Halstead Property

Diane M. Ramirez
President
dramirez@halstead.com
(212) 381-3203

Rebny New York's Commercial Real Estate Market

Credit availability, tax policies and infrastructure redevelopment are key concerns of New York’s commercial real estate industry as real estate owners, brokers, developers and other industry practitioners gather for the 113th annual banquet of the Real Estate Board of New York tonight at the New York Hilton.

New York City has been hit hard by the global recession, the financial meltdown that has literally changed the face of Wall Street, and the credit crunch. While all of these events have severely affected the city’s commercial and residential real estate markets, it is the credit crunch that seems to constitute the most immediate threat to the industry.

Steven Spinola, president of REBNY, warns that the association’s members and other industry practitioners who are developing properties, and those who wish to develop properties, cannot get loans. REBNY is also greatly concerned about the refinancing of current loans. Spinola reports that nationally a staggering $400 billion in commercial real estate loans are coming due in 2009, with a significant portion of those loans on New York City buildings. REBNY is working through The Real Estate Roundtable to urge the current Bush administration, the incoming Obama administration, and the congressional leadership to include these loans as part of the TARP, or so-called bailout, money. “We want them to encourage the financial institutions to make loans available when the current ones become due,” says Spinola. “These loans we are talking about are all performing loans that are paying their debt. Frequently in this business the way people borrow money is that they will take out a five- to seven-year loan with almost no amortization, and when
the loan comes due they go out and get a new mortgage. That is the kind of loan we are talking about.”

Another concern for REBNY is taxes.

“Recently,” Spinola says, “the city increased real estate taxes by seven percent. We understand the fiscal problems that both the city and state have. At the same time, however, we should not increase taxes to the point where businesses begin making location decisions based on taxes that force them to leave the city. In an office building, the tax increase is typically passed along to the tenant. We are now clearly seeing increased vacancies and we are seeing lower rents. It will be more and more difficult to absorb tax increases.”

“For 2009, we are seeing vacancy rates rise,” says Spinola. “We are concerned about retailers signing new leases. The positive news is that I believe New York City will be one of the leading geographic areas to take us out of the crisis we are in. We have a city that is safe, a city that is clean, a city where there is significant confidence in its leadership, and a city that is very attractive to domestic and international tourists.”

REBNY applauds the idea of making money available for infrastructure redevelopment to spur the economy, but Spinola recommends that the projects be selected with great care to achieve maximum impact now and in the future. “We want projects to get funded that are not only ready to go but also ones that would trigger economic activity beyond the infrastructure improvement itself,” he says. “One example is the Moynihan Station project on the West Side of Manhattan. Moynihan Station is an important infrastructure project that would also trigger private investment on the West Side and lead to long-term private investment
that would be great for the city.”

REBNY WORKS AT FEDERAL, STATE AND LOCAL LEVELS

In 2008, The Real Estate Board of New York was engaged in a wide range of activities that benefited its membership, the real estate industry and the city. These activities included advocating positions on legislative proposals at all levels of government — federal, state and city.

Housing and Economic Recovery Act May Make $600 Million Available to State
REBNY had a number of major accomplishments in Washington. It successfully

advocated for the inclusion of a provision that increased for two years the amount of private activity bonds available to the states in the Housing and Economic Recovery Act of 2008. New York anticipates an additional $600 million allocation. These additional funds could be used for a variety of housing issues, including dealing with foreclosures. However, New York plans to make these additional tax-exempt bonds available for new housing development, according to REBNY’s Annual Report. REBNY expects that when the credit crunch begins to abate, this additional
financing will be a catalyst for renewed housing development. The Housing Recovery Act also provided federal financial backstops to Fannie Mae and Freddie Mac, and streamlined the FHA and Low Income Housing Tax Credits, as well
as containing technical provisions sought by the industry to modernize treatment of REITs.

Another accomplishment in Washington was the inclusion of a provision in the Emergency Economic Stabilization Act of 2008 that provides a 50-percent bonus depreciation of investments made during 2008 (with a transition rule for
2009 investments under binding contract during 2008). The qualifying investments included leasehold improvements, and furniture and equipment used in a business.

For these types of investments, the taxpayer will be allowed an immediate deduction of 50 percent of the cost of the investment and the balance will then be
depreciated over its depreciable life (39 years for leasehold improvements; three or five years for equipment). This act also extended energyefficiency and brownfield tax incentives.

A critical piece of legislation for 2008 and beyond was the Terrorism Risk Insurance
Program Reauthorization Act of 2007 (TRIPRA), according to the REBNY Annual Report.

President Bush signed this bill at the very end of 2007, just prior to the expiration of the earlier federal legislation for terrorism risk insurance. The legislation extended the federal backstop for terrorism risk insurance coverage for seven years. Although REBNY had lobbied for a “largeevent reset mechanism,” which would have resulted in greater capacity in high-risk urban areas, it was not in the final bill. REBNY strongly fought the idea that came out of the House Ways and Means Committee in
2008 to tax carried interest as ordinary income rather than as capital gains. Carried interest is the compensation paid in the form of an equity interest in the project for the managing entity that arranges the financing. While the proposal was aimed at hedge funds and the financial services industry, it would have had serious implications for the real estate industry.

Industrial and Commercial Incentive Program Gets Extension

In Albany, Spinola says, the Industrial and Commercial Incentive Program (ICIP) was
extended to March 1, 2011 — a two-and-a-half-year extension. In view of the robust economic activity between 2002 and 2007, the city and many opponents of this program sought significant reductions in its benefits. Over the last year, REBNY successfully negotiated revisions to the program. As a result, the final version of
the law contained many of the provisions that it felt had been successful, such as continued benefits for retail and office development in the boroughs and benefits for renovation work in Manhattan. Going forward, this benefit program will be called the Industrial and Commercial Abatement Program (ICAP) and will be an abatement of property taxes, not an exemption of taxable assessed value. Another critical
economic development incentive program that was amended was the Brownfield Cleanup Program (BCP). BCP was enacted four years ago to clean up brownfields throughout the state and to promote the development of these sites, especially
upstate. From the state’s perspective, the basic problem with the BCP was that the uncapped development benefits that linked the amount of this tax credit to the cost of the development were too expensive and were providing an insufficient benefit upstate, where the economic development need was greater. The new, amended BCP imposes a $35-million cap on development credits and a $45-million cap for manufacturing projects.

Spinola notes that the Relocation and Employment Assistance Program (REAP) and the Lower Manhattan REAP were extended to 2013. REAP provides substantial
tax credits for moving employees to the boroughs and northern Manhattan. Lower
Manhattan REAP provides similar benefits for companies that move employees from outside New York to Lower Manhattan. Both programs are designed to offset the high operating costs in the city and to make the city more competitive with
business locations throughout the metropolitan region. In addition, this program
is a complement to ICAP/ICIP as a package of incentives to promote economic
development activity.

REBNY strongly urged the renewal of the REIT transfer tax reduction law, which  could continue the 50-percent reduction in the transfer tax on the conveyance of a property to a REIT. This provision was scheduled to expire in September 2008. Initially enacted in the mid1990s along with the elimination of the 10-percent gains tax, the transfer-tax reduction has encouraged the creation and growth of REITs in
New York. The financing and real estate activity generated by REITs have been a critical component in the robust economic activity in New York over the last decade, according to REBNY.

The green roof tax abatement law that REBNY supported, which is a component of
PlaNYC (the city’s blueprint for green, sustainable growth to 2030), establishes a pilot program that provides a one-year tax abatement for the construction of a “green roof” on a tax Class One, Two or Four building. The amount of the abatement is $4.50 per square foot of green roof limited to the lesser of $100,000 or the building’s tax liability for the year in which the abatement is taken.

REBNY supported the renewal of the co-op/condo abatement program that lowers taxes for these properties, which is generally 17.5 percent. The purpose of this
reduction is to achieve equity between single-family homes in Class One whose taxes are significantly lower than the Class Two “homes” (co-op and condo units) that are taxed at a much higher percentage of their value, according to REBNY.

REBNY has been the major advocate for extending the 421a negotiable certificate program and the current 80/20 program, and for a longer transition period to the more restrictive benefit program that the city and state legislature enacted. It was successful in preserving the 80/20 program and in attaining meaningful extensions for the certificate program and for the more generous 421a benefits. As a result
of this extension, there was, according to REBNY, an unprecedented surge in new housing permits in the last month of eligibility for these benefits.

REBNY Helps Address Safety Concerns at Construction Sites In the City of New York, the most pressing local legislative issue was construction safety.

In response to a number of construction accidents, legislation was enacted that regulated crane operations. REBNY worked with the administration and other interested organizations in developing a sound workable proposal to address construction safety concerns.

The new law also requires a 30-hour training course for anyone involved with erecting, jumping or dismantling a crane. Additionally, detailed crane-erection and rigging plans must be filed and approved, and crane-operation coordination and safety meetings must be held on site, prior to any operation.

Also in response to accidents, the City Council passed legislation requiring that a concrete safety manager be employed to oversee concrete operations on buildings over 10 stories in height or where the concrete pouring involves over 2,000 cubic yards of concrete. This is in addition to the required site safety manager. The Council also passed legislation that requires all construction workers to complete a 10-hour OSHA safety course and have a course completion card.

Another issue that has received significant media attention, and is an element of
PlaNYC, is bike parking in residential and commercial buildings. REBNY generally has
been supportive of a recent zoning proposal that would require bike parking in new residential and commercial buildings. It says that its basic concerns with the new building proposal are that the required number of spaces seems high for commercial buildings, based on a REBNY survey of members who already provide this amenity, and that building owners be explicitly permitted to reasonably regulate the hours of operation of this space. REBNY says that it has expressed strong opposition to City Council legislation that would mandate such bike access in existing buildings.

Another important zoning proposal that REBNY supported was on 125th Street. The
city’s goal was to increase floor area on this major commercial street in order to attract new investment and to promote more new commercial development, while taking steps to preserve the cultural character of the area. REBNY supported the rezoning of Willets Point, which the City Council also approved. This plan would transform this unsightly industrial area to a mixed-use community that would complement the growth in the adjacent neighborhoods of Flushing and Corona.

Another Council-approved planning initiative that REBNY supported was the rezoning of a portion of the Long Island City waterfront for the city’s proposed 5,000 units of workforce housing. Throughout the planning process, REBNY offered advice to the city about costeffective building design and construction, as well as a financing structure that would lower project costs.

REBNY also testified on other planning and economic development projects that it thinks are important to the city. These include the expansion of the Columbia University campus in West Harlem, the ARC Trans-Hudson Tunnel that would build a second tunnel to Penn Station from New Jersey, and the rezoning of the former Con Edison sites on the East Side to permit a large-scale mixed-use project — housing (market-rate and affordable), office and open space, a school and public access to
the East River waterfront.

REBNY honors members for significant career achievements

Each year at its annual banquet, REBNY honors several of its members for notable career accomplishments and exemplary involvement in civic life. At this year’s event, six awards will be presented. “Our honorees are household names in the real estate industry,” notes Spinola. “They have all accomplished great things in their careers, but they also have demonstrated the highest professional and ethical standards. And, in no small way, our honorees have given back to the communities they serve. They all have set examples that the rest of us in the real estate industry should strive to follow.”

Mary Ann Tighe, CB Richard Ellis, Inc., will receive The Bernard H. Mendik Lifetime
Leadership in Real Estate Award, which is presented each year to a REBNY member for a lifetime of exceptional accomplishment in the profession and invaluable contributions to New York’s leadership in real estate.

Tighe has been CEO of CBRE’s New York Tristate Region since 2002. Under her leadership, CBRE has become one of New York’s pre-eminent firms. She has served the industry as part of the Executive Committee of the Board of Governors of REBNY since 2001 and is currently vice president of the executive committee. She serves the community as a board member of the Inner-City Scholarship Fund, a board member of the Partnership for New York City, a board member of Joan’s
Legacy: The Joan Scarangello Foundation to Conquer Lung Cancer and a member,
Chairman’s Council and Business Committee, The Metropolitan Museum of Art.

Tighe is a six-time winner of the Real Estate Board of New York’s Deal of the Year
award for ingenious brokerage, and won the 2007 Henry Hart Rice Achievement Award and the 2004 Louis Smadbeck Memorial Broker Recognition Award.

Leonard Litwin, Glenwood Management Corp., will receive The Harry B. Helmsley Distinguished New Yorker Award, which is presented to a REBNY member for a lifetime of exceptional accomplishment in the profession and invaluable contributions to New York’s civic welfare.

Litwin has been involved in apartmenthouse construction and management for more than 50 years. His family members started as nurserymen over 70 years ago,
and they still maintain The Woodbourne Cultural Nurseries in Melville, New York,
which he is converting into the 200-acre Woodbourne Arboretum. Litwin has remained one of the most active owner-builders of luxury high-rise Manhattan buildings. Glenwood Management Corp. has earned a reputation as one of the best management companies of residential apartment houses in New York City. Litwin has also built hundreds of lowincome housing units. He received special recognition for a new building on the New York State and Federal Registers of Historic Places, which was the first building to rise after 9/11. Litwin is actively involved in various real estate trade organizations. He is a governor and secretary of the Real Estate
Board of New York.

Litwin supports the Crohn’s and Colitis Foundation of America, co-founded The
Litwin Zucker Alzheimer’s Research Center at North Shore LIJ, and substantially supports Alzheimer’s, Chronic Fatigue Syndrome and cancer research at several hospitals. He has established The Litwin Foundation to ensure that these endeavors last well beyond his lifetime. Litwin is also a major supporter of Jewish causes and is a major benefactor of the Temple Beth-El in Great Neck, New York.

Earle S. Altman, ABS Partners Real Estate LLC, will receive The Louis Smadbeck Broker Recognition Award, which honors an executive who exemplifies the  characteristics of a successful commercial broker.

Altman spent more than 40 years at Helmsley-Spear, Inc., which was one of the largest real estate firms in the country. Altman co-founded ABS Partners Real Estate, LLC, in 2000, where he works in ABS’s acquisitions, sales, management,
leasing and advisory groups. He helped pioneer the conversion of loft and commercial buildings into residential co-ops and condominiums by consistently citing the fundamental land, building, and conversion values versus ground-up construction, encouraging urban pioneers to take advantage of mid-Manhattan values. He is currently working on a program for middle-income housing development in Queens. Altman has served as a member of the Board of Governors of The Real Estate Board of New York as well as a three-time chairman of its Sales Broker Committee.

Along with his wife, Linda, he is active in a variety of charitable organizations. He is
the co-chairman of the Real Estate Council of Carnegie Hall, a benefactor of the Albert Einstein College of Medicine, and has been a guest lecturer at both Cornell University and New York University. He currently serves as a member of the Advisory Board of Baruch College’s Steven L. Newman Real Estate Institute. Altman has also served in the United States Marine Corps.

James H. Farley, Stahl Real Estate Company, will receive The George M. Brooker Management Executive of the Year Award, which recognizes individuals of superior accomplishment from the management area based on outstanding professionalism, civic achievement and contributions to the real estate industry.

Farley is responsible for construction, development and management at Stahl
Real Estate Company, the owner, developer and investor of more than four million
sq ft of office and retail space and 3,000 apartments. He began his career in 1980 at Muirfield Contracting, a heavy construction general contractor, where he ran the field operations. Farley has overseen the renovations of both 277 Park Avenue and the Lunt Fontanne Theatre, the recent conversion of the landmarked Apple Bank for Savings Building to residential condominiums, the construction of L Haus, a residential condominium in Long Island City, and the restoration of the Chanin Building following the Con Ed steam blast.

He is currently working on the construction of two new residential buildings, one on the Upper West Side and the other in Brooklyn. He serves the industry as a director at the Real Estate Board of New York, Management Division, and as a member of the RAB Negotiating Committee and of the Building and Managers’ Association
International.

Diane M. Ramirez, Halstead Property LLC, will receive The Kenneth R. Gerrety Humanitarian Award, which recognizes meritorious service to the community by a REBNY member.

Together with Clark Halstead, Ramirez helped found Halstead Property in 1984. Ramirez is an active member of REBNY, where she serves on the executive committee, the Board of ResidentialNYC, and as co-chair on the board of directors of the Residential Division. She also serves on the Deal of the Year Committee and its Investment Advisory sub-committee, is a
voting member of the Residential Brokerage Division, Interfirm Forum, which she cochaired from 1996 to 1998.

Ramirez is currently a committee member on Admissions and has served on the Ethics Committee and Education Committee (co-chair 1994–96), and is a member of the Real Estate Brokerage Managers Council.

Joseph A. Grotto Jr., Colliers ABR Inc., will receive The Young Real Estate Man of the Year Award, which is selected by the Young Men’s/Women’s Real Estate Association of New York on the basis of integrity, professional and personal ethics and knowledge, ability and accomplishments in the field of real estate, contribution of time and effort to the Association and The Real Estate Board of New York and constructive participation in the life of the community.

Grotto has been active in the real estate industry for more than 25 years, since graduating from Denison University. He began his career by interning at age 16 at Brown Harris Stevens in the appraisals department and then moved on to commercial leasing after graduation. He later co-founded J. Grotto & Associates in 1986 with his father and mentor, Joseph Grotto Sr.

When J. Grotto & Associates merged into Colliers ABR in 2003, Grotto joined Colliers ABR as senior managing director. He is currently serving on REBNY’s Board of Governors and is part of the Midtown West Rental Conditions Committee and the
General Meetings Committee.

Thursday, January 15, 2009