LowER MAnHATTAn REAL ESTATE MARkET ovERviEw Q2 2009

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					LowER MAnHATTAn REAL ESTATE MARkET ovERviEw Q2 2009
Alliance for Downtown New York
commercial office market
Lower Manhattan Office Market Summary
Average Asking Rents Q2 08 Q1 09 Q2 09 56.97 $ 49.08 $ 48.47 47.20 $ 40.83 $ 39.34 40.24 $ 39.90 $ 39.41 50.74 $ 44.58 $ 43.81 Q2 08 6.6% 9.0% 8.5% 7.7% Total Vacancy Q1 09 7.3% 8.2% 10.8% 8.1% Q2 09 8.1% 8.4% 11.8% 8.7%

Class A Class B Class C Overall

$ $ $ $

Source: Cushman & Wakefield

The national recession and capital markets crisis continued to take their toll on the Lower Manhattan office market in Q2 2009 – evidenced by continued declines in rental rates and vacancy. These negative trends were tempered somewhat by signs of stability, and Lower Manhattan’s ranking of the lowest vacancy rate among US office markets. However, the outlook for the Lower Manhattan office market remains unclear, as consolidations and restructuring of large financial services tenants may add more space to the market through mid-2010. Leasing Activity Lower Manhattan leasing activity was stable compared to last quarter, with 550,000 sf of deals done in Q2 2009, compared to 560,000 sf done in Q1 2009. Year-to-date comparisons show that activity remains slow over last year: this quarter’s 1.1 million sf of leasing activity is 41% off YTD 2008. Like Q1 2009, this quarter’s leasing activity was driven by small deals and short-term leases: 76% of year-to-date transactions were under 10,000 sf, and at least 30% of transactions were less than five years (according to CB Richard Ellis and CoStar, respectively). Despite the abundance of small transactions, there were notable large deals, including the School Construction Authority which

took a total of 183,000 sf under two transactions with plans to open a new public school. Though year to date leasing has been slow citywide, real estate experts expect to see an uptick in leasing activity in the second half of 2009, as 42.6 million sf of leases are set to expire in 2010 and tenants that have been delaying action will be forced into the market regardless of economic conditions. Brokers already report an increase in the number of tenants actively seeking space and anticipate this will result in increased deal-making in the coming months.

8 million 7 million 6 million 5 million 4 million 3 million 2 million 1 million 0

Year-To-Date Leasing Activity Lower Manhattan

2002 2003 2004 2005 2006 2007 2008 2009

2nd Quarter

Year End Total Source: CB Richard Ellis

Top Leases Signed During Q2 2009
Tenant School Construction Authority Herzfeld & Rubin, P.C. School Construction Authority Managed Health Network Of San Rafael iMentor Inc Address 26 Broadway 125 Broad 26 Broadway 40 Wall St 30 Broad St SF Leased 136,500 56,322 46,671 36,921 30,360 Expiration 2039 2029 2014 2010 2021 Industry Government Professional Services Government Health Care Nonpro t
Source: CoStar
Alliance for Downtown New York | Lower Manhattan Real Estate Market Overview Q2 2009 1

Office Market Trends Lower Manhattan
$60 $55 $50 $45 $40 $35 $30 14% 12% 10% 8% 6% 4% 2% 0% $90 $85 $80 $75 $70 $65 $60

Office Market Trends Midtown
14% 12% 10% 8% 6% 4% 2% 0%

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Overall Asking Rents

Total Vacancy

Overall Asking Rents

Total Vacancy Source: Cushman & Wakefield

Vacancy Lower Manhattan vacancy climbed 7% during Q2 2009, ending the quarter at 8.7%, a 7% increase over last quarter and 13% over last year. Meanwhile, there was a negligible 0.5% increase in sublease space over last quarter, marking this the third straight quarter of stability in the addition of sublease space. one of the first steps in real estate market recovery is the absorption of sublease space, and this leveling off of sublease availability offers a hopeful sign. However, as major financial services tenants with large Lower Manhattan leases continue to consolidate and restructure, sublease space could be added later in 2009. Despite this increase in vacancy, Lower Manhattan remains in a better position than Midtown, where vacancy continues to increase much more rapidly. Midtown’s 11.7% vacancy rate is an 11% increase over last quarter and 65% increase over last year.

Rents Lower Manhattan’s average asking rents remained stable over last quarter. overall asking rents fell just 2% to $43.81/sf, while Class A asking rents dropped just 1% to $48.47/sf. Taking rents, however, continued to decline, ending the quarter at just 77% of the asking rent, down from 81% of the ask last quarter and 94% of the ask last year. While Lower Manhattan’s rents are falling, Midtown’s rents are falling more drastically. The overall asking rent of $66.82/sf in Midtown is a 9% decrease over last quarter and 20% decrease over last year. Taking rents for sublease space and some direct leases further indicate the precipitous fall of Midtown rents, with sublease deals closing in the low $40s to mid-$50s range. Additionally, a direct lease was signed in Midtown during Q2 2009 at just $37/sf. These low-cost deals in Midtown will continue to put pressure on Lower Manhattan landlords to drop prices further. Sales AiG sold 70 Pine and 72 wall as a joint venture to developer Youngwoo Associates and koreabased kumho investment Bank during Q2 2009. Reports of the sale price vary between $100 and $140 million total (actual price will not become public record until closing, which is expected to happen in Q3 2009), but experts estimate that this is about a third of the price the buildings could have commanded during the market peak two years ago. Former owner AiG plans to vacate the buildings over the course of the next year and consolidate at 180 Maiden Lane.

100% 90% 80% 70% 60% 50% 2Q 3Q

Taking Rent Index* Lower Manhattan

4Q

1Q

2Q

3Q

4Q

1Q

2Q

2007

2008

2009

*Based on a six month rolling average of completed transactions Source: CB Richard Ellis

Alliance for Downtown New York | Lower Manhattan Real Estate Market Overview Q2 2009

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residential market
The capital markets crisis and economic downturn continue to grip the Lower Manhattan residential market, slowing the volume of sales and putting downward pressure on rentals. However, the remarkable absorption of rental units over the past year shows continued demand for Lower Manhattan living in the face of challenging economic times. Inventory Despite the difficult economy, four buildings opened this quarter adding 300 units to Lower Manhattan’s inventory, and an additional 440 units in eight buildings are scheduled to open by the end of this year. The following buildings opened this quarter. •	 •	 •	 •	 TF Cornerstone (formerly part of Rockrose Development) completed the 189-unit addition to 2 Gold Street, a rental building. A 97-unit condo conversion opened at 39 whitehall Street. The majority of the building remains commercial. 51 Murray Street, a 4-unit building, opened in Q2 2009. The Smyth, a luxury hotel/condo building at 85 west Broadway opened the condo portion of the building (the hotel portion opened in Q1 2009), adding 15 units to the market.
$2,000 $1,500 $1,000 $500 $Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Lower Manhattan Manhattan

Average Sales Prices ($/sf )

Source: NYC Department of Finance

Rental Market Lower Manhattan’s Q2 2009 rental vacancy rate dropped 11% from last quarter to just 1.98%, showing remarkable absorption of the more than 1,000 units that have been added to the market over the past year. This continued demand combined with the onset of peak season in the rental market would suggest an increase in rental rates, but pricing for all unit types was stable over last quarter. Manhattanwide averages trended the same.

Additionally, TF Cornerstone converted 200 water Street from an nYU dorm to a luxury rental building this quarter, and began leasing in June. Sales Market A dramatic reduction in compensation of potential buyers and increased difficulty securing mortgage financing has caused declines in volume and pricing of sales. in May and June, the closing value of Lower Manhattan condos dipped below $1,000/ sf for the first time since February 2007. Sales for the quarter averaged $1,009/sf, an 11% decrease over last quarter and 22% decrease over Q2 2008— the residential real estate market peak. By comparison, Manhattan-wide sales dropped 5% over last quarter and 11% over last year.

Q2 2009 Average Rents ($/unit)
$6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Studio 1 BR 2 BR 3 BR

Lower Manhattan

Manhattan Source: Citi Habitats

Rental Vacancy Rate
2.5 % 2.0 % 1.5 % 1.0 % 0.5 % 0.0 % Q2 08 Q3 08 Q4 08 Q1 09 Q2 09

Lower Manhattan

Manhattan Source: Citi Habitats

Alliance for Downtown New York | Lower Manhattan Real Estate Market Overview Q2 2009

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hotel market
Average Daily Room Rates
Lower Manhattan New York City $ $ Q2 2009 Q1 2009 Q2 2008 241.54 $ 222.07 $ 330.56 221.00 $ 212.33 $ 316.91

retail market
A decrease in consumer spending has been a blow to retailers across the country, and many Manhattan retail districts have seen an increase in retail vacancy. However, an almost equal number of retailers opened (16 retailers) and closed (17 retailers) in Lower Manhattan during Q2 2009. Eight restaurants and cafes opened this quarter. •	 •	 Harry’s italian opened at 2 Gold Street. This bar and restaurant offers family style dishes and is open late 7 days/week. SHo Shaun Hergatt opened in the Setai at 40 Broad Street. The restaurant with Asianaccented French cuisine offers a lounge, bar, private room, and wine tasting area. Swich, a casual American eating establishment, opened at 83 Maiden Lane. Express BBQ, a casual American eating establishment, opened at 27 Park Place. A 1 Sushi Café opened at 166 Pearl Street. warren 77, a bar and grill, opened on warren Street. inatteso Café opened at 38 west Street. kafe neo opened at 80 Maiden Lane.

Occupancy Rates
Lower Manhattan New York City Q2 2009 84.2% 84.6% Q1 2009 68.6% 66.3% Q2 2008 89.0% 89.0%

Source: Alliance for Downtown New York, NYC & Company

Inventory no new hotels opened during Q2 2009, but 582 rooms in three hotels are scheduled to open during the second half of this year: The w Hotel and Residences at 123 washington Street, Holiday inn Express at 124 water Street, and the Andaz hotel at 75 wall Street. Lower Manhattan’s hotel market showed considerable increases in occupancy rates over last quarter and modest increases in average daily room rates (ADR) due to the start of summer tourist season. The Q2 2009 occupancy rate of 84.2% is a 23% increase over last quarter, and the ADR of $242 is a 9% increase over last quarter. However, ADR and occupancy rates both showed declines in year over year comparisons, by 27% and 5% respectively. while theses fluctuations are in proportion to city-wide averages, they show that the hotel market continues to struggle in the face of reduced domestic and international tourism. Hotels have also had to reduce pricing considerably to maintain occupancy, though Lower Manhattan hotels continued to outperform the city in pricing by almost 9% in Q2 2009.

•	 •	 •	 •	 •	 •	

Eight other stores and storefront services opened this quarter. •	 •	 •	 •	 •	 •	 •	 •	 Color Me Mine, the paint your own pottery studio, opened at 190 Front Street at the South Street Seaport. kara, a women’s clothing store, opened at 188 Front Street. T.o.C., a women’s clothing store, opened at 76 nassau Street. A Duane Reade opened at 200 water Street. Pepper Pastor Salon opened at 223 Front Street. Metro PCS, a telecommunications retailer, opened at 217 Pearl Street. Z Com wireless, a telecommunications retailer, opened at 275 Greenwich Street. The water Taxi Beach, seasonal entertainment with bar and casual dining, opened at the South Street Seaport.

Average Daily Room Rates
$300 $200 $100 $Q2 2008 Q1 2009 Q2 2009

Lower Manhattan New York City Source: Alliance for Downtown New York, NYC & Company

Visit www.downtownny.com/research for additional publications on the Lower Manhattan real estate market and economy. Documents include a Residential Inventory and Pipeline, Hotel Inventory and Pipeline, and list of available retail spaces.
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Alliance for Downtown New York | Lower Manhattan Real Estate Market Overview Q2 2009