The commercial real estate market has reached a point at which acquisitions of distressed assets are beginning to make sense, according to participants at the second Real Estate Private Equity Summit, which took place in New York this week.

The buying spree that’s likely to result from sales of discounted properties in the current cycle will be very different from the investment sales boom of the mid-2000s, attendees warned. Back then, investors cared primarily about valuation and treated commercial real estate as a commodity. This time around, the emphasis will be as much on underlying property fundamentals as on the possibility of financial engineering.

“The capitulation is clearly starting; we are just opening the vein right now,” said Jon Halpern, partner and global head of real estate with Marathon Asset Management, a New York City-based alternative investment and asset management firm. “But you’ve got to understand underlying fundamentals, you’ve got to operate.”

Based on the scope of the new Public-Private Investment Program unveiled by the U.S. Treasury on Monday, Marathon executives estimate there are approximately $1 trillion in commercial real estate acquisition opportunities in the market right now. Private equity funds have plenty of interest in taking advantage of these, but continue to be crippled by the fear and uncertainty rampant in the market today, said Halpern.

The difficulty of raising new capital also has made such funds more risk-averse than they have been in the past, so they want to concentrate on solid, cash-producing assets rather than cheap financial plays in lower-tier markets. Combined, these factors have prolonged the slowdown in the investment sales arena.

The government’s newly announced program should help restore confidence among investors as it creates more clarity about how exactly the government plans to deal with toxic assets, said J. Timothy Morris, global COO of real estate investing with Morgan Stanley, a New York City-based financial services firm. But that process will likely take some time.

In the immediate future, investors would be well advised to focus on assets that have already been seized by the government — in particular, whole loans that are backed by identifiable properties, according to Halpern and Bruce Richards, Marathon Asset Management’s president and CEO.

Marathon Asset Management is currently working on a purchase deal with the government that will allow it to buy a 20% ownership stake in a $1 billion portfolio for approximately $50 million. In this deal, the company gains complete control of the assets though the government maintains 80% ownership of the portfolio. Retaining a long-term hold on the assets will allow the government to avoid selling at the bottom of the market, Richards noted.

When it comes to conventional, direct-owner sales, however, Marathon executives feel prices have not dropped far enough yet. Most lenders remain reluctant to resort to fire sales and instead are opting to renegotiate loan terms with their borrowers, said Peter J. Sotoloff, principal with the Blackstone Group, a New York City-based alternative asset manager and financial advisory services provider. Given price depreciation on commercial real estate, liquidation is not the best choice in the current environment, he added.

So when should the industry expect to see the long-promised flood of cheap deals? According to summit participants, investors will start buying assets in the private market as soon as the first lender decides to put a major portfolio up for sale instead of trying to come up with an alternative solution.