When’s the leasing market going to return, or has it returned already?
Mr. Siegel: The leasing market has shown strong indications in Midtown of returning to good health. It appears that people have determined that the rents have bottomed out and they want to take advantage of the bargains that are out there. June, July and August have been well over a million-square-foot months, with positive absorption.
Do you agree, gentlemen? Scott?
Mr. Gottlieb: We’re close to the bottom. I still think there’s some potential decline in pricing through the first quarter of 2010, 5 to 10 percent. …But people have overcome their fear of making a decision and are out there again making decisions.
Mr. Siegel: Yeah. Plus, they have pent-up demand and they have to get out there. We’ve seen a lot of activity in to-be-unnamed buildings — because some of them are buildings we are agents for — but there is some significant activity still in midtown, and as I said, August was a great month.
But is it possible that all of this leasing activity is merely pent-up demand from the past eight months when nothing happened, and that this level of activity can’t be maintained?
Mr. Laginestra: Before you go past that, what you just heard is true, but what’s slightly different than perhaps eight or nine months ago is that instead of the tenants going into the market strictly to find what the pricing would be for a renewal because of a lease expiration, there’s now some real opportunity to move these tenants. And some of the spaces out there, as a result of shedding of space by certain tenants like a Pfizer, have installations that have real value.
When does the tenants’ market begin to shift back to the landlords?
Mr. Siegel: When the vacancy rate reduces to a level, somewhere between 3 and 8 percent, it’ll shift to a landlord market.
And when will that happen?
Mr. Siegel: That’s probably still 18 months away.
Mr. Laginestra: I would agree. You’ve still got to go through the process with some of the debt that’s coming due on some of the more recent purchases that were relatively short-term in duration. You know, that has to be played out, so to speak.
Do you foresee an impending wave of building defaults, similar to what may happen at Stuy Town?
Mr. Siegel: I went to a conference and said, ‘Be kind to your lender, because he will be your lender.’ And I think the last thing these banks want to do, if feasible, is to take back buildings. They’d like to try to figure out a way to work through this with their existing landlord, if they have confidence in their existing landlord. And in some instances, they might seek additional equity. The landlords will have to go out and find partners, probably at a number that’s below what they paid, but on a long-term basis, at least they’ll stay in the picture and have some chance of recovering their investment.