This weekend, America will be celebrating the Memorial Day holiday. In the world of retail, it’s a time when prominent players reduce their prices. For those interested in purchasing commercial real estate, the prices are following the same path as the cost of a gallon of gasoline — up, up, and up. Yet the recent changes in the financial markets due to subprime lending and the rating agency evaluation of loans may have an impact on future sales. While prices rise, financing is becoming less readily available, and real estate investors are having an increasingly hard time getting financing on the terms and conditions they originally expected.

“There have been some underwriting corrections in the capital markets over the last few weeks that have caused what is, at this point, a minor widening of spreads and lowering of loan to value ratios on loans,” the chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said. “In the long run, this correction is probably a positive development and represents a necessary exercise of discipline, for a change, in debt markets.”

Mr. Ivanhoe said the changing standards for loans would take some of the steam out of the “feeding frenzy” on the debt side of major real estate transactions, because it would cost more to borrow.

“Loan underwriting standards had been loosened over the last two to three years, such that lenders were underwriting significant rental growth into lease rollovers. Finally, as this trend continued, mezzanine and Bpiece buyers pushed back as the anticipated trends in the underwriting have not, in actuality, come out with 20-20 hindsight in many transactions,” Mr. Ivanhoe said. “Now a more conservative view on underwriting has caused spreads to widen a bit on the most subordinate tranches of loans, and lowered leverage a bit. In most cases, the result is a bit more equity is required for deals under contract where loan expectations have not been met.”

The principal and co-founder of Murray Hill Properties, Norman Sturner, said he did not think there would be “any noticeable reduction in the velocity or quantity of commercial building sales. What I do think is that the pendulum has again swung too far in the banker’s willingness to finance any and all purchasers, notwithstanding the capacity to bring meaningful equity or experience to the transaction by the new ‘part time’ real estate professionals. It is time to bring back balance to acquisitions.”

Mr. Sturner said the new and improved oversight by banks would lead to “less ‘overbidding’ by the ‘part time’ purchasers who will now need to put 25% to 35% equity capital into purchasing properties, which is as it should be. For those lenders who forget history, like 1986 to 1995, they will repeat their past mistakes to their detriment. Sellers may have a smaller market to sell to, and therefore less ‘froth’ in pricing, but that is probably an opportunity for the rest of us.”

A senior broker at Besen Associates, Larry Ross, said, “Much like the movie the ‘Perfect Storm’, Manhattan commercial real estate is in the midst of an ultimate balance of forces, for the first time in many years every commercial sector has shown strength and little weakness due to a coming together of increasing rents, improved fundamentals, and strong appreciation; spurred on by a funneling of inexpensive institutional money into the marketplace.”

“A severe tightening of this belt or other international crisis may have far reaching effects on the market we currently live in,” he warned.

Some real estate analysts said they think the changing lending practices and rating agency evaluations would not have much of an effect locally. “The impact of widening spreads and scrutiny of the rating agencies has had minimal effect on the portfolio lenders in the New York City market to date,” the president of the City Investment Fund, Thomas Lydon, said. “We closed a construction loan last week on a Sheepshead Bay condominium project with no hitches. We are closing a large loan this week. Both loans were closed with institutions who are not planning to securitize the loans. In several sales under way for properties we are selling on 23rd Street and 33rd Street, the bids that we have received have not reflected any unusual financing contingencies.”

A senior partner at Massey Knakal Realty Services, Tim King, said credit “is the lubricant in the wheels of commerce. The real estate marketplace relies on the availability of credit, and in recent years there has been both plentiful and inexpensive mortgage money available. It is inevitable that at some time there will be an increase in rates and a tightening of supply. A return to ‘reality realty’ will immediately follow any adjustment to either the availability or pricing of credit.”

He continued: “Those buyers who have always adhered to the basics of investing prudence and have insisted on a transaction making economic sense may seem like a dinosaur in the current credit climate, but will prove to be prescient when the inevitable happens.”

COMMERCIAL: This year a number of office buildings have sold on fabulous Fifth Avenue. According to real estate sources, the Feil Organization’s 19-story, 94,500-square-foot office building at 590 Fifth Ave. will be sold to Joseph Sitt’s Thor Equities. On Madison Avenue, another in the Sitt family, Sitt Asset Management, is in contract to sell the 24-story, 253,873-square-foot building at 180 Madison Ave. Later this month, the winning bidder will be announced for the 13-story, 340,000-square-foot building at 230 Park Ave. South, which is expected to fetch close to $240 million.

Properties near Grand Central, Penn Station, and the Port Authority Bus Terminal are fetching record prices. Thor Equities has retained an investment broker to sell the 10-story, 205,000-squarefoot office building at 321 W. 44th St., the home of the Birdland Jazz Club. Thor purchased the building in 2003, paying about $35 million. Now, real estate sources expect the property to fetch close to $110 million, or $500 a square foot.

The owners of 14 Penn Plaza, located at 225 W. 34th St., between Seventh and Eighth avenues, have retained an investment broker to sell the 22-story, 525,000-squarefoot office building. Based on recent sales in the neighborhood and its proximity to Penn Station, this building will probably trade for close to $275 million, or $500 a square foot.

The winning bidder is expected to be announced next week for the 27-story, 300,000-square-foot office building at 370 Lexington Ave. at the corner of East 41st Street.

Last month, SL Green Realty Corp. announced it entered into an agreement to sell its office condominium interest in floors six through 18 at 110 E. 42nd St. for $111.5 million, or about $611 a square foot. The property is located on the south side of 42nd Street, across the street from Grand Central Terminal, and was acquired in 1997 for $30 million, or $120 a square foot.

Also last month, SL Green announced that it entered into an agreement to sell the 193,000-square-foot, 26-story office building at 292 Madison Ave., on the southwest corner of Madison Avenue and 41st Street, for $140 million, or $725 a square foot. The real estate investment trust is not just selling. It announced it has entered an agreement to purchase the 10-story, 345,400-square-foot office building at 333 W. 34th St. for $183 million, or $530 a square foot, from Citigroup Global Markets.

RESIDENTIAL DEVELOPMENT: In October 2005, Macklowe Properties bought the building at 823 UN Plaza, which was then owned by the Anti Defamation League, for about $100 million. The site, coupled with Dag Hammarskjöld Park to the north, comprise the entire block front between 46th and 47th streets on the west side of First Avenue, directly across from the United Nations Sculpture Garden. Last week an investment brokerage firm began marketing the site, where a 242,000-square-foot residential condominium tower can be built. Industry leaders expect the property to fetch a very high price of close to $137 million, or $650 a developable square foot.

Just to the north, Eastern Consolidated is marketing for sale a development site at 313-317 E. 46th St. between First and Second avenues. The seller is seeking a price of close to $42 million. A residential tower of 89,880 square feet could be built utilizing an inclusionary housing bonus.

Last week, real estate investor Henry Justin closed on the purchase of the 85-unit, 76,500-square-foot residential rental building at 211 E. 51st St. between Second and Third avenues for $46 million. The property was delivered vacant and Mr. Justin intends to convert the building into condominium apartments ranging in size between 450 and 850 square feet.

Residential developments are popping up all over the borough of Brooklyn. Massey Knakal Realty is marketing for sale a development site at 1501 Voorhees Ave. and 1600 Sheepshead Bay Road, near Coney Island. The site is being marketed for sale for $25 million. Less than two miles away, there is another development site at 2955 Shell Road, occupying the entire block front on Neptune Avenue between Shell Road and West 6th Street. The site is located right off the Belt Parkway and one of the most unique sites on the market today in the Coney Island section of Brooklyn. Located near the Coney Island Redevelopment zone, it can accommodate a residential apartment building of 213,000 square feet. The seller is seeking to fetch close to $200 a developable square foot, or about $25 million.

HOTELS: Most everyone wants to own hotels in New York. Earlier this month, a real estate investment fund, Walton Street, entered into an agreement to purchase the 576-room Paramount Hotel at 46th Street in Times Square. The seller is Spanish hotelier Sol Melia, which acquired the property in a joint venture with Hard Rock Hotel & Casino in May 2004 for $129 million. Industry leaders believe that the property may have sold for close to $275 million, or $500,000 a room.

Two other hotels in the Times Square area are expected to be sold. An investment broker is marketing for sale the 300-room Hampton Inn Times Square North at 851 Eighth Ave., the 10-story building at 51st and 52nd streets, and the 14-story, 369-room Hilton Garden Inn, at the corner of West 48th Street.

I concur with Mr. Ivanhoe when he says: “Greater discipline is probably best for the strength of the real estate and financial markets in the long run, though it may help hasten the end of the recent boom in prices, fueled by abundant debt and tremendous leverage.”

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