NEW YORK CITY—Every point in the economic cycle creates its ownset of benefits and challenges. In the current local market, therise of technology companies and other creative class firms isunofficially setting forth a new mandate on office space while thecomplex issue of creating and maintaining affordable housing istaking many twists and turns. Those were among the observations ofcommercial real estate professionals during a panel discussion inMidtown on Thursday.

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“There isn't a lot of modern office space in the city so a lotof the growing sectors of the economy are being forced intobuildings that weren't meant as commercial office space,” said SethPinsky, EVP of RXR and the former president of the city's EconomicDevelopment Corp., under Mayor Michael Bloomberg.

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“As these industries expand, there's an opportunity to buildinto their increasing demand, especially outside of Manhattan—likein Brooklyn—where the workforce lives,” he continued. “We've beenlooking for opportunities to build small scale commercialproperties and we'd be willing to do small speculativedevelopment.”

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Added David Schore, managing director, Mack Real Estate Group,“We're looking at similar types of neighborhoods around thecountry. In Seattle and San Francisco, we are seeing real serioustalk about spec office development for creative industries.”

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Several panelists expressed an interest in the hospitalitysector.

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“We've been an active investor, developing a million square footdevelopment in Miami with a hotel,” said Jonah Sonnenborn, managingdirector, Access Industries. “We believe leisure and corporatetravel has rebounded to pre-crash levels. Group travel hasn'trecovered as well but we're starting to see signs of life in thatbusiness. Hotels have been priced aggressively but there's stillroom to run.

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RXR—which primarily keeps to New York City and does someinvesting in the tri-state area—also is looking at hotels, focusingon unconventional areas or properties that could be built withinnovative design. “We are looking at opportunities in nontraditional neighborhoods of Manhattan and in the outerboroughs—though some areas are approaching saturation—like LongIsland City,” said Pinsky. “We're especially interested inproperties with more common space and smaller guest rooms.”

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All of the speakers were in support of the effort to add orpreserve affordable housing but Pinsky, the panel's expert on thetopic, expressed concerns on that front.

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“Mayor Bill de Blasio is right to focus on it; affordability isa real challenge to the future health of New York,” he asserted.“But the middle class over the last 10 or so years actually hasbeen roughly stable so they're not being priced out of the city.But they are being priced out of neighborhoods that traditionallyhad been middle-class and are not anymore.

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“The most important thing the city has done is improve publicsafety,” he continued, “allowing the middle-class to move to newareas rather than being priced out of city. But we also need toinvest in infrastructure in those areas and look for communitiesthat could be of interest to the middle-class so we can developthem.

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“The issue isn't just affordability,” Pinsky noted, “but theratio of price to income. In addition to trying to control cost ofhousing we can't build affordable housing that displaces commercialspace and cuts down on jobs; we may not get those back; hurting thevery people we were trying to help. That's going to be the biggestchallenge this administration faces.”

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So what point in the cycle has commercial real estate reached?“It depends on the market and sector you're talking about,” saidSonnenborn. “If you look at gateway cities like London, New Yorkand San Francisco, or places with growth like Austin or Seattle,they're very hot. But I can't tell you what inning we're in.Certain markets have staying power but you have to be carefulbecause it is market and sector specific.”

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Some investors are preparing for the worst. “We're deployingconservative leveraging as a hedge,” said Schore. “We're looking atmarkets that will outpace inflation. If we get into a downturn,we'll be in a position to refinance our construction loans, servicethat debt and ultimately benefit when the market turns around.”

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Added Pinsky, “ Employment is increasing and nationaldemographic trends are favoring places like the city but you haveto underwrite conservatively to make sure can ride out thedownturns. It's easy to spot market where adjustments will takeplace but it's hard to time them.”

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Rayna Katz

Rayna Katz is a seasoned business journalist whose extensive experience includes coverage of the lodging sector, travel and the culinary space. She was most recently content director for a business-to-business publisher, overseeing four publications. While at Meeting News, a travel trade publication, she received a Best Reporting award for a story on meeting cancellations in New Orleans during Hurricane Katrina.