Beginning of the end of the good times?

Real Estate Weekly, Oct 21, 1998 by Thomas F. Campenni

Please remember you are reading this piece at least two weeks after I have written it. So, be kind if for some reason I'm wrong and the market has risen to new all-time heights. But I wouldn't count on it. For as we have seen in the past, as the market goes, so does New York. The New York City area has become stock market driven.

In the past few years, every person with a few bucks to invest has turned to the stock market. Fifteen years ago, the same people were feverishly buying real estate. When the collapse came, they never saw what hit them. Now the same thing is happening with the Dow Jones - an old joke resurrected time and time again, from the ancient grain markets of Rome to Dutch tulips to Wall Street.

After each market bust, the economical and physical terrain never looks the same again. There are very few now around that remember as adults the market crash 70 years ago. At that time, buying stock with little cash was as acceptable for the tycoon as for the store clerk. Everyone became a leveraged "millionaire."

Today, instead of leveraged individuals buying stocks, we have hedge funds borrowing - and in the process de-stabilizing the very banks that were so eager to give them the money. As we entered the 20th Century, J.P. Morgan put together rescue packages to avert financial crises. Now that we are leaving the century, we have as his replacement, Alan Greenspan. It is the perfect comparison between the "Age of the Tycoon" and that of the "Age of the Bureaucrat."

Each economic crisis brings reform, and a different way of doing business. Those who control the market may initiate tighter margins, trading halts and more governmental oversight. We adopt new roles and identities for the protagonists. Venture capitalists go from numbers crunchers to swash bucklers. Landlords no longer are known as owners of buildings, but real estate developing visionaries are. Agents no longer collect rent, they manage assets. A rose is a rose is a...higher paid, degree laden, working guy.

During this economic downturn, there will be significant changes that will effect the New York real estate market. For some time now, I, along with many others, have been predicting that the need for large office space will diminish. In the past 10 years, the amount of New York office space built has been minimal, which has allowed the absorption of vacant units. This has led to high occupancy and even higher rents. This is one of the prime reasons for our good fortune.

As stock brokerages merge and contract, the need for retail brokers will all but disappear. The days of the 22-year-old broker cold calling to interest you in the stock of the day are over. Most mid-level stock investors have found the Internet and the cheap trade. As you get older, you realize you know more than the kid broker does. Why pay a high commission for advice that is canned and not helpful?

The future of large financial factories is as dead as for those making machinery in the city. The clamorous cacophony of the trading floor is for the psychology of the trader and investor, not because of any physical needs of the market. We have the technology available to eliminate that trading floor. As humans, we have yet to process mentally and emotionally these fundamental changes. We will not realize these technological breakthroughs until economics dictate that we must adapt.

In my own lifetime, I have seen more technological change than any past generation. Many of my relatives of my parents' generation worked in the factories of Brooklyn and Long Island City. They saw their jobs disappear, along with the need for their trades. When I first went into an office, I learned how to add on an adding machine, and my boss was a bookkeeper. That machine is now a candidate for the Smithsonian and the job title of bookkeeper is fast becoming an anachronism.

Changes in the workplace are constant. Economic needs dictate how much and in what form our product - commercial space will be needed. If you - as an owner or agent or broker - do not change to accommodate the market, you will be as unnecessary as your buildings. In my next column, I will be exploring how I see the role of real estate owners and professionals in the 21st Century.

Thomas F. Campenni is a real estate consultant advising owners, condominiums and co-ops. he welcomes responses in writing at PO Box 724, Old greenwich, CT 06870, or by calling 203-637-5621.