Ever-Churning Cyclical Side of Real Estate

Real estate is a cyclical business. In fact, New York City’s real estate market has experienced numerous cycles over the last decade. Just nine years ago, commercial real estate was going through a resurgence of leasing, building and rental rate increases following the dot.com bust that had brought markets to a halt. This revival was all too short when the tragedy of September 11^th knocked the wind out of our city’s sails, and left some skeptics wondering whether we would rebound and rebuild again.

As 2010 comes to a close and we celebrate the anniversary of GlobeStreet.com, a business that continues to grow and impact the commercial real estate industry on a national and international level, it is important to remember the many cycles and lessons learned over the past decade and also look to the future.

I think we can all agree it is unfortunate that it has taken so long for Lower Manhattan to come back to a point where we can be optimistic about the future. But we are finally there. The evidence is everywhere: The 9/11 Memorial is moving swiftly towards completion; the log-jam between the Port Authority and Silverstein Properties has been resolved; One World Trade Center is rising at a rapid pace, with reports of a major media anchor tenant that could sign up for as much as 1 million sf; Goldman Sachs has moved into its new headquarters at 200 West St.; and families are flocking to live in the repurposed office and brand new residential properties that offer amenities, remarkable views, shopping and wide open spaces and parks. By renewing and expanding our headquarters downtown, Fried Frank and other long-time tenants have played an important role in the turnaround of Lower Manhattan. We are proud to have recommitted to the area with our 400,000-sf. lease at Brookfield’s One New York Plaza.

This renaissance, most visible in Lower Manhattan, is also being experienced throughout the city. The real estate market’s steady and then accelerated rise carried over from Midtown to Midtown South and new emerging neighborhoods. We saw Forest City Ratner push a tremendous boulder up the hill to change the face of Downtown Brooklyn, bringing the Nets and new residential, office and retail construction along with it. Today we also see progress being made in the areas adjacent to Hudson Yards, as tenants contemplate a migration west, with the 7-train extension on schedule for completion.

Of course, as we know, sandwiched in the middle of this was another precipitous cycle. Prices skyrocketed for leases, homes and commercial assets. It appeared the sky was the limit, but then the limit was hit and the financial world seemed on the verge of collapse. Bear Stearns disappeared and Lehman Brothers filed for bankruptcy. But, with renewed vigor in financing, leasing, property acquisitions, residential rentals and sales we are again moving on an upward trend. While we have not come back to the heights reached in 2006 and 2007, the market has made a significant comeback.

There have been two constants during the last decade: Globest.com has helped us stay on top of the news, deals, trends and people who are shaping our business and cities. It has taken up residence at the heart of our industry and is a vital resource. The second is the ever-churning cyclical side of our business. Keeping an eye on one will help us monitor the other.

Jonathan L. Mechanic is a partner of the law firm Fried Frank and is chairman of its real estate department. He joined the firm in 1978 and became a partner in 1987, upon rejoining the firm after acting as general counsel and a managing director of HRO International Ltd. He routinely counsels developers, investors, REITs and lenders in all aspects of commercial real estate transactions, including the acquisition, disposition and development of office, retail, hotel and mixed-use properties; commercial mortgage, mezzanine and construction financing; acquisition of distressed debt; and joint ventures and restructurings.