The NYU Real Estate Institute hosted its 10th-annual REIT Center symposium at the Waldorf-Astoria last Thursday. One of the keynote plenary sessions was titled “The View from 10,000 Feet.” The panel included an Apollo Real Estate Advisors managing partner and chairman of Mack-Cali Realty Corporation, William Mack; the chairman and chief executive of Vornado Realty Trust, Stephen Roth, and the chairman of Equity Group Investments, Sam Zell. Mr. Roth said, “The greatest buying opportunity is in Manhattan. Everyone who did not purchase an apartment or an office building during the past five years has made a huge mistake. I think that the rise in real estate prices and this cycle will go on for a lot, lot longer time. I am begging you to take advantage of the greatest single time to borrow money and buy real estate assets.”

The chairman of two of the nation’s largest office and residential real estate investment trusts, Mr. Zell said, “If you want to get out of the dollar, where are you going to go? America is still the cheapest asset in the world. You can buy an office building in New York, and that same property in London would cost you at least 25% more.”

Last week, Mr. Zell’s company, Equity Office, was the winning bidder for a contract to pay about $505 million for the 42-story, 1.2 million-square-foot Verizon Building at 1095 Avenue of the Americas, across from Bryant Park. After the sale, Verizon will continue to own a condominium portion of the building of about 200,000 square feet on floors six to 12 and 18,500 square feet of basement space. Verizon will also own the 7,500-square-foot ground-floor retail at the corner of 42nd Street and Avenue of the Americas, as well as retail space in the small building adjacent to the tower. According to industry insiders, Equity will spend at least $200 million to renovate the tower. Based upon the costs of acquisition, renovation, increases in tax base, and other expenses, Equity will have to lease space in the tower at prices ranging from $75 to $90 a square foot to realize a profitable yield on their investment.

A number of real estate leaders question whether Equity Office overpaid for the vacant tower. Essentially, the new owner of the Verizon building will spend a total of about $750 a square foot, including improvements. “Assets are being sold at near, or close to, replacement cost,” said Mr. Zell. Mr. Roth said, “Real estate must run with replacement cost, which is only going up. If you purchase a building at a price of $450 per square foot, and the replacement cost is $700 per square foot, you got a great deal.”

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The director at Eastern Consolidated Properties, Alan Miller, said, “When you purchase real estate below replacement cost, it is really the only way to rationalize the sale of certain office buildings, which are selling at record low capitalization rates.” According to Mr. Miller, a few weeks ago, the Moinian Group sold the 16-story, 178,000-square-foot office building at 90 William St. The buyer paid about $200 a square foot, and plans to convert the property into a residential condominium. The cost of $200 a square foot is significantly less than the replacement cost of constructing a building in the financial district with land costs approaching $150 a developable square foot.

The president of a prominent, local, real estate development company who prefers not to be named said, “Replacement cost seems to be a bad reason to buy real estate. It might give one comfort in knowing that competition won’t spring up overnight, but it does not make a building profitable.”

Mr. Miller said, “Now more than ever, purchasing real estate at or below replacement cost is a great measure as to whether an acquisition of certain hard assets makes any sense. With soaring land prices, it is nearly impossible to acquire a parcel, develop it, and substantiate a revenue stream that can support the debt on the property. With the overpaying that is taking place, as each asset that comes to market is bid up like an auction, it is very difficult to hit investment returns for the traditional real estate operator.”

The managing director at Eastdil and one of the most active investment sales advisers, Douglas Harmon, said, “Manhattan should be the most expensive city in the world. The triple crown of globalization, increased acceptance of real estate as a strong stable asset class, combined with a relatively weak dollar, has led to an overwhelming flow of foreign capital into New York.”

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A number of owners of office properties are now attempting to catch this pent-up demand and capture these high prices for real estate. They include MetLife, which is in the process of selling its office buildings at 200 Park Ave. and 1 Madison Ave.; Sterling Equities, the owners of the 40-story, 540,000-square-foot building at 575 Fifth Ave.; Citibank, which owns the 1.4 million-square-foot One Court Square office tower in Long Island City; SL Green Realty Corporation, which owns the office tower at 180 Madison Ave., and the owners of a number of office buildings in Lower Manhattan, including Stellar Management’s former headquarters of Bankers Trust at 14 Wall St., Vornado Realty Trust’s 20 Broad St., and Eugene M. Grant’s one-square-block property, the St. John Terminal, at 340 West St.

Last week, the first bids were received by Cushman & Wakefield, the investment sales brokers who are marketing the 58-story, 2.8 million-square foot MetLife building at 200 Park Ave., which was built in 1963. The estimated selling price of the tower, based on a replacement cost of $750 a developable square foot, would be $2.1 billion. According to industry insiders, the limited vacancy of the tower, along with the below-market rents, means the property will fetch about $1.8 billion, which is below the cost of replacement. MetLife hopes to close on the sale prior to the first of May.

It is rumored that Mr. Roth’s Vornado Realty Trust might be interested in purchasing the MetLife Building. Mr. Roth said, “We make bets on real estate, but we don’t bet everything on one product. This is a sustainable bull market. I think that this real estate market might be a 20-year cycle, and we are just in the middle of the cycle. We are living with the greatest liquidity ever. We’re not going to have a crash in the real estate market – there is too much liquidity,” Mr. Zell said.

According to industry insiders, the chairman of Apollo Real Estate Advisors, David Mack, did not bid on the purchase on the Verizon building and does not concur with fellow panelists Messrs. Zell and Roth. “The real estate market today is like a craps game. You are betting on the player to make a pass, but one day, he is going to crap out and lose. The basic problem is when people believe that things can only go up, causes me great concern, not about the short run, but the intermediate and long term. We are experiencing a great time in real estate, and I think it may last a maximum of two to three years.”

The chairman of the national real estate practice and co-chairman of national REIT practice at the law firm of Greenberg Traurig, Robert Ivanhoe, said, “One cannot overlook the relentless upward momentum of the marketplace that has caused pricing to reach unimaginable heights over the past 10 years. I find it difficult to believe that this 10-year perfect storm will continue unabated for another five or 10 years. It seems more likely that the current market is at a unique point in time where the supply-demand equation has produced record prices that may represent a peak that will not be seen again for quite some time.”

Mr. Roth said, “We are in the middle of one creating a bubble in real estate, with great times ahead. Suddenly, the real estate market will crash and we will experience one of the worst crashes that the market has ever experienced. The crash will take place a number of years from now.”

Exactly when real estate will crash is unknowable, of course, and everyone I know in the real estate marketplace is certain that it will indeed crash eventually. Nevertheless, at this pace, the coming year looks like a record one for sales of office properties in the city.