This is Part II of a two-part series.

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[IMGCAP(1)]NEW YORK CITY-According to Part I ofGlobeSt.com's two-part series on owner concessions, industrysources agreed with Studley's 2008 Effective Rent Index Report,which said that concessions are rising. Sources agreed thatconcessions are directly affected by leasing slowdowns. Those sameindustry watchers reveal to GlobeSt.com the benefits of offeringpackages instead of raising rents. They also explain that at somepoint, owners may be forced to step back and lower rents instead ofcontinuing to offer concessions.

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[IMGCAP(3)]Bradley Kaufman, a partner and leasing specialist inthe real estate group at locally based law firm Pryor Cashman LLP,tells GlobeSt.com that owners will step back and lower rents whenit looks like the light at the end of the tunnel is not in site."If a landlord can hold out for six months and the market will headback up, then they do not look to lower rents, however if thelandlord feels that we are in it for the long haul or if thesublease market picks up, they might have to rethink things."

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Kaufman further explains that "what you have here is that it iseasier for a landlord to increase a concession package than it isfor them to lower rent. If you lower asking rents, you have tolower it across the board."

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[IMGCAP(5)]Benjamin Kursman, a partner with New York City-basedlaw firm Herrick, Feinstein LLP, where he is a member of the realestate practice group with a sub-specialty in leasing, tellsGlobeSt.com that even if there is no difference from an economicpoint--in terms of present-valued dollars--owners would ratherprovide a tenant with additional concessions before reducing thelease rent. "This is because rental streams are traditionally usedto value buildings, and from the owner's point of view and from thepoint of view of potential lenders and buyers of the owner'sbuilding, lowered rents signify the reduction in the value of thebuilding. Lower rents have an immediate adverse impact on theamount for which the owner can refinance or sell its building."

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[IMGCAP(2)]Kursman continues that "historically, in expansionarytimes, rents and prices rise rapidly, but in a downturn, thoseprices fall slowly, in part, because sellers and owners are indenial and are reluctant to accept that the value of their realestate has fallen. Of course, if the recessionary trend in theeconomy should become severe--as some economists havepredicted--then concessions alone will not cut it, and owners willbe forced to lower rents in order to fill space."

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[IMGCAP(4)]Ken McCarthy, managing director of Cushman &Wakefield's New York area research tells GlobeSt.com that offeringthese types of packages instead of raising rents can help entice atenant who might be on the fence or waiting to make a deal. Inaddition, he says that keeping the face rents high gives ownersmore flexibility. "Landlords can offer discounts to one tenant forexample, but unlike lowering rents, they don't have to offer it[concessions] to everyone."

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Deborah Jackson, executive managing director of locally basedWeiser Realty Advisors, tells GlobeSt.com that in regard to rent,"it is all about the total package, which includes base rent,escalations, free rent and allowances. Owners will play with thenumbers based on market preference and their own needs."

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Lisa Kiell, managing director of Jones Lang LaSalle, tellsGlobeSt.com that as far as the New York City market goes, althougha decline in asking rents typically coincides with a rise invacancy rates, this was not the case during the first quarter of2008. "Average asking rents actually rose over the past threemonths. Overall rents in Manhattan finished the quarter at $71.26per sf, up from $68.87 at the close of 2006. Pricing for Midtownclass A space similarly escalated, growing by 2.8% from year-end to$93.15 per sf."

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She further explains that while the change in asking rents mayseem counterintuitive given the rise in vacancy, "it is importantto note that the spaces being placed on the market are located in ahandful of Midtown's prime office properties. In fact, should spacewithin any of Midtown�s trophy properties come to market, it willlikely be priced above market. Pricing among Midtown�s trophyproperties closed the first quarter of 2008 above the $120 per sf,at $120.90 per sf, up from $118 per sf three months ago.

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Kiell adds that for deals currently in negotiation, "we�reseeing building owners with class A spaces offer two months to fourmonths extra in free rent and approximately $10 more in TIs [tenantimprovement allowances] than we saw in deals that closed in 2007.Concessions increase further for buildings in secondary locationsand for class B buildings." She continues that JLL has also seensome owners assume the costs for installing new bathrooms,upgrading HVAC and performing demolitions to secure good tenants."Very little of this was included in deals negotiated and signed in2007."

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Natalie Dolce

Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.