Danger ahead: experts warn against off-market sales.

Citing a number of highly publicized off-market real estate sales within the last year, some of Manhattan's top investment sales brokers have simple advice for sellers tempted to unload an asset without an open market bidding process: Don't do it,

Because the current market is so unpredictable, in that prices for an asset routinely rise to levels far beyond what was expected at a sales auction's outset, it has become nearly impossible, brokers say, to properly forecast just how high a competitive preemptive bid should be. Brokers have urged sellers to avoid the problem of guessing altogether by organizing and seeing through a competitive bidding process.

A series of high profile belly flops underscores their point.

Last summer, the Plaza Hotel was sold by a partnership between hotel group, Millennium & Copthorne, and Saudi Prince Alwaleed bin Talal, to Elad Properties in an off market transaction worth $675 million, a record sale for a hotel at the time. Yet soon after the deal closed, that figure seemed woefully undervalued when news of the sale prompted interested buyers to offer up to a whopping $1.3 billion.

Cushman & Wakefield broker Scott Latham, who initiated the deal and represented Elad Properties, explained that the controlling owner of the Plaza, Chinese investor, Kwek Leng Beng, hadn't recognized the hotel's potential as a condominium conversion and consequently was willing to accept a price far below what such a conversion could justify. The deal was a coup for Latham's client, Elad Properties, however and highlights the motive behind buyers' bids for preemptive deals.

"Anytime my competitors or I go to market with a deal, if it's a popular deal, people will call up and ask if we'll preempt," said Woody Heller, an investment sales broker at Studley. "Now why would they be asking that? Are they asking that question because they want to pay more for the property than they would have to if it went to market?

"Everybody wants to preempt at a number that is perhaps more than they would like to spend, but still far less than what they fear they'd have to pay if the property goes to market. So by definition it's designed to avoid having to pay as much as the market would call for." Even savvy investors can wind up receiving far less in an off-market deal than an open bid would yield. Such was the case with Shorenstein's sale of 450 Lexington last April. The property was quickly flipped to Murray Hill Properties' Norman Sturner and David Werner for considerably more than what the original buyer had paid.

Latham called Shorenstein "just about as sophisticated an investor as you'll find," a factor that indicates just how hard it is to accurately predict how far pricing can escalate in an auction these days.