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Weighing in on the changing face of property ownership.

There appears to be a continuing escalation in the transition from private ownership (individual, family and/or limited partnerships) to Some form of institutional and/or public ownership. This trend became evident in the mid-1980's with the growth of the REIT and the CMBS markets in the United States. It was strengthened by the significant in creases in foreign investment from around the world that has ebbed and flowed from a variety of sources, in accordance with the changing dynamics of the regional world economies. The trend is unabated and the impact upon markets like New York City has been significant.

With an ever-increasing level of financial sophistication, potential buyers are roiling the market, looking for safe havens for, vast sums of capital that have come their way as a result of the vagaries of the stock market. Prices are being ratcheted upwards, while cap rates have plummeted. The market, however, remains hot and so long as interest rates remain at historical lows, there is no end in sight.

Every frenzied market comes with a headache and there may be a migraine waiting for a lot of new owners in the not too distant future. Aside from the obvious issues concerning the status of the leasing market place, there are more mundane and practical issues at play. Potential owners, in many instances, are not taking the requisite time needed to thoroughly understand the physical and operational aspects of the properties they are purchasing. Caught up in the urgency and constraints established by sellers wishing to close quickly, some buyers are acting hastily. The result is that after the initial euphoria of the closing, they wake up to find that they may be the dog that chased after, and finally caught, the car; now what do they do?

New owners quickly come to the realization that perhaps they should have been a little more careful on the due diligence side and secured some actual pricing on the various deferred maintenance or capital projects. Maybe the tenant that was supposed to renew really is not truly committed. Perhaps the staffing on the building is not what is really needed and now there is a problem servicing the tenants and it may impact the critical renewal process. These issues are then further aggravated by new owner's attempting to self manage or self-lease the property. Their lack of experienced personnel and specific market knowledge quickly begin to work against them. The once attractive fees for management and the commission savings on leasing become inconsequential in the scheme of a missed leasing opportunity or a major capital cost over-run. Owners without the needed critical mass and market presence in New York City may find themselves in difficult waters if they are not careful. It will be interesting to see how th is all shakes out over the next 24 months or so.
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Title Annotation:trend toward institutional or public ownership
Author:Popkin, Gregg
Publication:Real Estate Weekly
Geographic Code:1U2NY
Date:Nov 20, 2002
Words:477
Previous Article:Editorial Calendar 2003.
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