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December 8, 2008



Tenants are now catching a break in New York, with the pendulum swinging in their direction. Expect more space, cheaper rents and greater concessions, said CresaPartners principal Marcus Rayner when we visited his Park Avenue office. Now’s the chance to reconfigure workspace for future needs without the pressure of missing opportunities—but if you don’t plan, you can’t take advantage of the market.


Brokers, especially tenant reps, will also feel the changing landscape. In the short term, they’ll need to know how to negotiate flexibility in long-term leases and how to protect clients from defaulting landlords and sub-landlords.  In the longer term, they’ll need to spend more time planning and consulting with clients to understand how issues such as employee mobility will affect future demand for space.


But have no fear—Marcus (with colleagues Jennifer Lamb, Ken Witler and Paul Weir) provided us with tips for both clients and brokers looking to benefit from this market:

  • Tenants: plan for the future and understand how new workplace developments can lower your occupancy costs; hire a broker who truly represents your interests; and negotiate harder by understanding where the real savings are created in negotiations.

  • Brokers: if you're not a tenant rep, business could be slow for a few years; make the most of this market and the shift in the services you will need to provide your clients. If you can expand your platform with integrated services, you'll be better placed to build long-term client relationships.

  • All: balance your work with life. This will be a stressful time for anyone in commercial real estate and we all need to be inspired outside of work, he says (Marcus enjoys indulging his family and absorbing himself in historical fiction and a variety of the arts).

Despite Drops, NYC Hotels to Remain Profitable

Although New York's hospitality market has been clearly affected by overall U.S. hotel market trends, the city is expected to weather the storm while still posting higher-than-national average numbers, said CB Richard Ellis’ Hospitality & Gaming Group senior managing director Daniel Lesser, when we dropped by his One Penn Plaza office. In the worst-case scenario, if either occupancy levels or both occupancy and average room rates decline in the near future, they’ll drop from all-time highs. So the industry has been and will continue to be profitable. We were selfishly crossing our fingers for cheaper rooms, but he tells us that smart operators will allow occupancy drops while holding rate integrity.


Dan with colleague Evan Weiss at 35th and 6th in front of the Hilton Garden Inn construction site and the next-door Hampton Inn, which recently opened. Hotels that are under development will still deliver, he tells us, but those not yet financed or still in the design phase will have difficulty getting financed. But there is still opportunity for limited-service hotels in select neighborhoods and a big-box hotel near the Javits Center. Next year will be challenging, but 2010 will see the beginning of a rebound: expect equity that has been building up on the sidelines to enter the market rapidly again, along with stable and relatively inexpensive hotel investment opportunities, and an increased tourist market as new middle classes grow in the world’s emerging markets and patronize U.S. hotel and retail sectors. Does this also mean more crowded sidewalks?

Opportunities, High Returns Abound

We keep hearing that this downturn is going to create great opportunities for buyers. So we visited Sterling American Properties chief investment officer Tarak Patolia in his Rockefeller Plaza office to find out his POV on the market and where the deals lie. Sterling will be seeking opportunities on a risk-adjusted basis, he tells us, and expects that this market will offer higher returns. The most opportunistic investors will be in for the long-haul, yet it's still too early to tell what the investor influx will look like. No one knows where prices are yet (we may already be at or near the bottom), and it may take the market time to settle back into more normal times of the late '90s to 2003. The key is the return of credit and confidence—we’ll put it on our list for Santa.


In New York City, multifamily presently feels less risky than office, he notes. Office vacancies are expected to increase (possibly over 15%), putting pressure on asking rents, and it will take a lot of time to return to the high-water mark rents seen in 2007. Multifamily, on the other hand, has less stock and is poised to weather potential job losses. Overall, favorable markets are where investors were priced out these past few years: New York, D.C., Boston, Seattle, Los Angeles, San Francisco, Orange County and Charlotte are on Sterling's radar. Midwestern markets, like Chicago, offer more caution.

Arent Fox
Casa Noble
Leo A Daly
Reznick Group
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