The Blackstone Group’s much heralded $21 billion buyout of Equity Office Properties Trust (NYSE: EOP) is officially in jeopardy after a group led by Vornado Realty Trust (VNO) offered a sweetened $52 per share bid for the Chicago-based office behemoth. The new offer is equivalent to a 7% premium to private equity giant Blackstone’s November offer of $48.50 per share.

The EOP board has a busy weekend ahead as it mulls over the new offer, which is 60% cash and 40% stock. At stake is roughly 110 million sq. ft. of office space scattered across the nation. “We assume that the EOP board will accept this offer and Blackstone will then debate matching the offer,” wrote John Guinee, an analyst with Stifel Nicolaus, in a Thursday research note.

VNO was eying EOP back in November when Blackstone made its initial bid. But it took VNO, which is led by hard-charging CEO Steven Roth, several weeks to find the right partners to launch a counter bid. On Thursday, VNO announced that Starwood Capital Group LLC and Walton Street Capital have joined forces to pursue the nation’s largest office portfolio.

This trio brings together heavyweight real estate and capital markets expertise, plus access to many of the same lenders who agreed to finance Blackstone’s initial bid. Starwood Capital is the investment vehicle created by Barry Sternlicht, who founded Starwood Hotels & Resorts. Between Sternlicht and VNO’s Roth, there is no lack of vision. Both are considered tough dealmakers who excel at negotiating, making this an intimidating group to compete against.

Not that Blackstone isn’t formidable in its own right. EOP’s original suitor didn’t wait long to spin the counteroffer against their new rival. Blackstone, which has privatized tens of billions worth of public real estate in recent years, lambasted the VNO-led offer as “inferior” since VNO stock is trading at “record prices.” Blackstone has also said that it can close the original deal by early February, whereas the VNO-led offer would take months to finalize due to its complexity.

“These are two very different bids when you look at them,” says one Manhattan-based real estate attorney with 25 years of experience on REIT mergers and acquisitions. “If EOP’s shareholders feel that VNO would be a better operator, it’s easier to just roll their shares over and avoid taking the tax hit,” he says.

Given Blackstone’s willingness to pay $21 billion for the company, he believes that the buyout giant will match or exceed the VNO-led offer. On a total value basis, only $1.4 billion separates the two bids. He also believes that Blackstone has a bird-in-the-hand advantage over the competing bidder.

“They’ve been working on this deal since November. They have financing — all cash — ready to go. They can also close this deal much faster than the other group,” he says.

Stay tuned. With the EOP board reviewing the offer — and Blackstone fuming over this surprise bidding war — the next few days should be very interesting. The attorney also says that the emergence of a third bidder cannot be ruled out, either. “It seems like anything is possible in this market,” he says.

EOP has agreed to pay Blackstone a $200 million breakup fee if the deal falls through. That’s a pretty paltry sum when you consider the size of the multi-billion offer that Blackstone has made on the REIT. Some market watchers suspect that EOP chairman Sam Zell purposely negotiated a lower breakup fee to give him some wiggle room down the road.