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October 27, 2008



We can sum up Thursday night’s REBNY “Commercial Crossfire” office leasing panel discussion in four words: “2009’s gonna be soft.” So said Vornado SVP Glen Weiss, Studley EVP David Goldstein, Cushman & Wakefield EVP Gus Field, and Durst’s SVP Tom Bow. But opinions differed on the downturn's length, from a bullish one year to the more somber five-to-seven years. My, how things have become relative.


Tom, David, moderator Rick Marek of the Vortex Group, Glen, and Gus. The guys said: Landlords are trying to stay ahead of lease renewals in this practically frozen market to avoid vacant space, and are accepting shorter lease terms. (Rick cited one Midtown owner cut its rental rate by $33 PSF to keep a tenant in for an additional 18 months.) Tenants are proceeding with leases not because they want to, but because they need to reduce footprints or re-stack. “Tenants are trying to do nothing,” Glen said. Evaluating creditworthiness will be more rigorous, as landlords don’t want to get burned.


But: Not all is dead. We’re not in an overbuilt market, and landlords will see a flight to quality. Certain business sectors, like non-profits, healthcare, government, and to a lesser extent, technology, are still growing. Pre-built, turnkey space of up to 10k SF is recycling well among tenants. Fallout from the financial crisis will also create new expansion opportunities, as laid-off employees start new businesses or join boutique firms. And people still want to be here, from both the investment and tenant side. David contends that if you’re not in the Big Apple, you’re not a big player.


If you’re having difficulty structuring a lease these days, why not structure some clay? Prudential Douglas Elliman’s Anita Grossberg told us she took an enjoyable pottery workshop this past weekend. Vornado’s Ronald Lo Russo did not. 


If you’re stressed out, RFR Realty’s Ryan Silverman (right) suggests taking up cardio, which he recently started. Looks similar to BlackBerry thumb exercises. Vortex Group’s Scott Grayson and Jason Roberts did not disclose their routines to us.


Historically, downturns have given birth to the Taconics, Emmeses, Moinians and Witkoff/Glucks of the market—investors who were more tolerant of risk and jumped in when the barriers to entry were lower. We recently caught up with Jones Lang LaSalle managing director Nat Rockett in his 53rd Street office; his philosophy is that today is ripe for tomorrow’s stars to make their entrance (or re-entrance). Since the high-leverage IRR deals have gone by the wayside, yield investors who were priced out may make their return, finding friendlier-priced assets in ‘09. So you may see some familiar, but formerly dormant, buyers, welcome news given transaction volume this year is expected to be only $15B, less than half of 2007. Oh, and one more bonus of the downtime: investment gurus are taking the downtime to reconnect with their clients and families. Nat reports his three sons are seeing more of him these days.

Leo A Daly
Arent Fox
Pride and Glory
Reznick Group
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