Outlook gloomy for 2003, panel says

Real Estate Weekly, Dec 11, 2002 by Elaine Misonzhnik

The forecasts for the year 2003 predicted a continuing downward spiral at the Schulte Roth & Zable LLP's annual seminar "The Real Estate Market: An Ever-Changing Landscape.

Industry experts such as Stephen Siegel, president of Insignia/ESG, Brian Harris, managing director of UBS Warburg Real Estate Investments, and Joseph B. Rose, partner in the Georgetown Company, spoke about rising interest rates, the "possibility of terrorist attacks, and the 18% property tax' detrimental effect on New York's businesses.

According to Siegel, "New York's problems are not going to go away until we get rid of the sublease space. The market will be soft through the third quarter of next year, with lagging occupancy and rental rates."

Another executive, Michael Higgins, managing director of CIBC World Markets Corp., cautioned that the state of the market will depend in large part on the resolution of the conflict with Iraq, something that has still not been worked out.

"There are two uncertainties that we are facing right now -- how well will things turn out in the Middle East and possible future terror attacks," he said. "Otherwise, we'll continue to slightly deteriorate."

Many of those on the panel viewed the recent property tax increase as one of the reasons the market will be slow to recover.

"This increase sends a very serious message to the businesses in New York City," said Richard Ravitch, principal of Ravitch Rice & Company, LLC. "It shows that real estate in New York is the most vulnerable. And there are definitely some alternatives to the property tax. For example, the city has cut income taxes over the last few years by $3 billion. We could stand an increase."

In fact, some of the panelists feel that Mayor Michael Bloomberg's political career will suffer in the next year if he will take measures necessary to bring the city back to economic health.

"I think that we will see the mayor's political career deteriorate as a result of fiscal policy decisions," said Harris. "There are things that have to be done that are very difficult to do."

But if the seminar participants felt that New York will have a hard time next year just making ends meet, despair classified the mood when it came to Downtown rebuilding prospects.

According to Rose, "The rebuilding process has to be managed and it is not right now. I don't know anyone who is closely involved with the project who is happy with the way things are going."

"We are committed to Downtown, but we don't know what the hell is going on there," added Harris. "It has become a national issue and they will probably build something. But I don't think that in this city you can raise property taxes, add 10 million SF of office space to the market, all of this in a declining economy, and expect immediately positive results."

Everyone was optimistic, however, about New York's long-term future.

"I believe the biggest problem facing us right now is the fiscal trouble and the property taxes," said Ravitch. "Once that is balanced, New York will recover."

Other panelists taking place in the discussion included Michael D. Fascitelli, president of Vornado Realty Trust, Marc Holiday, president of SL Green Realty Corp., George Kok, managing director of Merrill Lynch Mortgage Capital, Steven Z. Schwartz, managing director of JP Morgan Chase, Darcy Stacom, executive vice president of CB Richard Ellis, Steven R. Wechsler, senior managing director of Tishman Speyer Properties, and Steven Witkoff, chief executive officer of the Witkoff Group.

The seminar took place on Dec. 4.