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As an asset class, real estate is hot. But only time will tell whether the $1.4 billion paid for the GM Building in Manhattan will be seen as a sign of the underlying strength of real estate in 2003 — or whether it will look more like the NASDAQ at 5,000 in March 2000.
With double-digit vacancy rates, Manhattan isn’t exactly a landlord’s market at the moment. But it’s not just New York where there’s a disconnect between leasing and investment.
7-Eleven Corp. is looking for investors interested in its Dallas headquarters building. The simple reason: to take advantage of all the money earmarked for real estate by investors. The strengths of the property — tenants, credit, appearance, efficiency — are expected to outweigh the fact that roughly a quarter of the area’s office space is empty.
Are buildings overpriced? The answer really depends on the economy. Until new jobs start being created, the office market will remain awash in vacant space.
A budget deficit that might top $400 billion complicates the picture. Deficit spending to spur the economy is nothing new. And the Bush administration says this year’s tax cuts will help produce jobs. But historically deficits are also linked to inflation and rising interest rates. And the war in Iraq could fuel the deficit.
There is evidence the economy is ready to rebound. But since the current slump began, the economy has shown signs of recovery more than once, only to stall. It remains to be seen which number will have a bigger impact on real estate:
$1.4 billion for the GM Building or $149 billion for the invasion, occupation and reconstruction of Iraq.