It has been a wild and crazy year for the commercial and residential marketplace.

Few individuals would have expected office buildings to trade for $1,000 a square foot. Few thought that Douglas Durst would achieve office rents in excess of $120 a square foot at One Bryant Park, a joint venture of the Durst Organization and Bank of America. Many are surprised that Downtown Manhattan’s office vacancy fell below 10% for the first time since the terrorist attacks of September 11, 2001.

This writer and others were not surprised when MetLife announced plans to sell Peter Cooper Village and Stuyvesant Town. It is following the lead of New York Life Insurance, which took advantage of the red-hot residential rental market last October when it sold the 22-story, 583-unit rental apartment building, Manhattan House, occupying more than a million square feet between East 65th and 66th streets on Second and Third avenues for $625 million to N. Richard Kalikow and Jeremiah O’Connor. “Given the appreciated value of the real estate and the yield factor generated by this wealth, it was obvious to everyone that sooner or later MetLife would have to make the decision to sell,” the president and co-founder of Bellmarc Realty, Marc Binder, said. “It’s a natural outgrowth of regulated rents.”

The chief executive of Mack-Cali Realty Corp., Mitchell Hersh, said: “The planned sale by MetLife is another example of an owner taking advantage of the current investment sales market.” Mack-Cali is one of the country’s leading real estate investment trusts (REITs) with more than 35 million square feet of office and flex properties located primarily in the Northeast.

“Of particular interest is the scale of this development, which provides an investor or investors an opportunity to put significant capital to work in one transaction,” Mr. Hersh said.

Very few individuals thought that Manhattan and office buildings would sell for more than $1,000 a square foot and properties are trading at cap rates below 4%.

“Today’s values are extraordinarily tempting,” the chairman of the executive committee of GVA Williams, Michael Cohen, said. “Some people are tempted to conclude that the ‘smart money’ is bailing out at all-time highs. That’s not the history of this town. In retrospect, all the purchases will like bargains, provided the buyer has the staying power to weather the next cycle.”

In June, Boston Properties completed the sale of a 1.2 million-square-foot office building at 280 Park Avenue for $1.2 billion, or about $1,007 a square foot, to a foreign investor. “Trading multiples are merely a convention based on creating a means for comparability where the market was similar for a large portion of the properties,” Mr. Cohen said. “However, that world has gone a long times ago. Now the framework for real estate investments is a function of yield on operating income and a premium or discount for appreciation prospects. I see the current environment as more oriented to a decline in pricing as appreciation premiums start to be a lower figure.”

Also in June, Sitt Asset Management and Steve Sutton sold the 15-story, 298,000-square-foot office building at 1466 Broadway, also known as Six Times Square, for about $300 million, or $1,007 a square foot. The foreign investor plans to convert the office building, which was originally built as the Knickerbocker Hotel, into a luxury five-star hotel.

“The price per square foot is deceptive in this instance because the retail in Times Square is disproportionately valuable,” Mr. Cohen said. “As a purchase price for raw material for a hotel, yes, it’s high. But for retail that rents for hundreds of dollars a square foot, it’s cheap. I haven’t seen the math, but I’ll guess when you allocate the price accordingly, it makes a lot more sense.”

In December 2001, the W Hotel Union Square opened in the 20-story, landmarked Guardian Life Insurance Building (originally named Germania Life) at the edge of Union Square on Park Avenue South. The property was converted into a luxury 270-room hotel with 17 suites.The Sun has learned that the property will be sold to a foreign investor for more than $1 million per room.

“Hotels are very popular now because they’re full, room rates are rising, and many of the best have been or are being converted to condos; it’s a perfect storm,” Mr. Cohen said.

A different Cohen has opinions on the state of the hospitality industry. “This is decidedly bearish for the hotel industry in New York,” the co-chairman of Cohen & Steers, Martin Cohen, said. “Suddenly supply is coming out of the ground. I suspect that after all these rooms get built, one modest downtown will result in big stress on occupancies and room rates. This may not be until 2008 or 2009, but the seeds are definitely being sown.”

A joint venture led by Broadway Real Estate Partners is in contract to sell to Kensico Properties the 238,000-square-foot Pickwick Plaza office complex in Greenwich, Conn., for a record-breaking price of $238 million, or $1,000 a square foot.

“To justify these prices, people will need rental rate growth in order to get reasonable returns on equity,” the managing director of RBS Greenwich Capital, Chuck Rosenzweig, said.

“Owners with deeper pockets and long-term staying power will be fine, and others may not,” Mr. Hersh said. “The types of tenants that predominate this market, like hedge funds, don’t seem to care how much rent they pay, as it is incidental to their business.”

Many leaders have a varied view on the cost of land, construction, and the condominium marketplace. Michael Cohen said: “We may be headed for some softening of the market. But down cycles in condo prices tend to be brief and shallow compared to other market sections. Investors are sophisticated and will see past the current cycle.”

“One of the major problems of a lot of developers are currently experiencing is the limited amount of skilled workers available for major construction sites,” said Mr. Binder. “This will result in considerable difficulties in fully finishing these properties in a timely manner. As long as the demand for construction continues to be strong and the demand for qualified workers is unfulfilled, costs will continue to rise.”

“On the other side,” he said, “it is obvious that consumers are becoming more resistant to further pricing increases and that developers have started to put concessions into their deals. The condominium projects will definitely be sold, but I question whether the prices will be as strong as many hope.”

The president of Gladstein Development, Jane Gladstein, said, “Lenders are more conservative and measured, appropriately so. We saw slight discounting and a marked drop in absorption levels in the spring. The summer season demonstrated stronger absorption with continued slight discounting. The fall selling season will be quite telling.”

Mr. Binder said, “There is an old saying among real estate developers: If the bank gives me the money, I will build. That’s the bottom line. The money is there and the opportunity is there.”

This year, many of the nation’s REITs have been sold or have merged. Last month, S.L Green Realty announced plans to purchase Reckson Realty Associates. Michael Cohen said: “People are anxious to accumulate and redeploy their capital. The era of long term, dynamic investor is almost over.”

“I predicted that there would be continued merger and acquisition and privatization activity in REITs,” said Mr. Hersh. “M&A activity is the natural by product of a maturing industry, where supposed ‘synergies’ and efficiencies can be rung out in consolidation. The privatization phenomenon is largely the result of the disparity in private versus public market valuations combined with the advantage of being able to employ higher levels of leverage.”

Mr. Binder said, “As a result of the increasing prices of REITs shares resulting in lower dividend yields, it became obvious that a good means of building value was to acquire another REIT where the yield opportunity exceeded readily available real estate development opportunities. The markets love mergers because they typically have selling premiums and because the broader diversification of the resulting portfolio only provides lower risk.”

American commercial real estate is still perceived as a favorable allocation alternative for investors — despite concerns about higher energy costs, rising interest rates and the possibility of higher capitalization rates down the road, according to PricewaterhouseCoopers’ Second Quarter 2006 Korpacz Real Estate Investor Survey.

Last year close to $20 billion of properties were sold in metropolitan New York. This year the number might reach $25 billion.

“When you couple the track record of the real estate industry over the last decade, along with the general predictability of earnings and transparency, the industry continues to be a safe haven for the world’s capital,” Mr. Hersh said. “It will be interesting to observe, as more privatizations occur, and a reallocation of some amount of capital from public to private, and the relative loss of transparency, what effect this will have.”

“We’re seeing continued faith in real estate as a target for asset allocation,” said Peter Korpacz, director of Global Real Estate Research for PricewaterhouseCoopers. “As long as the fundamentals continue to trend positive, investors’ confidence in real estate should also remain strong.”

Michael Cohen said: “The capital markets continue to recognize that New York City is a unique place to invest and worth a premium. The continued cannibalization of the office and hospitality sector by residential conversions coincides with capital, political, and geographic constraints on increasing supply. The result is a city where inventory cannot keep up with demand. Another result is that sellers who can’t resist taking profits can easily find buyers who are anxious to put their capital to work here.”

The principal of Koeppel Companies, Caleb Koeppel, said, “Lower Manhattan is the low-cost alternative to renting an office space in Midtown Manhattan. Investors from around the world are interested in purchasing office buildings in Lower Manhattan.”

In July, New York-based Broad Street Development, along with Crow Holdings Realty Partners, a Dallas, Texas-based private equity fund, acquired the 32-story, 336,000 square-foot, class A office building at 55 Broadway for $82 million, or $244 a square foot, from China’s Bank of Communications.

The Sun has learned that at least two office buildings will be on the market this fall. They include a landmarked office building on Broadway and 1 million-square-foot Class A office tower built in the 1980s. Both of these properties are expected to fetch record prices for Lower Manhattan.

Stay tuned for more exciting news in the months to come.

Mr. Stoler is a television broadcaster and senior vice president at a title insurance company. He can be reached at mstoler@newyorkrealestatetv.com.