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WHERE ARE WE HEADED?!

12/30/2008


There has been a great deal of bad news over the last several months. The 40% plus drop in automotive stock industries. The meltdown of the financial service sector. The loss of millions of jobs. And the list goes on and on. Many people are convinced that the sky is falling.

However, it is worth taking a full perspective of current and future events. Just as many people felt that there would be no end to the booming economy that lasted from 2005 to 2007, many people feel that the current recession will never end. Just as the good times ended with a thud at the end of 2007, the bad times will also end towards the end of 2009.

There will be more bad news in the coming months until various marketplaces work out the excesses of the past five years. These excesses include:

·
The overvalued, hyper-inflated real estate markets from coast-to-coast have already deteriorated. Some markets, however, will require further price deterioration.

·
The financial excesses of the 2004 to 2007 period need to be eliminated. New rules have to be created to provide financing only in appropriate situations.

·
The companies that caused this financial crisis need to be eliminated by the current market forces. A good deal of this has already happened.

Look for improved economic fundamentals as early as the fall of 2009. The new Obama administration will do whatever it takes for an early end to the recession. Lower oil prices will help our economy by reducing inflation for the foreseeable future. Once the carnage is over, American news will once again be positive.


What should a New Yorker do in this environment?

· If you are a commercial tenant, spend the next three to four months finding the best space you can find for the lowest price. New York landlords will reduce rates substantially throughout 2009. No one can predict the bottom of any market, but you are not likely to see 2009 rents again for at least a few years.

· If you are a landlord, bring your prices down now by 15% or 20% in order to snag those tenants who are waiting on the sidelines. Many New York landlords have reported to me that they are simply doing any deals simply because of various “sundry firsts.” Now is a great time to get off the fence and to bite the bullet.

· If you are a buyer of commercial real estate, do not do anything for at least the next three months. The “other shoe” is likely to drop for commercial New York real estate in the immediate future.

For the rest of us, plan on a return to more normal business conditions towards the end of 2009. But prepare for a wild ride. The gyrations may be over in the stock market but they are certainly not yet over for the business community. --Edward E. Klein

 

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