INSTABILITY IN THE FINANCIAL SECTOR:

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As if Bear Stearns, Fannie Mae and Freddie Mac weren't badenough, last week the financial sector took a major hit as LehmanBrothers evaporated, the government was forced to bail out AIG andMerrill Lynch was absorbed into Bank of America in a deal worthbillions of dollars. Unsurprisingly, this week's poll respondentspredicted overwhelmingly (78%) that this would devastate the officemarket. 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 manyof the state's residents they employ. Hal Messer, associate vicepresident with NAI James E. Hanson, thinks New Jersey will befeeling the effects of this for a long time. Here is what he has tosay:

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"It's clearly going to hurt the leasing market, which I thinkwas slow to begin with because of the general economic conditionand the fact that companies were not making any decisions. LehmanBros has thousands of sf of space in New Jersey. I'm sure some ofit will stay now that Barclay's taking over at least a portion ofthe company, but there's going to be a ton of layoffs in Manhattan.That market's probably going to cool off, and whenever thathappens, people backfill into Manhattan.

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"This will hurt the market in general. Financing for buildingshas been difficult to secure for the past year and it's only goingto get tougher. We're probably going to see the market slow downeven more. We haven't seen prices fall all that much, but thevelocity is going to come down dramatically.

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"The Hudson Waterfront will be hit pretty hard. These companiesalso occupy a lot of space out in Morris County and Piscataway inthe 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 isacquired, there're going to be layoffs.

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"Areas like Jersey City will bounce back, there's no questionabout that, the question is, how long will it take? It may not beso bad for the building owners, they're going to get their rent,unless there's a bankruptcy like there was with Lehman Brothers, inwhich case the leases get thrown out. But the people who wereoccupying those buildings are not going to be going down for lunchevery day or spending their bonus and that's going to have atrickle-down effect throughout the economy."

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