The sale of Landmark on the Lake is the third significant disposition of a Wien & Malkin direct investment this year. In the following Q&A, Anthony E. Malkin, President of W&M Properties and Wien & Malkin Supervisory Services, discusses the Wien & Malkin approach to property disposition in the context of current conditions.

Q. The International Toy Center, Penderbrook Apartments, and now Landmark on the Lake have been sold this year. Are other sales contemplated for the near future?

Yes. We're in discussions with potential buyers of 711 Westchester Avenue in White Plains, N.Y., and River Oaks Apartments, in Rochester Hills, Michigan. Additionally, we are selling other family holdings and the predecessor fund to Wien & Malkin Industrial Partners is conducting sales. Most of these sales will close in 2005.

Q. Does this mean you see a market top for real estate?

We look at each individual investment against a background of the markets. This is certainly a beneficial time for sellers. Prices have risen and capital gains tax rates are very low. In the case of our multi-family property sales, however it was not really performance as rental properties that was so persuasive. Rather, the attractiveness of these properties as condominium conversions at this time created what we saw as a unique opportunity to realize exceptional, once-in-a-cycle pricing.

The Toy Center was sold because a confluence of factors argued against a long term hold. The Children's Entertainment industry is suffering from consolidation of manufacturers and retailers and the tremendous changes in children's play caused by fads and electronics. Converting the property to office uses would be costly and result in lower net rents.

At the same time, the Madison Square Park/Flatiron District is red hot for residential and hotels, and that made this superbly located property extremely desirable for potential redevelopment. Each of the redevelopment options has huge risks and there were buyers prepared to pay top dollar to own that risk.

Q. What are the principal criteria behind a decision to sell?

The decision to sell is the result of a disciplined process. We periodically update our 10-year projections for each property, reviewing local market trends, capital improvement requirements and tenant rollover. Then we compare the after-tax value of a 10-year hold-and-sale against the after-tax value of a current sale.

Before a final decision is made, we measure our hold-and-sale analysis against various sale valuation models and discount rates applied to cash distributions from ongoing operations and sale over the projected period.

We do all our work on a pre-tax and after-tax basis, because the difference between higher current income tax rates and lower long-term capital gains rates (and the risk to increases in capital gains rates) can tilt the balance in favor of a current sale.

Q. What about Section 1031 property exchanges under the IRS Code, and the tax advantages they offer?

We have a lot of experience in transactions utilizing Section 1031 provisions. However, even when making big gains in today's hot sales market, it is difficult to find good value. We still look for upside today as we have done historically... if we can't see it, we will take the gains and pay the taxes.

Q. So, are property acquisitions out of the question in this seller's market?

Candidly, in terms of our traditional single-asset direct investments, we are not finding quality opportunities with value-added potential. But we have identified other opportunities and are pursuing them.

One example is our new Industrial Partners fund, a blind pool that is building a portfolio of light industrial/warehouse/distribution properties for upgrade, releasing, and sale. This market segment is not as overheated. Therefore, we still see values. There are good opportunities to buy well-located properties with strong redevelopment potential, at prices that make economic sense.

Other types of investments we offer include our real estate related hedge fund, which takes long and short positions in the securities of publicly traded real estate and real estate related companies; and the Strategic Capital program, which has achieved above-average current returns for investors by filling the special-situation funding requirements of real estate entrepreneurs with mezzanine loans and preferred-equity investments.

Q. But someone is out there buying even today; why is that?

A New York Times reporter recently asked me that same question. My response is that the deals being done today illustrate a willingness to accept lower returns. We have long memories about cycles and are reluctant to commit capital at most of the returns we are seeing today. Professional money managers are paid to deploy capital; I think we are paid to build, preserve, and harvest it.

Q. Do you see the current environment changing in the near future?

Rightly or wrongly, Peter and Anthony Malkin believe in cycles. We can't predict when, but some event will come along that will change us from holders and sellers to holders and buyers. When we think that has happened, we certainly hope our investors will be there with us. Until then, we will continue to move on opportunity when we see it... on the buy or the sell side.