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November 13, 2008

Without Doom


Grubb & Ellis' annual forecast yesterday wasn't as bad as it might have been: Yes, the market has fallen precipitously, but it can recover just as quickly. We went to Grubb's Avenue of the America's offices to hear predictions from the firm's top U.S. and New York metro execs, who believe nothing's overly disastrous.


New York prez David Arena (center, with research and Jersey gurus Richard Persichetti and Rick Marchisio) says if we learned anything from history, the Big Apple isn't in an apocalypse. Phew. This cycle will be shorter than past recessions because of labor demand and lack of supply. Over the next 24 months, asking rents will decline 7-8% and vacancy will grow to 8.5-9%. Tenants will be this market's winners, especially those with rolling leases. Across the Hudson, Rick anticipates some more office sublease space and flat industrial activity, but don't expect anything catastrophic. Renewals in '10 will keep the "Sixth Borough" churning (but Long Island may have to fight you for that title).


National leaders Glen Esnard (cap markets president), Jack Van Berkel (COO), and chief economist Bob Bach join the previous three local leaders for our camera. This is Bob's third recession in his Grubb tenure, but the one that has left the most question marks. What surprises him most? The downturn's rapidity since Sept. 7, especially since the economy stayed fairly stable after credit markets seized up last year. Nationally, they see job creation as a lagging indicator, with commercial real estate lagging further; they think we may not see the bottom of the leasing market until mid-'10. However, there are bright spots: medical real estate holds strong; and oil prices and interest rates are low. Now, if the Feds can just get the stimulus package together.


On the investment side, Glen (with Bob) says sales are down 60% plus, but not pricing. With this volume of transactions, it's hard to price the market, but he thinks cap rates will rise to a more historical 9%. The market won't be able to stabilize until we know where prices are, which he hopes for in the second half of '09.

Fashion-Forward Landlord

Many think that in a turbulent market, it's important for landlords to distinguish themselves among competition and become more involved with tenants. We found such an owner amid racks of t-shirts and dresses in the Garment District. Adams & Co. father-and-son duo Jeff Buslik and Jim Buslik met with us Tuesday at one of the company's main district assets, 231 West 39th St., in the middle of the "SHOP100eighteen" New York City market week, a merchants' initiative that the company has been supporting for a year.


John Gates and Eug?nie Lancereau, center, were tenants in 231 West 39th when they came up with the idea for SHOP231, a showcase and buyers' event for the fashion company showrooms residing in the building. But the event could not go on without the support of Adams; signs needed to be put up and the lobby used as a welcoming center for buyers. The Busliks saw it as an opportunity in a turning real estate market. "We didn't want our tenants to view the landlord as the adversary," Jim explains. The firm became the event's main sponsor, which is now on its third run this year. The first two were so successful that tenants from 214, 250, and 275 West 39th St. joined in, as well.  As a result, the name was changed to SHOP100eighteen to reflect the district's ZIP code.


The event's success has not only been positive for the tenants, but for the landlord as well; those viewing the vacant showrooms frequently inquire about the next event and how they can participate (in order to do so, you have to rent space in one of the four buildings). Overall, specialty buildings tend to do better than other office and retail products in down markets, Jim says. The Busliks do get to participate in something a little more manly after the event: They're headed with sons/siblings Brad (of D.C.'s H&R Retail) and Babson College freshman Dan to the Patriots-Jets game tonight in Foxborough, Mass., spending tomorrow in Boston, and then attending the Celtics game. Perhaps they can grab some new outfits before they leave.

Arent Fox
Reznick Group
Leo A Daly
Casa Noble
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