For many real estate executives, 2008 is the year of radical changes. Building sales through the first five months of the year in New York’s investment sales market have been moving at a snail’s pace. Investment sales executives are marketing plenty of office and residential properties, yet very few are actually closing and investment sales are down by as much as 80%.

The signs of the downturn were apparent a year ago. In a column headlined “Credit Changes Could Usher in Return of ‘Reality Realty,'” I noted that “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.”

The question now is: How long will the slowdown last?

“The best strategy is to go for a long vacation in Antarctica for nine months,” the chief executive and director at global real estate investment firm Grosvenor Group Ltd., London, Jeremy Newsum, said.

“There can be no doubt that activity in the investment sales market is off dramatically compared to the same period last year,” the chairman of the national real estate practice at Greenberg Traurig, Robert Ivanhoe, said. “Unless there is a compulsion to sell, as in the Macklowe situation, owners see little reason to put their properties up for sale at a time when they will realize a 10% to 20% lower sales price than a year ago. They would rather wait for the market to come back than sell at what many believe is a trough in the sales market.”

A principal consultant at the Townsend Group, Micolyn Yalonis, said investors “all know their commercial real estate portfolios will take a hit. There isn’t much they can do about it, except maybe take a hard look at their investments to guard against any surprises.”

Not all real estate experts are bearish. The chairman of Massey Knakal Realty Services, Robert Knakal, said sellers “have been watching too much CNN and CNBC and reading too many negative articles and have decided to not put properties on the market, which has created this very limited supply. I agree that now is not the optimal time to put a 1 million-square-foot office building on the market, but this is not the case for properties with values under $50 million.

“To say the investment sales market is off by 80% in terms of volume is misleading,” Mr. Knakal said. “We must look at different segments of the market in terms of size and must look at the metrics of number of transactions as opposed to aggregate sales price. With respect to aggregate sales dollars this may be the case, but it is mainly due to the lack of megadeals, which are extremely difficult to finance. If we look at the number of properties sold as opposed to the aggregate sales value, we see that volume is off only 25% to 30%.

“When looking at the building sales market, it is very important to take market segmentation into consideration. The overwhelming majority of building sales are always in the market segment under $50 million. This segment continues to be healthy mainly due to the fact that financing is plentiful for transactions in this size range. These smaller income-producing properties are still experiencing demand levels that far outweigh the supply. I would also say that the reason for the 25% to 30% reduction in the number of sales is due mainly to constrained supply and not because of weak demand,” Mr. Knakal said.

The managing director of Eastdil Secured, Douglas Harmon, said that even though some buyers and sellers are “tacking away from the smoother, sustained boom time of the last few years,” he views the glass as half full.

“There are billions of dollars of super-quality real estate on the market for the taking at lower prices, often intelligently packaged with structured pre-arranged debt, and surrounded by motivated sellers and worldwide buyers. Equity for real estate is still prevalent. Strong markets like New York will not disintegrate, and deals do — and will — continue to get done,” he said.

“This season may go down in history as the summer of discontent,” a senior broker at the Platinum Team, Adelaide Polsinelli, said. “With the lackluster activity in the investment sales arena, now is a good time to step back and re-evaluate. Until some sort of real confidence is restored to this market, sales will continue to be uncertain.

“Yes, cap rates are going up and prices are trending down. Capital is available for deals that can cover the debt as long as buyers are willing to commit their own funds to the deal,” she continued. “Prices have most definitely come down for properties where owners have a need to sell. Buyers are circling but not committing unless they see a bargain. Once expectations are managed and confidence is restored in the market, trading will resume at a stronger pace,” she said.

Industry leaders are looking for a turnaround to begin from the agreement last week under which Boston Properties, the largest American office real estate investment trust, will purchase from Macklowe Properties 3.5 million square feet for $3.49 billion, or about $1,100 a square foot. Included in the sale is the General Motors Building. The joint venture, which includes Goldman Sachs and investors from the Middle East, will be paying $1.47 billion in cash, assuming about $2.47 billion of fixed-rate debt by Deutsche Bank, and issuing $10 million in units of limited partnership interest.

Mr. Ivanhoe said the sale of the GM Building was “at a price that was 20% less than expected and from the pricing levels of one year ago. It underscores the change in market pricing for even the best properties due to higher equity requirements and more stringent loan underwriting. The fact that a buyer is a consortium of sovereign wealth funds and an established REIT that can use equity from recent sales and borrow on its corporate line of credit is no surprise. For those that can buy an A-plus property at prices 20% below what they were a year ago and have the debt and equity to execute, the purchase could prove to be a very astute move.”

He added, “While real estate fundamentals have remained stable, the financing market continues to languish. Initially, the fallout was primarily in the CMBS sector. At first, many portfolio lenders stepped in to take up the slack and gain market share at higher spreads than had been seen in some time. However, the persistence and proliferation of the underlying issues in the debt markets has since caused many portfolio lenders to pull back or completely exit the market. Thus, the downturn in the investment sales market is really a credit issue and not a real estate issue, at least as long as the economy and real estate fundamentals remain stable.

“The result is that for any viable transactions, equity requirements have doubled or tripled, putting greater pressure on returns on investment. As some of the Wall Street firms and commercial banks that led the CMBS recognize their write-downs and sell off the debt clogging their balance sheets, the hope is that they will gradually return to the lending market albeit with a much more conservative approach to underwriting. There have been some early signs of the return of some of these lenders, but not yet enough to be meaningful. However, if and when they return, the more stringent underwriting criteria will remain, at least for a while, so that the greater equity requirements, and pressure on generating attractive equity returns, should be with us for a while,” Mr. Ivanhoe said.

Earlier this month, a joint venture of Murray Hill Properties and Jamestown Properties closed on the purchase of the office building at 1250 Broadway. The joint venture paid $310 million, or about $463 a square foot, for the 39-story, 770,000-square-foot office building situated on Broadway between 31st and 32nd streets. Industry leaders say the purchase price was at least 20% less than the price the tower would have fetched last year.

“Credit is the lubricant in the wheels of commerce,” the principal of CPTX, Tim King, said last May. “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 of pricing or credit.

“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,” Mr. King said.

“I believe sales and financing activity will remain at a much reduced level over the remainder of 2008,” the president of the City Investment Fund, Thomas Lydon, said. “This is not all bad as owners and developers concentrate their financial and management resources on the fundamentals of leasing, selling, and controlling expenses. The bigger challenge over the next 24 months is the fallout from job losses, business contraction, retail sales, and the risk of home prices falling significantly.”

He added: “Construction is due for a slowdown, and the economics of developing property with higher equity requirements and more stringent loan terms needs to be reflected in land prices, building costs, and realistic absorption periods for all property types. The volume of activity will not be restored easily to pre-credit crisis days, but the organizations with patience, capital, and management depth will be able to weather the storm, and even make some opportunistic buys.”

“Financing for new residential developments is almost nonexistent,” the executive vice president of World Wide Holdings, David Lowenfeld, said. “Lenders are concerned that developers have tried to build too much, too fast in all New York’s neighborhoods, and that the pace of sales has slowed. They have effectively shut the financing spigot for new projects. Ironically, the lenders’ caution may lead to a price spike in premium Manhattan condos. The fundamentals underlying demand for high-quality, for-sale housing in Manhattan’s best neighborhoods from young families, empty nesters, and foreign buyers remains strong. With little new supply to meet that demand, and buyers becoming less willing to compromise on location, watch for substantial price jumps as the current inventory is absorbed.”

Unfortunately it’s clear that more and more real estate investors are bearish on the outlook. Nevertheless, I hope that Mr. Harmon of Eastdil Secured is correct when he says: “It is today’s turbulence that will provide tomorrow’s opportunity.”

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.