While the credit market may have grown much tighter, industry leaders say there is significant equity available to bid for Class A office building assets, including the significant holdings of the Macklowe Properties portfolio, from real estate investment funds, investment trusts, hedge funds, pension funds, local and foreign investors, and real estate investment trusts.

As we move through the second month of the year, few industry leaders expect 2008 to be a record breaker for Manhattan investment sales. A total of $47.4 billion in investment sales was recorded for properties sold for the year ending December 31, according to a report issued by the capital markets group of Cushman & Wakefield, eclipsing the prior record of $34.8 billion. Of the 2007 sales, 77% were for office buildings.

Despite the expected drop-off, real estate experts predict that the sale of portions of the Macklowe Properties portfolio, including the seven-building Equity Office portfolio, the famed General Motors Building, and the development site at the former Drake Hotel, will fetch between $8.5 billion and $10 billion.

The New York Sun has learned that Macklowe Properties has entered a contract to sell its 14 story, 90,000 square foot office building at 140 West 57th Street, to a prominent local investor for approximately $62 million or $689 per square foot.

Industry leaders say they would not be surprised if the joint venture of Silverstein Properties and the California State Teachers’ Retirement System is the winning bidder for the GM building. Bids for the famous building are due tomorrow. CalSTRS is the largest American teachers’ retirement fund and the second largest American public pension fund, with assets estimated at $173.7 billion. At the end of last year, the joint venture paid $1 billion to the Paramount Group for the 1 million-square-foot office building at 1177 Avenue of the Americas.

It would not be surprising, industry leaders say, to see a number of real estate investment trusts seek the Macklowe portfolio. REITs including SL Green Realty, Vornado Realty Trust, and Boston Properties would be viewed as likely purchasers of the assets. Another likely purchaser may be the Paramount Group, which last year purchased a number of properties, including the Deutsche Bank building at 60 Wall St. for the highest price ever paid for an office building in Lower Manhattan. Last month, Paramount entered into a contract for the office tower at 650 Madison Ave., directly across the street from the GM building.

Other likely bidders for some of the buildings owned by Macklowe include a number of active New York City real estate investors, such as the Tishman Speyer Properties, Feil Organization, Murray Hill Properties,Shorenstein Properties, Westbrook Partners, L&L Acquisition, Eastgate Properties, Moinian Organization, Wells Real Estate Funds, Stellar Management, Isthimar, Taconic Investment Partners, Lloyd Goldman, Sitt Asset Management, Kushner Companies, Investcorp, Solow Management, Monday Properties, Broadway Partners, Beacon Capital Partners, the Chetrit Organization, and RFR Realty.

All of these investors realize that if they were winners for the bids on any of these properties, they would have to provide as much as 30% to 40% in equity to secure financing from a much more shallow pool of lenders.

“The amount of capital in real estate equity and mezzanine funds is at an all-time high for all opportunities, but at the moment, the flavor of the day is distressed,” the co-founder and managing partner at Antares Investment Partners, Joseph Beninati, said. “This comes at the perfect time to support the investment sales market, as all deals require more equity to complete while the credit crisis sorts itself out, and there is still way too much equity — assuming all equity wants to achieve their return targets — versus new deals.”

He added: “The unfortunate thing about the Fed cutting interest rates is that the economy was never in bad shape, with low unemployment, solid productivity, low deficit to GDP, and decent growth rates over the last five years. The Fed was bullied by the Street to cut rates based on chaos from structured finance, not from underlying economic problems. Once these problems became severe, everyone panicked, and we have a market driven by fear versus greed. You can not pay a bank to take risk today, and just nine months ago banks were practically paying borrowers to take risks. Something’s wrong in both cases.”

A number of other commercial properties are on the market and probably will be sold at prices of between 10% and 20% lower than they would have ninth months ago.

It is rumored that Broadway Partners and its investors have retained an investment broker to sell its 1.6 million square foot building 450 West 33rd Street. They purchased the building in June 2007 for $644 million.

Sellers have also retained investment brokers to sell many properties near Madison Square Garden and the West Side Rail Yards that are located in the special Hudson Yards district. These sites have additional air rights that can be purchased for $109.36 a square foot.

The Hudson Yards district extends between West 28th Street on the south, Seventh and Eighth avenues on the east, West 43rd Street on the north, and the Hudson River on the west.

Earlier this month, SL Green Realty sold the 18-story, 339,000-square-foot office building at 440 Ninth Ave. between 34th and 35th streets for $160 million, or about $472 a square foot, to a joint venture of Paramount Group and Sherwood Equities.

Directly across the street, the eight-story, 400,000-square-foot office building at 441 Ninth Ave. is on the market. The building serves as the headquarters for Group Health Inc., and would be delivered vacant to a buyer. It also has a 150-car garage as well as additional air rights for the property from the Hudson Yards Development Corp. Industry leaders expect the property to fetch close to $225 million.

Across the street from this building, Eastern Consolidated is offering for sale 411-421 W. 35th St., a 90,000-square-foot development site that would be ideal for residential or commercial development. Industry leaders expect the site could fetch $30 million.

Another Midtown West property on the market for an asking price of $29.9 million, or $409 a square foot, is the 12-story, elevator loft building at 335 W. 35th St. on the north side of West 35th Street between Eighth and Ninth avenues.

Massey Knakal Realty Services is marketing for sale a site at 541-545 W. 37th St. and 540-548 W. 38th St., near the Javits Convention Center, with a total of 172,000 developable square feet as of right, and the ability to develop an additional 311,000 square feet using the Hudson Yards development air rights. The chairman of Massey Knakal, Robert Knakal, said the firm expects to sell the site for $65 million.

A local developer recently closed on the purchase of the Glad Tidings Tabernacle Church at 325 W. 33rd St., between Eighth and Ninth avenues across from the Farley Post Office. The developer paid $31.4 million for the site, which included 20,000 square feet of additional air rights from the Hudson Yards improvement funds bonus. The developer, PLC Partners, is planning to demolish the church and construct the 239-room Cambria Suite Hotel, according to Lodging Development newsletter.

Other properties in the Herald Square/Hudson Yards region that are on the market include a small office building and prime retail at 1369 Broadway and a 129,000-square-foot renovated garment center office building at 256 W. 38th St., between Eighth and Ninth avenues.

According to the real estate sources, SL Green Realty has entered into a contract to sell its 39-story, 748,000-square-foot office building at 1250 Broadway at the corner of 31st Street to Murray Hill Properties. The purchase price is $310 million, or $414 a square foot. Twelve months ago, this property, built in 1968, probably would have fetched close to $350 million.

Massey Knakal has been retained to sell a 122,000-square-foot development site at 846 Sixth Ave., which may fetch about $50 million.

Other properties on the market include a development site for prime residential at 122 E. 32nd St. and the 160-unit luxury residential rental building at 85 Fourth Ave., between 10th and 11th streets. Ronald Solarz of Eastern Consolidated, who is marketing the latter building, said the property would fetch more than $100 million.

Cushman & Wakefield is marketing for sale the 26-story, 300,000-square-foot building at 370 Lexington Ave. The building is situated on the corner of 41st Street less than two blocks from Grand Central.

Industry leaders have varied opinions on the sales activity for 2008.

“In general, the activity in the market has been great with plenty of action on all of the properties that we are marketing,” Mr. Knakal said. “Contract signings are steady although it appears the smaller end of the market — under $100 million — is moving more swiftly than the larger properties. There is plenty of financing available for these deals although more equity is now required.”

Mr. Knakal added: “With the Fed cutting rates, two things can happen, both of which are very positive. Either mortgage rates will fall, which buoys values, or spreads will widen to the point that banks will be compelled to push money out the door. Either way, the market wins.”

A senior broker at Besen & Associates, Adelaide Polsinelli, said it is now a market “where one person’s misery is another person’s opportunity. In spite of the problematic tone of the market we are in, the inventory of properties that are for sale is still plentiful. The difference between today and six months ago is seller attitude. Six months ago, the owners’ attitudes were that everything was for sale if they could achieve a crazy price, which in many cases, actually occurred. Today, it’s about getting the best price you can and moving on. There are still sellers out there who have not heard the news about the current state of affairs. I am sure their phones will stop ringing as soon as attention is shifted to real sellers.”

The director and principal at Eastern Consolidated, Alan Miller, said that although Manhattan seems to be insulated somewhat from the rest of the country, “unless there is strong job growth, the slowdown we are beginning to feel may last quite a while. We have been in the midst of an extended bull run that outlasted the previous cycles historically, and with all factors in the real estate industry pointing toward a slowdown it appears it may be here now.”

He added: “Multifamily properties will continue to be the best long-term investments in New York City as office, hotel, and residential condominium projects are subject to vagaries in the marketplace.”

The managing partner at Jamestown Properties, Matthew Bronfman, said he thinks “there remains a disconnect between buyers and sellers which will limit the number of transactions until one side adjusts its expectations.”

Looking at early indications of the investment sales market, I concur with the director of the national multihousing group at Marcus & Millichap, Peter Von Der Ahe, when he says: “So far in 2008, transaction volume is down, but not dramatically, as the deals getting done today reflect truly motivated buyers and sellers, of which there are still many.”

These buyers and sellers must be cognizant that the rules of the game have changed, requiring significant equity and with fewer lenders providing financing.

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