NEW YORK CITY—Commercial real estate executives seekingreinforcement of the optimistic sentiment permeating today's marketwere in the wrong place Wednesday morning. Economist Dr. SamChandan shared words of concern and caution during a keynote speechat ABS Partners Real Estate's executive economic briefing inMidtown, as did Seth Pinsky, EVP of RXR and former president of thecity's Economic Development Corp.

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“Even though it may not feel like it, this month marks thefive-year anniversary of the end of the recession,” noted Chandan.“On average, recoveries have lasted just under five years, so ifthis was an average recovery, then in July we'd be on the cusp ofrecession. This has been different but we need to be cautious.Unless we believe this recovery is an outlier, it's a pretty safebet that within the next 60 months (five years), we'll find astress on activity. If your planned exit from an asset is withinfive years, you're going to face some challenges.”

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He also discussed some issues in the housing and labor marketsthat could hurt commercial property. “It's seven or eight yearsafter our most significant housing crisis and the bias towardrenting remains very strong. Housing remains weak and there's aquestion of whether we're building too many apartments.

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“A significant drag on housing is the weakness of the labormarket,” Chandan continued. “We're finally at the point where we'vereplaced nearly all the jobs that we lost in the downturn. But it'snever taken this long to get people to work and there's too littledebate on this in the public sector. We only have 58% of thepopulation working.”

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Meanwhile, Pinsky has his eyes set on City Hall and what itsdoing. “There's a negative symptom of the city's success: the lawsof supply and demand have kicked in and affordability has declined.For us to be successful long term, we need a diverseeconomy—meaning jobs across the spectrum—and a diverse workforce.So far, the administration has been pretty focused on theaffordability and on the supply. The details are sketchy butschematically, this is where they want to go.”

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So what tactics is the Mayor likely to deploy, and what shouldthe industry be rooting for? Advised Pinksy, “We need to rememberwhat has worked for us to date. One of the most important measuresaccomplished by the Bloomberg administration was its investment inimproving quality of life and in infrastructure. That allowed us toattract young residents so that when areas like the East Villagebecame too expensive, they could look across the river toWilliamsburg where now, trains that don't break down every 2,000miles and residents are not worried about safety."

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Sounding mayoral himself, Pinsky issued a word of caution aboutMayor de Blasio's laser-like focus on the issue of affordablehousing.

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“If we want to accomplish everything that de Blasio wants to do,even just on the housing front, we have to stay prosperous; we musthave the economy functioning on a high level.”

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To that end, he noted, the Mayor has yet to make clear hisplans. “We haven't seen a clear economic development agendaarticulated from the administration That doesn't mean there won'tbe one but we don't know what it is yet and the administrationcan't solely focus on the cost of housing, it also needs to focuson economy.”

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There is, however, one upcoming policy change Pinsky is fairlycertain about. “I think the 80/20 program will likely change. Theadministration wants to squeeze more out of the developmentcommunity.

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“But I don't think that's a bad thing,” he asserted. “There's alot of wealth created for the development community, and for thecity government to ask for a share of that wealth to enhance thepublic good isn't bad.”

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Still, Pinsky again advised the administration—if it'slistening—to exercise caution. “The challenge is how much yousqueeze, because there isn't an infinite amount of wealth and at acertain point, you can have a detrimental effect on the economy andprojects won't get completed. Where the administration draws theline is a big open question.”

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Also important he says, is at what point in the cycle theadministration “draws the line. Sometimes programs get reformedwhen we're at the top of the market and then the market suddenlyturns and the impact of that reform is much more negative thanintended. So we need programs that work not just at the top of themarket but in other points in the cycle.”

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