Real estate investment trusts (REITs) have been some of the biggest sellers of office properties lately, with buyers generally falling into two camps: institutional investors looking for steady yields, and private investors using leverage to instantly add value.

In many instances, REITs are selling off partial stakes in buildings, which still enables them to benefit from any upside in the sites. In mid-May, SL Green Realty Corp. sold a 75% interest in its One Park Avenue office building in Manhattan to Credit Suisse First Boston for $60 million.

Last year, Equity Office Properties Trust sold $1.5 billion of assets. A good chunk went to a joint venture the REIT formed with TIAA-CREF, which spent $600 million to purchase stakes ranging from 75% to 80% in well-stabilized EOP properties located in major cities like Chicago and Washington, D.C.

“Institutional investors are getting access to properties they may not have otherwise been able to buy,” says Hans Nordby, an analyst with Property & Portfolio Research in Boston.

And don't expect the appetites of institutions for office product to wane this year, adds Nordby, since many have experienced a rise in the value of their stock portfolios recently and are currently under-weighted in real estate.

But Nordby and others anticipate that some of the private-leveraged money will go away, perhaps flowing back into bonds. Private players — ranging from Texas oil families to mavericks ready to shake up the industry — took on as much as 75% to 80% leverage, and made up the bulk of the buying recently, especially on the West Coast. Some buyers are eyeing long-term value, but others are suspected of just having been motivated by short-term cash-on-cash gains.

Many buyers justified their purchases by claiming that they could get upside by using their knowledge of the local market's leasing dynamics. “If local players are making that claim, I'm dubious,” Nordby says. Because of EOP's large market size in cities, it gives them the ability of a local player. “EOP grinds costs down,” he says, adding that because of the REIT's giant scale, it has some of the lowest costs in the industry.

But one Dallas broker who has handled many office sales for EOP, Carr America Realty Corp. and Crescent Real Estate Equities Co., says that once a REIT designates a property as “non-core,” it no longer spends as much time adding value to the building (e.g. renovating the common areas), which opens up opportunity for smaller regional players.

One such maverick is Younan Properties, which purchased the Sepulveda Center, a 171,365-sq. ft. office building in West Los Angeles, from EOP last year. Founded in January 2002, the firm is headed by Zaya Younan, a self-described “former turnaround specialist for Fortune 500 companies.” Over 95% of the company's employees have never worked in commercial real estate before, Younan says.

His company adds value to their buildings by doing two things: hiring local brokers to lease the buildings and spending money on renovations — both of which Younan says EOP did not do for Sepulveda Center.

“Most of the REITs in the country today are leasing properties directly themselves because of the revenues,” Younan says. “We felt that is one of the biggest mistakes a commercial real estate company can make.”

Younan paid $28 million for the building and spent about $250,000 on renovations to the common areas. Since the purchase in December, Younan says his firm has increased occupancy from 85% to 93%, and he expects the building to be completely occupied within four months. If sold today, it would fetch $34 million, he says. “We were able to take their property to the stage that the largest REIT in the country could not take it to,” he boasts.