For more on the financial crisis, check outGlobeSt.com's Webinar, "Wall Street In a Freefall—TheWinners and Losers."

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NEW YORK CITY-"It's not like the savings and loan crisis thatwas somewhere else," said John Powers, chairman of the New Yorktri-state region for CB Richard Ellis. "This one is very close tohome."

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Powers, speaking Friday at a luncheon sponsored by CoreNetGlobal's New York chapter, was referring to the financial servicesupheaval that began earlier this month with the federal takeover ofFannie Mae and Freddie Mac and intensified last weekend with thebankruptcy ofLehman Brothers, the sale of Merrill Lynch and the bailout of AIG.He said Wall Street hasn't seen anything like it since the GreatDepression. In fact, the crisis gathered momentum so rapidly thatfellow panelist Marisa Di Natale said she waited until the lastminute to put her presentation together, "because things arechanging so rapidly."

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However, even with these recent developments, Di Natale, senioreconomist with Moody's Economy.com, said the downturn nationallywould be less dramatic than the recessions of 1990 and 2000-2001,although she would now give the New York region a 25% chance ofsuffering a "severe" recession. With that said, Di Natale predictedthat the loss of 100,000 office-using jobs in the New York regionthat will occur by the trough of the current downturn will beconsiderably less than the drop-off of 150,000 jobs seen in theprevious recession. Accordingly, Powers said the effects on NewYork's commercial real estate, while considerable, would not reachthe depths of previous troughs.

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Powers predicted that the Manhattan leasing market wouldprobably end 2008 with a lower leasing velocity than the post-9/11figure of 18.8 million sf recorded for 2002. Investment salesvelocity here is already down sharply from the previous year—from53.7 million sf sold in 2007 to 8.5 million sf through Q2 of thisyear--and much of the square footage sold YTD stemmed from thedisposition of the Macklowe Properties portfolio. Asking rents,which grew 20% between April '07 and April '08, have increased byonly 1% in the six months since then.

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On the other hand, Powers noted that the city's real estate isperforming "very, very well" for the most part. He said at present,the top 10 landlords in Midtown, which among them control 42% ofthe office space in that market, enjoy both low vacancy rates andlow leverage levels. Currently, there are 16 blocks of availablecontiguous space of 250,000 sf or more throughout Manhattan."Historically, this is pretty low," Powers said, who also predictedthat sublease space would increase by 3% over the next severalmonths, less than the 5% rise seen during the previousdownturn.

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In terms of how much space will come onto the market due tolayoffs in the financial services sector, Powers said the jury isstill out. However, he noted that Barclays PLC's $1.75-billionpurchaseof much of Lehman's assets, including its one million-sfheadquarters at 745 Seventh Ave., is likely to diminish thetotal.

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Also helping to mitigate against a sharp rise in empty officespace in the next two years will be the limited growth in supply.By 2010, Manhattan's total space will be only eight million sf morethan it was in 2000, Powers said. The intervening decade saw theloss of millions of sf due to both condominium conversions and9/11, and the increase from 352 million per sf in 2000 to aprojected 360 million sf in 2010 represents a compounded annualgrowth rate of .05%, he said.

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One segment of financial services that isn't likely to downsizein coming months is hedge funds, said Powers. "Hedge fundsrepresent a continuation of the de-intermediation in financialservices that has been going on for many years," he said. "They'rehere to stay."

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Even so, Di Natale said the worst may be ahead for the New Yorkmetro area. It has been slower to feel the effects of the downturnthan the US as a whole, she said, and therefore will recover later."There still hasn't been a significant employment downturn in NewYork City" as measured by the US Bureau of Labor Statistics, shesaid. Powers said he was concerned about the effect the loss ofWall Street tax revenue would have on the city's budget.

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What the current economic slump should be called was a matter ofsome disagreement between the two panelists at the CoreNetpresentation, which was titled "New York Market Update: Rebound orCollapse--What Lies Ahead?" Di Natale said her firm believes "we'recurrently in a recession and may have been in a recession since thefourth quarter of last year," while Powers qualified the phrase"recession 2008" with a question mark on his PowerPoint slides.

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Paul Bubny

Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.