

Grondahl said the herd "wakes up too late when its going good and wakes up too late when its going bad."

Michael Caretnay Bailkin, a partner with Stadtmauer Bailkin Levine & Masyr, believes the real estate market will not be that different in the coming months, and it may even be slightly weaker. "There are a lot of big companies looking for space," he observed.

On the other hand, with the expiration of benefits from the City of New York for new construction in Manhattan South of 96th Street expected with the city's New York City's proposed tax incentive package, Bailkin believes there will be a spurt of construction getting in under the wire.

"We've put into the ICIP pipeline a number projects for Lower Manhattan," he said.

Alan L. Fine, vice president for marketing for Rockefeller Management Corporation, said with a lack of new construction in the last year and the foreseeable future, even a modest about of absorption will greatly improve the marketplace. Simon and Schuster just concluded a major renewal at its namesake building, 1230 of the Avenue of the Americas, for 195,000 square feet.

"There are others in the next few months and others in the next few weeks of substantial size," Fine said.

Companies in lease negotiation for leases today, Fine said, are concerned that buildings are maintained and with the finding and financial strength of the owners. "Rockefeller Center has a clear history," Fine said, adding that "we're going to do well to maintain the reputation."

Recent economic trends, Fine said, support the idea that "real estate is at a nadir and the forthcoming year will bring strength as excess space is absorbed. "No one believes it will get dramatically better overnight," Fine added.

Wilhelm A. Rosenberg is president of Mega Invest International, which controls a $500 million portfolio that includes 3,500 units in the city and 850,000 square feet of office and retail space. The company is placing another $160 million in direct investments on behalf of Europeans. Rosenberg said although the market still shows weakness and no sign of direct recovery, the Europeans are still eager to invest throughout the United States, preferably the Northeast coast, and especially New York.

Aside from U.S. pension funds and certain Japanese companies., Rosenberg noted the largest source of capital is still to be found in Europe. "They are large sources of both debt and equity," he said. "We see there is still interest and ongoing negotiations on behalf of these equity sources."

Charles Aug, president of Garrick-Aug Associates Store Leasing Inc. said he believes the market has bottomed out. The retail market today has real resilience, he noted, but in Manhattan there is a large supply of stores. Luxury retailing still has some problems, as does apparel. And while the home furnishing market is also little off, Aug sees some strength in mid-range retailing and said services and restaurants," he said are still doing well.

"If you have the right products at the right price you can do business," he said, agreeing that the statement applies as much to retail rents.

"The super-prime markets are terrific," Aug said. "There are some locations where the rent hasn't dropped much, such as Fifth Avenue." There is a lot of strength there, he said, and people are "nibbling" on any empty storefronts right now. Additionally, he noted a shortage of large size stores in the outer boroughs.

Josephine Sokolski, the principal of JCS Design Associates, Inc. and an interior designer who specializes in lobbies, public spaces and facades, noted tenants are forcing owners to fix up the buildings.

"For years I would give these lectures that the lobby and multi-tenant corridors are basically a reception room to your space," she said. "Now tenants are calling the shots."

When tenants are negotiating leases, she said they consider security, locations, and the presentation of the lobby, elevators and public tenant corridors. "Where [public space appeal] might have been very secondary, it is now way up there," she said. "That's why owners are addressing it. Tenants want to see what is being done in the lobby and write it into the leases."

Sokolski said while she has always worked with the best properties, she is now being called into secondary properties where owners are realizing they have to clean up their properties.

"They can't rent with a big electronics or pizza sign," she said, and tenants are complaining 'I'm over a junky store.' The leaflets put out by the Grand Central Partnership and 34th Street Partnership, encouraging owners to consider sleeker, cleaner signage has probably helped with owner awareness as well, she said.

Jeffrey Gural, president, of Newmark & Company Real Estate, said the commercial market remains weak. "There are a lot of tenants and activity but the rents we are getting are not sufficient," he said. "You can rent space but the deals are lousy. It's a tenant's market."

The biggest problem, Gural believes, is that the City of New York will have major shortfall in real estate tax revenues because owners will be unable to pay used on assessments that are too high.

"They will have to reduce the taxes," Gural said. "They haven't reduced the assessment to a level that makes the building viable."

Frederick K. Mehlman, a partner with Wolf Haldenstein Adler Freeman & Herz and former head of the Real Estate Financing Bureau of the New York State Attorney General's office said the co-op and condominium market is more active and more stabilized but still is not healthy, particularly because the lenders have not caught up with the abatement of the problems, he said.

"Underwriting criteria are overly harsh," Mehlman said.

The banks, he explained, will not make end loans and use the excuse that a certain percentage are still held by the sponsor, regardless of what an objective analysis of the building's finances show. There is a hesitancy in the secondary market slower than it otherwise would be, he said.

"We've seen most of the really serious problems but there are still problem buildings out there that have not been resolved and unless lending opens up it will make workouts difficult," Mehlman noted. "If we see a rise in interest rates it will complicate the situation."

Elizabeth Stribling, president of Stribling & Associates, Inc., said the residential market is pretty much "in fits and starts." She has noted, however, more volume sales and a renewed interest in the market. "I don't see it plummeting downward at all," she said, "but I don't see it rising dramatically." In some deals people have been bidding against each other, she said, and the lucky seller gets more.

On the other hand, there is still concern about the economy, Stribling said. "Everyone is concerned and that precludes this dramatic reversal although it is a much healthier market than we've seen in the last two and a half years."

Lewis B. Kaye, president of the L.B. Kaye Associates, Ltd., said the market in co-ops, condos and townhouses has picked up across the board. "The market will keep going until the election and the we'll see what happens," he said. "The commercial market is dead but people have to live and move and they buy and sell. They don't have to buy but they are."
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Title Annotation:Review and Forecast, Section I; real estate development, investment
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Jun 24, 1992
Previous Article:Survey of counselors finds 3 to 5 years for recovery.
Next Article:RE recovery: it's all in the bank.

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