The Commercial Observer: A lot has been written recently about how the leasing market has picked up. Is it merely pent-up demand being unleashed?
Mr. Colacino: The market is very striated now. You have large-scale bank spaces that are sitting on the market and will continue to decline in price and are not going to be leased very easily or in the foreseeable future. In the very high end, you’ve got no activity whatsoever, so no one really knows what the most premium spaces are going to be trading at in the next go-around. … In the middle, where you have relatively high-quality space on good floors in good buildings, I think you’ve seen an increase in demand recently, which has caused at least a stabilizing effect on prices and maybe an increase to some extent on prices. But the larger market as a whole is still trending downward over a long period of time.
So, then, what we’re seeing in that segment is sort of your classic flight to quality?
Mr. Colacino: Well, it’s a flight to the middle, that’s the most interesting thing. Usually, when you talk about a flight to quality, you’re talking about the most premium spaces, and the idea is that to some extent you’re trading up, so everybody moves up a rung on the ladder. What we’re seeing is kind of a flight to the high end of the middle. … At the top end of the market, it’s going to be interesting to see if we see dramatic downturns in the $175-a-foot super-premium buildings, as those hedge fund guys don’t really think that’s such a good idea anymore.
Mr. Steir: Right. There’s only a few buildings that would fall under that category.
And they’re generally small spaces …
Mr. Steir: Right. So where will the pricing of GM and 9 West 57th et al. go from here?
To go back to my initial question, this recent reinvigoration of the leasing market, do you see that as a temporary thing?
Mr. Steir: I think to know the answer to your question, we have to see where we are a year from now. But I think the value plays will obviously see tremendous activity, and the space will be leased. And the non-value plays will sit. Now, what we’re still waiting for, which I think we’re on the cusp of seeing, is a major tenant to relocate with considerable [capital expenditure] that they will need to incur in the transaction. … And also [what happens at 11 Times Square] will be sort of a litmus test for the health of the market, because it’s very difficult for the first tenant in that building to be anyone other than a large-block user. A 100,000- or 150,000-square-foot tenant, no matter what the space is priced at, is not going to be the first tenant in a 1 million–square–foot development.