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Boomtown-Or Bust?

Boomtown — or bust?

NY prices are still rising, but for how long? The city’s real estate market is so strong that many wonder how long it can last before heading downwards. But there are those that believe the general economy is also so strong, market prices will continue to rise. Whether treading along a plateau, or waiting for a fall, keep in mind that historically, any prices that fall will rise even higher over time.

While not every investor can pay property taxes, upkeep and a mortgage and hang onto a property in the face of declining rents and lower values, most somehow manage to do just that.

These investors pick and chose their investments, and try to go where others have not gone before. "The underlying principles of how to stay alive until 2005 are really the same that they were over 15 years ago when Sam Zell coined the phrase ‘Stay alive til 95’," remarked Leslie Himmel, a partner in Himmel & Meringoff Properties.

"Our philosophy continues to be to invest for the long-term, finance conservatively, and invest in properties that have good leasing potential due to location and good floor layouts."

Robert Shapiro of City Center Realty, who advises and brokers land and air transactions, explained: "The problem is everyone wants to be a developer and those are the people who are going to get hurt.

"New York real estate will always increase in value, but there are peaks and valleys and the knowledgeable, well-capitalized developers will survive."

There are those, too, who believe the market hasn’t even been pushed to the edges.

Larry Selevan, chairman and CEO of Garrick Aug Associates Store Leasing, said: "None of us are so certain we are at the bubble yet. In Manhattan, there is always a fill-in investor, no matter how high they go."

Selevan is also seeing Arab, Irish and British money coming back to invest. "The Japanese haven’t come back yet but who knows?" Selevan added.

"This isn’t a bubble, it’s a boom," insisted Daren Hornig, President and CEO of the Quest Group. But he does allow, "The boom might not be banging so long and so hard."

Jackie Teplitzkyof Prudential Douglas Elliman says developers are creating mixed buildings that include retail and some office components to spread the risk, as well as developing smaller projects.

In 1980, Teplitzky said the average residential building had 400 to 500 units. "Now the average size is 100 units," Teplitzky said. "Everyone is building small so they won’t be stuck with the apartments." To kick-start sales, the first 10 to 15 units are also released at lower prices. Marc Freud, a principal of Troutbrook Company, explained almost the obvious: there is a larger group of people who can afford to pay $400 to $700 a foot for apartments, than the group that can buy the ones for $1,000 to $2,000 a foot.

To make money while building affordable housing, Freud’s company develops in places like Brooklyn, where land costs are lower.

Leslie Himmel’s company, Himmel & Meringoff Properties, has a long-term philosophy of purchasing in emerging neighborhoods. They seek properties where they can create value by renovating, retenanting and repositioning.

"We look for interesting opportunities where we can purchase for all cash or, alternatively, creatively structure a transaction that helps meet the seller’s tax and financial planning needs," Himmel said.

Even office tenants can work the current market by locking in long-term values. Brokers say, go Downtown.

"If you are a tenant up to the 30,000 square-foot range, there are a lot of Downtown sublets you can lock in," said Ruth Colp-Haber of Wharton Properties. "Effective rents are in the mid- $20s a foot."

Similarly, Andrew Peretz of Cushman & Wakefield suggests subleasing out your own high-priced space in Midtown and grab yourself a better building Downtown.

Even though many of the Downtown incentives have expired, Peretz notes the spread between Midtown and Downtown rents are at a 20 year difference, and Downtown rents can be as much as 50 percent less.

"The best space is $70 in Midtown while the best space Downtown can be $35 a foot at buildings like the World Financial Center, One Liberty, 32 Old Slip and 199 Water," Peretz said. "Figure a way to take advantage of the market."



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