For many in biz, the party's over.

The Fried Frank Party, sometimes called the Jonathan Mechanic party for the chairman of the law firm who has become so synonymous with its dominant real estate practice, was noticeably more somber this year amid economic turmoil and a growing sense of dread in the city's real estate industry.

Leasing is down, large building sales have become almost nonexistent and debt experts are beginning to sense that a wave of foreclosures and workouts may be on the way for assets bought at or near the peak of what now feels like the long gone days of the real estate boom.

A manager from a large German lender said that the bank was planning to seize on distressed assets next year. Numerous people said that they are waiting for the implosion of Broadway Partners, what many are describing as the next Harry Macklowe. The firm hasn't been able to sell off even a stake in 340 Madison Avenue, a property it has been marketing for months, just one indication of the difficulty it has had raising money to pay off portions of its looming debt maturities.

The Drake note, a senior loan being auctioned off by iStar, appears tied up in complications. Oh, and a real estate executive close to Jay Sugarman, iStar's chief executive, said that that firm's chances of survival were nil.

A top executive at one of the city's most powerful real estate investment firms said that during the financial crisis in recent months, the person had struggled to find safe havens for the company's large stockpile of cash as banks tumbled or came close to the precipice as Citigroup did last week. The person said that with such a large sum of cash, careful thought had to be given on how best to shelter and insure the money so that it didn't become embroiled in or a casualty of the financial mess.

The person was astonished and said that never in their career had they had to focus on what had hitherto been the completely routine of task of selecting places to deposit cash.

In the end, the person said they parked the company's money in Treasury bonds, what are considered the safest havens for cash in the world, at interest rates that provided virtually no return.

"I've never seen the financial system in such bad shape," the person said. "We came this close to financial Armageddon." A person familiar with AIG's real estate decision making said that the company was likely to trade its downtown headquarters, 70 Pine Street, as part of a deal to dismantle the company. The transaction would be structured by simply putting the 63-story, 800,000 square foot tower, which AIG owns, on the balance sheet of one of the company's insurance units that will likely be traded in the coming months or years.

That strategy has yet to be formalized, but the person said that the company is likely to conclude on such a plan within the next 60 days.

It's not clear when such a deal would take place however. The person said that, aside from the one London derivatives unit that nearly ushered the company's downfall in September before government intervention, most of the units of the company are viable businesses. But to sell them now, at a time when the company's image is tarnished, capital is scarce and the economy is locked in a bad recession, could only be accomplished by offering the company in a fire sale.

The person said that's why AIG sought an increase in October of the $85 billion bailout it received the month before; so that it could use the facility to strengthen its financial position and hold for better times rather than allowing the circling buyers who want to snatch up the company for cents on the dollar in a distressed sale.

Now AIG has the wherewithal to wait for better offers the person said, meaning that the 70 Pine may not trade in a deal for months.