The Consumer Price Index is used to calculate how prices have changed over time. If, in 1995, you purchased goods or services for $1, then in 2004 the same goods or services would have cost $1.24, as calculated by the CPI. This represents a 24% increase over the 10-year period. Prices for commercial and residential real estate exceed the CPI inflation level by more than 300% over the same period.

In 1995, the principal of The Moinian Group, Joseph Moinian, was purchasing Class-B office buildings in Lower Manhattan for conversion into rental apartments. Mr. Moinian said he and other investors were buying buildings for prices as low as $5 a square foot.

Last year, he purchased five properties, including buildings at 180 Maiden Lane and 530 Fifth Ave. He continues to be bullish on Lower Manhattan, and said, “As a result of the increasing price of land and residential Liberty Bonds being exhausted, the residential development downtown will be mainly condominiums.” He added, “You’re going to see half a dozen condominium projects being announced in the first quarter of 2005, and even our first in downtown.”

Last week, The City Investment Fund L.P., in a joint venture with a group of local investors, acquired 1,700 residential rental apartments in the Bronx. The president of the fund, Thomas Lydon, says,”2005 has the opportunity to be an excellent year for the real estate business in New York City. … Although demand is strong, an increase in interest rates of 200 to 300 basis points could slow the absorption of new product, leading to a leveling of prices. Overall, I would express cautious optimism for the condominium market in 2005.”

Joseph Taube of Taube Management said, “In many new developments, condo sales prices have reached $1,100 to $1,200 per square foot. When a building opens its sales office, 90% of the units are sold within six to eight months, if marketed properly.”

In June 2004, the president of Allied Partners Inc., Eric Hadar, joined with Mr. Moinian and purchased 95 Wall St. from RFR Realty, which had earlier that month purchased the property from German fund DEGI. “Prices for land for condo development and prices for rental properties suitable for conversion to condo continue to skyrocket,” Mr. Hadar said. “Young, professional New Yorkers are all anxious to get in the game as they hear about all the ‘equity’ their friends have made as homeowners, while their brokers assure them that the market is up 20% over last year and climbing. The result is a culture of house-poor, debt-laden youngsters hoping that they will build up equity quickly. In many cases this equity is borrowed via home equity loans in order to support lifestyles based on their assumption that incomes keep increasing. Nevertheless, the highest quality properties, no matter what the price point, will hold value. There is an endless stream of buyers wiling and able to pay $1.5 million to $4 million for condo units.”

The chief executive officer of Belfonti Associates, Michael Belfonti, has been an active investor in Connecticut and Massachusetts. This year, he is focusing his attention on opportunities in Manhattan, telling me that everyone wants to own and live here. Yet, he says, “People are spending more of their total income on housing than ever before, whether it is rental or ownership. How long can this trend continue? In the past, people would spend approximately 30% of their household income for housing. Today, the trend is upwards of 40% to 45%. There are many condo projects slated for 2005 and 2006, and I’m not sure if the demand will be strong enough to absorb all this new construction.”

The first vice president of real estate investments at PSP of Montreal, Andre Collin, is an active investor in New York City with partners Ofer Yardeni and Joel Seiden of Stonehenge Partners. Mr. Collin says, “The New York residential market will perform well, with high occupancy levels, and net increases in rental income.” He added, “The conversion of rental apartments into condominiums or cooperatives will be partly dependent on the interstate level, but the perception is that it will still be advantageous for converters to convert and buyers to buy.”

The national director of the real estate capital markets division at Deloitte, Dennis Yeskey, said he “continues to see significant investment flowing into New York City from wealthy investors and institutions from around the globe. They clearly have anointed New York City where they must own real estate.”

Michael Pomeranc, principal of Thompson Hotels, the owners of the boutique hotel 60 Thompson Street, said that later this year, the firm will be completing the renovation of a new hotel across from the Time Warner Center. Mr. Pomeranc agrees with Mr. Yeskey, saying, “Although prices are high, the weakness of the dollar will shield real estate from devaluating, even as rates go up.” He said foreigners will continue to buy. Hotel sales and purchases will trade at higher values wherever hotel condo conversion components are applicable. New construction for full-service hotels will become harder and harder to finance on a stand-alone basis, he said.

A partner and co-head of the real estate transactions and finance practice at Weil, Gotshal, & Manges, Philip Rosen, said, “The market remains red hot. The question is whether, or for how long, it will remain so. The weakness of the dollar is leading foreign investors to pay an inordinate amount of attention to U.S. real estate, with capital from Germany, England, France, the Far East, South America, and Israel. My view is that we have more good times to come, but I believe that at some point the rise in interest rates will catch up with the variable interest-rate borrowers.”

Last year, the executive managing director of the capital transaction group at Studley, Woody Heller, was responsible for the sale of office sites at 125 Park Ave. and 261 Fifth Ave. Mr. Heller said, “An ongoing theme in the marketplace over the last few years is the imbalance between the amount of money targeted to purchase real estate and the very few buildings available for purchase. This factor, together with low interest rates, has supported prices at levels not justified by underlying rents. The question is whether the anticipated rise in interest rates will soften pricing. Our view is that the impact will be minor, as it will be offset both by increasing rents and by the ongoing demand for product, which so dramatically outweighs supply.”

“Clearly, there’s as much money, debt, equity, and mezzanine, as has ever been in the real estate market,” said an executive director at UBS Investment Bank, Marc Warren. “The New York markets are generally in good supply-demand balance, and the fact that all this money is here is as much driven by investor’s views that the risk and return here is attractive as compared to their choices of other places to invest such as stocks, bonds, and other markets, and the fact that on a dollar-denominated basis, our prices are cheap to the rest of the world.”

Last year was an active one for Norman Sturner and his partners at Murray Hill Properties. In August, they closed on the purchase of 135 W. 50th St. and, in December, 1412 Broadway. “The Manhattan market for 2005 is poised to have one of the best years since 2001.The dollar versus the euro is making our assets look cheap to foreign investors even though we are seeing record prices on asset sales. Manhattan is still a less expensive price per foot, for rental and purchase, than the other major cities of the world.”

Late last year, Himmel + Meringoff Properties closed on an acquisition of 521 W. 57th St. A partner, Leslie Himmel, said, “As the general economy continues to grow stronger, the local New York City real estate and commercial office market will also improve. The sale market continues to be buoyant as excessive amounts of capital chase low-cap rate returns and the devalued dollar makes real estate in the U.S. comparatively cheap for foreign investments.”

In July 2004, Shorenstein Co. purchased the 25-story office tower at 125 Park Ave. The managing director, Gentry Hoit, is now interested in opportunities in downtown. “Looking ahead, the outlook for downtown Manhattan is bright. With a record spread currently between Midtown and downtown rents, we expect to see more large users seeking space downtown in 2005. The conversions and recent new developments in the residential market will forever change the character and feel of the downtown market, and combined with a steadily improving NYC economy, bode well for downtown’s future.”

The president of the Rudin Management Company, Bill Rudin, said, “With growing numbers of Midtown firms choosing to relocate downtown and the mayor promising a new wave of incentive programs, I expect the Lower Manhattan office leasing market to continue to strengthen and gain momentum in the months ahead as the entire downtown district rebounds. All of Lower Manhattan will benefit from attractive office rents well below Midtown levels, combined with the steady conversion of outdated commercial buildings into luxury residences.”

The outlook is positive for the outer boroughs and Long Island. “An increase in investment in industrial, office, and retail real estate properties is an indication that values will continue to remain high for the foreseeable future, as more and more money chases available real estate,” said Mitchell Rechler, a partner at R-Squared LLC and Rechler Equities. “Office and industrial leasing activity on Long Island maintained a robust pace throughout 2004, and we anticipate a continuation of this trend well into 2005, as no significant new supply is being added to the market. We are extremely bullish on the future of New York’s suburban markets, and are actively seeking new investment opportunities throughout the New York metropolitan area.”

The co-chair of the real estate department at Ruskin Moscou Faltischek P.C., Eric Rubenstein, said the real estate market on Long Island will continue to be active. “The recent sale of the sought-after, contested Tilles portfolio exemplifies the desirability of Long Island real estate to institutional and entrepreneurial investors. Shopping center and retail development will increase as the municipal approval process and local opposition allows.

The president of Shalom & Zuckerbrot Realty, Frank Zuckerbrot, agrees with Mr. Rechler, saying that “for 2005 we will continue to see strong demand for residential and retail re-development sites throughout the outer boroughs of New York City.” He added, “Big-box retail stores continue to thrive within the city, and existing retailers such as Home Depot, Lowe’s, Best Buy, and Target will work on adding units. The proposed rezoning along the waterfront from Greenpoint to Williamsburg, and the additional development slated for 2005 within the master planned Queens West project, will help to meet the demand for higher quality new housing within these marketplaces. Over the course of the next few years, the skyline looking from Manhattan to Queens and Brooklyn will start to dramatically change.”

The newly installed chairman of the retail leasing and sales division at Prudential Douglas Elliman, Faith Hope Consolo, said, “It’s going to be another year of good news for the world of retail.” She agrees with Mr. Zuckerbrot that Home Depot’s chief competitor, Lowe’s, which opened a store in Brooklyn last year, will make the move into Manhattan.

The president of Sierra Realty Corp, James Wacht, said, “If the commercial development occurs on a rational basis over an extended period of time and the new developments planned for the city occur on a rational basis over an extended period of time, then these developments will only help ensure that New York City maintains its rightful position as the capital of the world. Of course the wild card here is interest rates. A rapid or unexpected rise in rates will throw the entire market into turmoil.”

The chairman of the real estate practice group at Stroock & Stroock & Lavan LLP, Leonard Boxer, as well as myself and many of New York’s real estate leaders, “view the world going forward with cautious optimism.” Mr. Boxer says, “I believe that marketplace dynamics, especially in New York City, will justify most investments in the long run, but we can’t lose sight of uncertainty. Terrorism and potential world economic instability will be lurking in the shadows for some time to come.”

Mr. Stoler is a television broadcaster and vice president at First American Title Insurance Company of New York. He can be reached at mstoler@firstam.com.