In December, SL Green sold One Park Avenue for $318 million, fetching $84.5 million on a Manhattan property it held for just 39 months. Four months later, the same dynamic worked against the Manhattan-based office REIT when it found itself aggressively bidding against other investors to buy 11 Madison Avenue, a landmark tower in Manhattan. SL Green prevailed with a $918 million bid, but the exercise proved to be far more demanding than selling One Park Avenue.

Selling quality commercial real estate into this market is pretty simple, as SL Green and other REITs have proven over the past few years. But profit-taking sellers soon become buyers, and this part of the equation is far more arduous.

“REITs used to buy and hold their assets forever, but over the past few years there has been more and more active portfolio management,” says Barry Vinocur, editor in chief of Realty Stock Review. “The problem that many of these sellers run into is this: what to do with the money.”

Spiking transaction volume over the past three years suggests that this problem is shared by many REITs. Data from Real Capital Analytics shows that listed REITs sold roughly $2.7 billion of office properties in 2002. Total dispositions more than doubled to hit $5.7 billion in 2004, and 2005 volume is expected to exceed that record amount.

“It's incredibly hard to get deals today,” admits Richard Kincaid, president and CEO of Equity Office Properties Trust, the nation's largest office REIT.

Over the past two years, Kincaid says that Equity Office has “looked at” roughly $20 billion worth of deals as a potential buyer. But how much did the company actually spend? Try $952 million, or roughly 5% of all the deals it examined.

Like most REITs, Equity Office has typically used sale proceeds to finance new acquisitions and pay down debt. Kincaid acknowledges it's easier to do the latter when capitalization rates on trophy assets are dipping so low. He's wary of buying assets with such low yields, but that hasn't stopped Equity Office from bidding on trophy office towers such as Manhattan's Verizon Building in April.

With its winning offer of $505 million, Equity Office beat out a field of bidders for the prominent office tower located at 42nd Street and Sixth Avenue. Just seven of Equity Office's 685 office properties, not including the Verizon Building, are located in Manhattan.

“We're building our market concentrations in places that are supply constrained and drawing a highly educated workforce, and Manhattan is one of those markets,” says Kincaid.

Indeed, the sellers' market has also enabled REITs like Equity Office to exit many secondary and tertiary markets at a time when yield-hungry investors are scouring these markets for deals. “A lot of these REITs ended up in secondary markets as a result of mergers,” says Dale Anne Reiss, global director of real estate at Ernst & Young.

“And with demand so strong to buy, this is the time when owners need to really go in and evaluate each of their properties one by one.”