Real estate leaders may view these months as the “summer of discontent.”

Most of them are cautious about the effects of capital markets on the sale of commercial real estate. In June, when the real estate executives were celebrating the record of more than $31.4 billion of properties sold and under contract, few expected property sales to slow to a snail’s pace. Only a handful were then aware that the investment banks providing financing were experiencing their most difficult times in more than a decade.

A number of investors who have entered contracts for property are now experiencing difficulty obtaining financing at terms that they expected to be provided by their investment bankers. As reported in the August 10 Commercial Mortgage Alert, one of Manhattan’s largest owners of office buildings, Macklowe Properties, might be having difficulties in financing its latest acquisitions. The article, under the headline “Downturn Poses Serious Threat to Macklowe,” discusses how Harry Macklowe could risk losing the ownership of many of his prominent Manhattan office buildings after pledging his stake in the General Motors Building at 767 Fifth Ave. as collateral for the $6.9 billion debt package he obtained for the purchase of the Equity Office Properties Trust from Blackstone Group.

Industry leaders are confident Macklowe Properties will be able to meet its financial difficulties without the loss of the General Motors Building, his prized asset. Nevertheless, less experienced, undercapitalized investors who are now required to negotiate financing must be concerned by the current situation.

With office buildings selling for between $1,000 and $1,500 a square foot, owners need to lease these properties for more than $100 a square foot a year. A partner in the mortgage fund Rossrock LLC, Alan Leavitt, said: “Office rents in prime buildings which are quoted at over $100 per foot seem to be more talk than reality. A perennial top broker at CB Richard Ellis who has been in business for more than 30 years told me yesterday that he has never had a lease for office space in triple figures. Certainly the turmoil in the financial markets will cause hedge funds to watch their overhead more carefully going forward. The air is out of the balloon and financial firms in general will probably be cutting back on their space requirements.”

A partner at Ramius Capital, Michael Boxer, said: “It has been taken as a god-given right that New York City Class A office rents will be $120 to $140 per square within two to five years. While it is reasonable to assume that the current tightness in the market will continue to push rents upward, the collapse in the credit markets and liquidity crunch we are seeing could have a very significant negative effect on the anticipated growth in demand for space, much of which is coming from Wall Street firms. Anyone who recently purchased New York City office buildings utilizing debt that doesn’t currently cover its debt service has to be thinking about the effects of rents not reaching underwriting levels before their interest and operating shortfall reserves are depleted. Compounding the concerns should be the refinancing risk as a result of the above.”

Mr. Boxer added: “I feel strongly that sales volume will fall because it will take some time before sellers moderate their expectations, given the current state of the real estate lending marketplace. Said another way, it is somewhat painful for sellers to have expected to receive ‘X’ dollars yesterday, and now they are being told they can only get ‘Y’ today. My instinct is that these sellers will do nothing until they can’t wait any more. Well-capitalized owners will simply wait for a more opportune time to sell. Patience and chips will cure all.”

The senior managing director of Eastdil Secured, one of the country’s most active commercial sales advisors, Douglas Harmon, said: “Today’s capital market hurricane will have more of a short-term negative impact on smaller, pedestrian transactions. These transactions were purchased in many instances by investors, who were fortunate to obtain funding by aggressive fixed-rate loans. Lenders provided these investors terms which included no principal payment, 10-year interest only, low debt service, and high loan-to-value.

“Because this debt weapon is off the shelves, a different class of investor will get the chance to compete and win deals. Trophy commercial transactions, however, are better insulated from the storms. Any negative impact of tightening credit on larger trophy deals will be offset and backfilled by worldwide equity that can fire away with a strong currency, and ample equity, and who may view these uncertain times as a rare buying opportunity.”

According to real estate sources, certain sales of office properties have stalled. For example, an attorney at a leading real estate legal firm said that a purchase of an office property in Midtown on Madison Avenue has stalled as a result of the lender pulling out of the transaction. This was directly related to the price of the transaction, which only became an issue because of the subprime jitters of the debt market. Now the purchaser is seeking another lender, which it will surely find, but at a higher interest rate and probably lower leverage.

“The underlying property market seems solid, but the underwriting of financing will inevitably become more conservative; when that happens those lenders who honor their commitments now will be rewarded with new business. The converse will be true for lenders who have been pulling out of deals,” the real estate attorney added.

The chairman of the board of Signature Bank, Scott Shay, said the key to making sense of the current disruption in real estate financing, and in corporate financing in general, “is whether what we are currently experiencing is a financial panic attack, or a real economic phenomena.”

Mr. Shay said analysts at Signature have been surprised to see hedge funds digging more deeply into real estate financing and taking on loans Signature had turned down or offering lower rates on riskier credits because the hedge fund could sprinkle it into a collateralized debt obligation without affecting the CDO spread.

“I suspect that for the moment that is history. Real estate lending will come back to the fundamentals of supply and demand by tenants, quality of tenants, location, underwriting standards, and relationship and reputation,” Mr. Shay said.

One prominent local investor who has seen the ups and downs of real estate told me: “I do not think the market is tanking, but a slump is probable. But psychologically, it can be talked into a tank.”

The executive vice president and principal at Cushman & Wakefield Sonnenblick Goldman, Mark Gordon, said: “With regard to the capital markets, we are clearly in a period of volatility. Many are quick to forget that for the past three years we kept saying that things could not get any better and each year they did. Lenders are in the process of reassessing market risk and over the next few weeks — assuming we don’t have any more surprises — good deals will get done, initially at lower loan-to-values and higher spreads.”

The senior vice president of the investment bank Houlihan Lokey, Stephen Pearlman, said: “The investment sales market for the second half of 2007 is going to be difficult. Higher interest rates will provide investors higher cap rates. Investors who are in contract to purchase properties are now trying to negotiate price concessions from sellers. Sellers are not yet motivated to reduce pricing, but this can definitely change.”

Despite the lending market, several properties are for sale this summer. Office properties include the Forbes building at 60 Fifth Ave.; the office building 10-14 W. 57th St. packaged with development air rights; the 21-story office tower at 100 William St.; the 254,000-sqaure-foot office building at 180 Madison Ave.; the Roosevelt Hotel, and three large portfolio of residential rental buildings located in Harlem, Upper Manhattan, and the Bronx.

“Real estate prices will fall as the spreads that one will require to make their loans will widen considerably,” a prominent real estate leader who did not want to be identified said. “Real estate investing and lending has gone from a view of the product based on present value and cash flow or yield, to one more similar to the stock market where present earnings and dividends always took a back seat to future value.”

The real estate leader said: “With regard to the sales of residential condominiums, New York and specifically Manhattan, and the adjoining areas like downtown Brooklyn, has been the only place in the country where sales have not stopped almost entirely and that will end due to the supply and demand factors.

“If you look closely you will find sales of condominiums in the fringe areas already slowing quickly, and this trend will continue in these areas and spread to secondary areas and then to even better areas.

“This has already resulted in lower ‘accepted’ prices, and there will be more and more discounting as the large amount of product in the large number of units in the pipeline come to the market.

“Even though we emphasize that our city has a diversified economic base, New York City still lives and dies with the Wall Street community, which looks to be questionable.

“Nevertheless, I am not being optimistic, but I remain bullish on New York in the long run. This has happened before. The prices in the next turn always surpass the highs of the last up market,” the real estate lender added.

The chief operating officer of Citi Habitats, Gary Malin, said: “If the bonus pools start to decrease over the next few years, given the current economic climate, it would stand to reason that the velocity of sales in new condominiums will slow, which in turn will impact prices. There are still a significant number of condominium jobs out there and each competes with one another, so if the market softens the buildings in better locations, built by established developers, will likely fare better.”

A partner at the law firm Wolf Block, Kenneth Fisher, said: “Banks had started a few months back to insist that development sites for residential projects be underwritten for rentals as well as for condominiums. This is likely to accelerate, meaning that development deals which can support themselves as rentals should be okay — particularly with a strong borrower — but the land prices where the rental market is uncertain or where the developer’s balance sheet is weak will never come to fruition.

“Projects in the pipeline which were rushing to qualify for 421-a tax abatement may get slowed down, which may become very problematic if these miss the proposed deadline, particularly as residential condominiums. Given the market’s need to absorb the inventory already under construction, I can foresee land prices softening for some time until demand buildings back up and assuming Wall Street and related employment stays strong,” he said.

Mr. Fisher added: “Residential rental buildings will have more difficulty refinancing, which impacts on their ability to make improvements and the owners’ ability to take cash out for other things, but as long as rent rolls remain strong” — for both commercial and residential — “sales prices should stay constant.”

“Unfortunately,” another real estate investor said, “the abuse of the marketplace by a growing tide of overly aggressive speculators has been matched only by the zealousness of the financing marketplace to accommodate them. The backlash will, once again, suck in the many legitimate developers who work by the sweat of their brow and not by the glibness of their tongue or by their sole willingness to risk other people’s money.”

Needless to say, real estate leaders are concerned about the current situation affecting sales and financing. Nevertheless, I concur with Scott Shay when he says: “I am bullish on New York as a whole, but in short term, retreats in some asset pricing is a likely scenario.”

Mr. Stoler, a contributing editor to The New York Sun, is a television and radio broadcaster and a senior principal at a real estate investment fund. He can be reached at mstoler@newyorkrealestatetv.com.