Trophy buildings still prized
I am writing to comment on the page 2 article in your Sept. 17 issue "World Trade Center destruction bad news for trophy buildings." The article contains conflicting quotes that result in a confusing presentation. Your writers must have scrambled within a couple of days of the tragedy to try to patch together comments made by certain real estate professionals, some of whom apparently were willing to speak before they thought.
Comments made regarding the declining value of "trophy" office buildings appear out of context, especially since (one) interviewee states his company "does not own any trophy properties." The comments made by Mr. Gifford, Mr. Steppe and Mr. Winters fortunately reflect the conclusions of real estate professionals unwilling to be pushed into reactive comments. The fact is that downtown trophy office buildings are only one component (and a relatively small one) of most institutional real estate portfolios. Most such buildings are help in large commingled funds, which are fully diversified across various property types, and economic and geographical regions. Even investors in trophy properties that are individually owned will not be impacted by your alleged "bad news."
Your article's reasons why the World Trade Center disaster will negatively impact trophy buildings are simply not true. First, although property values may be hit by increased insurance costs, added cost most likely will not be felt until a period of time at which both the economy and real estate markets are improving.
Second, in general, tenants will not refuse to pay a rental premium for upper floors. (Even if your writers' allegations in this regard were true, tenants would then be willing to pay a premium for lower floors.) The likely scenario is that tenants will continue to pay a premium for upper floors with the belief that the value of such locations far outweighs the possibility of another disaster of this nature.
Third, although tenants will try to negotiate lower lease rates (they always do), they will not generally be successful. While layoffs and other results of an economy in recession may temporarily impact office building occupancy and revenue, new development is minimal and urban office space (especially trophy building space) will remain scarce relative to tenant demand.
While I can appreciate your publication's attempt to address real estate issues of the disaster, your readers would have been far better served by the delay of any such article until rational, professional opinions could be formulated into a fair, intelligent article based on the strength of U.S. urban office markets and the strength of real estate as an asset class.
Paul H. Saylor
C S Capital Management Inc.
Efficient portfolio transition
The Oct. 1, page 3 article on transition management illuminates a fast-growing and complex sector of the investment services industry. We fully agree with the criteria spelled out in the article for selecting a transition manager. In particular, we endorse the notions that the best way to measure the effectiveness of transition management is its impact on the overall performance of a plan and how closely a service provider's estimated and actual costs align. Setting appropriate and accurate benchmarks for performance - including meeting specific investment goals and cost targets and providing clear post-trade analysis - have long been a part of our standard operating procedure. In fact, we believe this should be the industry norm.
While the article is largely instructive, we do take issue with the reported finding that, because of crossing networks, "... the plan sponsor gets an unwanted exposure to cash for a period of time during the transition ..." Crossing networks are simply a cost-effective source of liquidity used to execute buy and sell transactions. If crossing networks are properly utilized, plan sponsors do not have to sacrifice returns for low cost.
As State Street, our sophisticated global crossing network capabilities are integral to providing clients with the highest level of support - including low-cost, efficient transactions. These trading capabilities, combined with our strengths in pre- and post-trade analysis, provide the platform for our industry-leading transition management services.
Nicholas A. Bonn
executive vice president