RE market serves as 'best port in any storm'

Real Estate Weekly, March 5, 2003

As war clouds gather on the horizon and the uncertainty of impending combat in Iraq and the Middle East sends shock waves through the stock market, the solid foundations of New York real estate are proving to be the best ports in any storm, was the message sounded by Cushman & Wakefield President and CEO, Arthur J. Mirante II at the BOMA/NY January 2003 market forecast luncheon.

"Irrational negativity and emotional overreaction, coming on the heels of the over confident 90's, is leading to a crisis of confidence," stated Mirante, who blames the "can't lose" 90's mentality as one of the main reasons that business ventures did not do the necessary due diligence when launching new ventures, and hence fell into difficulties. See-sawing between the heady experience of inflated profits and then the need for severe cost-cutting, many executives did not properly focus on investing for future growth.

Real estate has not suffered the vagaries of many markets, Mirante added, because of the lack of construction in almost every major global city. And New York is particularly well positioned as companies have written down their surplus space and availabilities are now priced to move, pointing to possible greater activity.

Rentals have decreased by 15 to 20%, but are now holding stable as sublease space--which has accounted for nearly 40% of the recent leasing activity--is absorbed.

An even brighter beacon on the horizon is the growing interest in investment property. The supply side is limited, and capital is both available and willing to spend for Class A properties, the real estate executive continued. Moreover, he said, sales are solid in areas even where rents are declining.

Other positive indicators for real estate include interest rates being at a 40-year low and the Sarbannes-Oxley bill requiring much stricter accountability by corporations in their financial reporting. On a global scale, Mirante believes, "real estate markets are stable and poised to recover quickly."

But the essence of his message remained one of urging calmness and confidence. The markets have been overheated, and the basic homework of running business--investment in equipment and people--has not taken place as it should.

"We must understand that we still stand upon the strongest economic base in the world. We must keep the crisis in perspective," and through confidence in our American business community and system of beliefs, Mirante concluded, "we will experience conditions improving." And real estate will be among the first beneficiaries.