In our last Q&A with you in the fall of 2001, you noted that despite a slowing economy, real estate values were holding firm, although performance expectations were eroding. Has that picture changed?

Yes. We see the first cracks in the real estate sales marketplace. Investors are still willing to pay more and accept lower returns for well-leased assets with low near-term turnover, while properties that lack these attributes are not selling at all.

There is an intense new focus by investors on real estate as a safe haven, which is driving yields down but also a growing awareness that the slow economy has increased the danger in speculative investments that rely on near-term leasing or rental rate increases.

	Are today's very low interest rates a plus for real estate investment?

Low interest rates can allow the same cash flow to support more debt, of course, but that is a two-edged sword. Low interest rates can seduce buyers to use levels of leverage that will be difficult to refinance if interest rates are substantially higher and/ or lenders are more conservative when it's time to refinance.

Cash flow can decline as well, causing underlying values to shrink. That would render in-place debt levels, as a percentage of total value, higher than the amount that can be refinanced.

	What is the impact of these conditions on Wien & Malkin's investment strategy?

The cornerstone of our strategy has always been, and continues to be, long-term direct ownership, current return, and capital preservation. With vacancies and expenses heading higher and rents and occupancy trending lower, we remain absolutely disciplined in our investment decision-making, realistic in our performance expectations, and focused more on the downside than on the upside.

We will now only buy assets of the highest quality, and invest Strategic Capital money in sound strategies and capital structures, or not invest at all. Now is not the time to expect a market rise to add value and create upside.

	Has reduced income-producing property performance created opportunity for work-outs and value-added investing?

Low interest rates and plentiful short-term, floating-rate debt, have mitigated the impact of lowered financial performance.

There is a tremendous amount of debt and equity capital committed to real estate, and much of it needs to be invested, and that puts pressure on fund managers to compromise their standards to place their money.

However, in spite of newspaper headlines about top prices paid for Park Avenue AAA trophy office assets, more and more stories appear about scuttled transactions. Lenders are reviewing their underwritings and appraisers are becoming more conservative. It may take several quarters, but the first signs of "trouble" are beginning to show.

	When might conditions change?

A few factors can turn the tables. Higher interest rates, reduced capital committed to real estate, less public market demand for real estate debt, defaults, fewer transactions and lower prices leading to lower appraisals, lender forced sales, and more - all of these don't have to happen at once to produce a changed environment, but a few of them working in concert will.

At the moment, the band and the dancers are weary, and things don't look quite so wonderful anymore. But the coach and the horsemen have yet to turn to pumpkins and mice.

	How are current conditions affecting existing Wien & Malkin investments?

In the office and retail sectors, our operating and leasing performance remains strong on both a relative and absolute basis. By buying or creating quality in top locations, continuous asset enhancement, and selectively shedding certain assets during the "boom boom" '90s, we have assembled an asset base that thus far is defying the downward operating trends, with distributions holding up well and, for some partnerships, even increasing.

Our apartment portfolio is feeling the effects of the weak economy, negative job creation, new home-buying, and competitive properties. While performing well on a relative basis, some distributions have been reduced and management and supervisory fees deferred. Conservative debt levels and long-term financing should preserve the economic viability of these investments and returns will improve with reduced home-buying and a strengthening economy.

	What about Strategic Capital?

We continue to invest Strategic Capital, our short-term real estate investment program, without losing sight of our long-term investment objectives. We believe that we have recognized a capital markets niche to be filled and the results to date have been in line with our expectations (see story).

	How are Wien & Malkin's investors responding to the current climate?

We have received very positive feedback from our investors on all fronts It's been very gratifying. They appreciate our candor about our set-backs, recognizing that overall our strategies have proven their worth, and they say we continue to reinforce their loyalty and trust.

We have a commitment to continue serving our investors as well in the future as we have for several generations. We want them to be educated as to the changing world in which we work. And we want to expose them to innovation from which they can profit.

Our investor base continues to grow, almost entirely through personal recommendations and word of mouth. We think that is the most important measure of investor support.

	Any last thought as we move through these uncertain times?

Be on the lookout for pumpkins and mice. We're out there looking for them every day.

Oh, one more thing....Onward and Upward.