INSTABILITY IN THE FINANCIAL SECTOR:

As if Bear Stearns, Fannie Mae and Freddie Mac weren’t bad enough, last week the financial sector took a major hit as Lehman Brothers evaporated, the government was forced to bail out AIG and Merrill Lynch was absorbed into Bank of America in a deal worth billions of dollars. Unsurprisingly, this week’s poll respondents predicted overwhelmingly (78%) that this would devastate the office market. A mere 22% don’t believe this will have any effect at all. On the New Jersey side of the Hudson, there’s much consternation, considering how much real estate these companies own and how many of the state’s residents they employ. Hal Messer, associate vice president with NAI James E. Hanson, thinks New Jersey will be feeling the effects of this for a long time. Here is what he has to say:

“It’s clearly going to hurt the leasing market, which I think was slow to begin with because of the general economic condition and the fact that companies were not making any decisions. Lehman Bros has thousands of sf of space in New Jersey. I’m sure some of it will stay now that Barclay’s taking over at least a portion of the company, but there’s going to be a ton of layoffs in Manhattan. That market’s probably going to cool off, and whenever that happens, people backfill into Manhattan.

“This will hurt the market in general. Financing for buildings has been difficult to secure for the past year and it’s only going to get tougher. We’re probably going to see the market slow down even more. We haven’t seen prices fall all that much, but the velocity is going to come down dramatically.

“The Hudson Waterfront will be hit pretty hard. These companies also occupy a lot of space out in Morris County and Piscataway in the big office parks. And it’s not just Lehman we have to consider, there’s everybody else. Even if no one else goes under or is acquired, there’re going to be layoffs.

“Areas like Jersey City will bounce back, there’s no question about that, the question is, how long will it take? It may not be so bad for the building owners, they’re going to get their rent, unless there’s a bankruptcy like there was with Lehman Brothers, in which case the leases get thrown out. But the people who were occupying those buildings are not going to be going down for lunch every day or spending their bonus and that’s going to have a trickle-down effect throughout the economy.”