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NEW YORK CITY-The buzz about a possible 2007 economic downturn is growing, and it will make itself felt in the industry, with stabilizing and possibly softening prices. But local area experts agree that the question is not so much one of economy but rather capital flows.

For their part, lenders are already picking up on the recession theme. As GlobeSt.com reported recently, a survey conducted by Philadelphia-based Phoenix Management Services reveals that 59% of the lenders polled predicted a softening of their loan portfolio over the next six to 12 months. “There’s not going to be a catastrophic dry-up of liquidity,” Phoenix managing director Michael Jacoby told GlobeSt.com, “but there will be adjustments in commercial real estate lending.”

Local area players aren’t biting their nails either, but neither are they denying that the good news will be tempered in 2007. “I buy into it partially,” says Frank Liantonio, EVP of global capital markets for Cushman & Wakefield. “But the interest rates and the long bond continue to hover at or below 5%. By historical standards that’s still attractive capital, and attractive capital fuels acquisitions. Our pipeline of product for sale is up 10% over last year, and our valuation volume is up over last year by a similar amount.”

Liantonio says he sees a strong buyer appetite, and the mantra that real estate is the preferred alternative will still be heard in 2007. Then comes the what-if, although Liantonio’s theory is based on the all-things-come-to-an-end philosophy.

“We’ll see stabilization,” he states, “because we’ve seen prices rise so significantly. It’s only normal to see them stabilize and soften. But don’t forget, the alternative markets will also continue to be volatile.”

“It would be cavalier to think the downturn would not impact real estate,” says Studley executive managing director Woody Heller. He reminds us that the industry has behaved counter-cyclically in the past few years, when fundamentals couldn’t justify the values. “The question now is whether we have a connected or disconnected downturn.

“Now,” continues Heller, who is also head of Studley’s capital transactions group, “do I care less about the economy than about how capital will be channeled? If we continue to be the favored son, I will be sad that the economy is slowing and that tenant demand may dwindle. But I will be worried only if the flow of capital changes.”

And will it? Heller votes no. At least for the near-term. “If you believe in the cycle, you’ve got to believe that capital can cycle out, but I don’t see it happening any time soon.”

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