Tight market is no joke, Fascitelli tells ULI panel.

While it may seem somewhat ironic coming from the president of one of the most successful real estate firms in the city, Vornado's Mike Fascitelli lamented how difficult it's getting to make a buck these days in real estate.

Moderating a panel at last Thursday's ULI Regional Trends Conference, and speaking with characteristic humor, Fascitelli listed the challenges.

The mezzanine market has become liquid enough to prevent lenders from enjoying long-term exposure, land costs have hit prices high enough to exclude the development of anything but condos, and interest rates are creeping into the unknown.

The increasingly competitive real estate market has had a palpable effect on Vornado. In recent months, Macklowe properties refinanced the GM Building, paying off early the sizable mezzanine loan it had in place with Vornado on the property. The termination underscores the trend of tightening spreads in the mezzanine tranche.

"Increasingly we're getting repaid [quickly]," Fascitelli said. "One of my colleagues came to me and pointed out that on one mezzanine loan that was repaid early, we made a 44% gain. I said great, so we made seven dollars."

Several months back, Vornado also lost on its bid to acquire the Mayflower Hotel, a site that the Zeckendorf's bought and are currently redeveloping. The property, which was being bid by all strictly for the redevelopment opportunities on the site, went for roughly $700 psf, a price that looked phenomenally expensive at the time.

"I called up one of our board members who is in his 80s and told him the price of the land and he asked what the cash flow of the building was," Fascitelli recalled, drawing laughter from the audience. "I kept telling him that there was no building, it was just land, but he kept saying 'no you don't understand, what is the cash flow of the building, the building.' It goes to show how much things have changed. Yet now, $700 psf looks great, I wish we had that deal."

Compounding Fascitelli's dilemma is the fact that because Vornado's asset base has reached a gargantuan $21 billion, $200 or $300 million victories or losses don't have much effect on the company's performance anymore.

Rather deals in the multibillion dollar range are the ones on which the company must base its fortunes, a scary commitment in times when many are forecasting an end to the real estate party.

Panelist Jeff Dunne, a vice chairman at CB Richard Ellis, expressed optimism in the buying market despite the stratospheric pricing.

"If you're not seeing buying opportunities fight now you should get out of the business," he said.

"There are lots of opportunities now because so many people are selling and even though the cap rates are low for properties out there for sale, they're still getting better returns than other investment classes."

Russell Appel, founder and president of the Praedium Group; Robert Verrone, a managing director at Wachovia; and Susan Hudson-Wilson, founder of Property & Portfolio Research, also participated as panelists.