It’s getting harder to tell the buyers from the sellers in this current market as profits increasingly trace their way back into the acquisitions market. This is particularly true among fund managers who are selling properties but not exiting the market.

“An overwhelming majority of this capital is getting ‘recycled’ into other real estate investments and doesn’t appear to be leaving for other types of investments,” says Dan Fasulo, director of market analysis at Real Capital Analytics.

This isn’t just about 1031 exchanges either: Most sellers today are also eying acquisitions. One reason may be that few can find anywhere better to put their sales proceeds. One recent example is German real estate fund Jamestown, which began turning heads after 2001 by spending some $2.87 billion on U.S. office properties through the end of last year.

But since 2004 — the year that Jamestown spent close to $1 billion on assets —the Atlanta-based fund manager has reversed course on its aggressive buying spree. And just last week, Jamestown put trophy Manhattan office tower 1211 Avenue of the Americas on the market in a deal that could fetch roughly $1.5 billion. Why the shift?

“Interest rates have been rising but capitalization rates for trophy office properties have still been dropping,” says Jeff Ackemann, managing director at Jamestown.

This is one disconnect that motivates sellers. Since last September, commercial mortgage rates have climbed by roughly 50 basis points. But capitalization rates for CBD office properties fell by roughly 15 basis points during the first quarter, according to Real Capital Analytics. One side effect: Sellers threw $23 billion in new office offerings onto the market during the first quarter — roughly the same volume of offerings that came to market in the first quarter of 2005.

“We write up very detailed business plans on every acquisition,” says Ackemann, who typically holds an office property for 7 to 10 years. “But when someone makes you an offer that’s so good, you have to consider it.”

So, in late April, Jamestown unloaded 1290 Avenue of the Americas for $1.25 billion. The 1.96 million sq. ft. tower — which is located in the heart of midtown Manhattan — is only 4% vacant.

Much of the proceeds from these sales will be returned to Jamestown’s retail investors in Germany. But Ackemann is also plowing proceeds into new acquisitions in secondary markets such as Charleston, S.C. and Atlanta. He admits that the quest for higher yields is a big part of this shift into non-core properties in less prominent markets.

“We are raising $250 million to buy properties throughout the Southeastern U.S. The risk adjusted core returns to buy trophy assets in Manhattan and Washington, D.C. just don’t make sense to us,” says Ackemann.

Aside from the acceptable yields, it’s also difficult to turn down a $1.25 billion offer on your office tower. Ackemann points out that this bid — which was made by a joint venture between Donald Trump and a slew of Asian investors — was unsolicited.

“Let’s face it, everyone has to look at selling when they see these numbers,” says Steve Kohn, president of Manhattan-based real estate investment bank Sonnenblick-Goldman. “Unless you are a private family that doesn’t need to sell, it just makes sense.”