WITH credit markets still frozen, and buyers afraid to make the wrong decision on values, the sales market is having a difficult time moving forward.

“Unlike in prior cycles where there has been debt and very little equity, I think this cycle still has a lot of equity but very restricted debt,” said Woody Heller who oversees capital markets for Studley. “And the equity in place is fearful because of the volatility.”

The sales business will become more efficient as fewer “auction” processes will take place. “The old fashioned art of effective matchmaking may rule the first half of 2009,” predicted Douglas Harmon, senior managing director of Eastdil Secured. “Knowledge of credible, worldwide pockets of capital and an understanding of their appetite and speed will maximize value and ensure an effective transaction closing.”

Currently, the only bright sales spots are smaller deals which are being consummated primarily with all-cash, and with sellers that either have to sell, or with buyers that still need 1031 exchanges (where like-kind property is exchanged rather than sold), said Eric Anton of Eastern Consolidated.

Should the large sales of the office portion of 1540 Broadway and 485 Fifth Ave. actually take place, they would set signals on value and begin some momentum.

“We will see things ramp up with some degree of rapidity once the activity starts,” said Heller.

But, noted attorney Gary Rosenberg, the low pricing for the office portion of 1540 Broadway is sending a signal to lenders that this may not be the time to take assets back from borrowers.

“If they feel they have the right people they are working with, and everybody is doing the best they can do, they are not going to do any better by foreclosing,” said Rosenberg. “They are foreclosing on unhealthy properties, and are foreclosing where the building is not improving in value compared to the loan.”

Meanwhile, owners who don’t need to sell, and cash-heavy potential buyers are sitting on the sidelines waiting for values to reset.

“Past pricing is history,” said Darcy Stacom, vice chairman of CB Richard Ellis. “Now it’s about current yield.”

If portfolio lenders – those that keep the loans and don’t resell them – become more active, that will be another boost for more transactions to occur.

Brokers say the banks are meeting with borrowers and trying to figure out which assets are worthy to have loans rewritten, and which are duds to be taken back and then prepared for sale.

“Anybody who has a loan coming due anytime in the future is sitting down with their banks,” said Rosenberg, a partner with Rosenberg & Estis. “The banks don’t want the property but they are not going to be taken advantage of, either.”

They would also rather sell the loan at a discount to the current borrower, said Adelaide Polsinelli of Marcus & Millichap. But that borrower may also then have to obtain a loan from yet another lender which could require a recourse provision.

Richard Baxter, executive vice president of sales at Cushman & Wakefield says there will be opportunistic purchases through note sales.

“There are a few properties that will come up because there are always generational sales,” Baxter said. “And even a few because of the Madoff scandal.”

Stacom says that office buildings with weak tenants and high rent will be harder to sell.

“If you have workhorse companies and diversified rents you will be all right,” she said. “In the last cycle, I always looked for a diversified rent roll and sold that heavily.”

The most problematic assets are those which were purchased and then vacated for redevelopment. These don’t have any income and need a large capital infusion to retenant, redevelop or convert.

“Development sites and raw land pricing has plummeted due to a lack of available financing and of course the grinding halt in condo sales,” said Anton.

Paul Massey, co-chairman of Massey Knakal Realty Services says, anytime people talk about land values the conversation goes to what would a rental generate? “People are pro- forming rents to be off 15 to 25 percent,” Massey said.

Meantime, tax and operating cost increases are also hurting market sentiment.

“Owners are also keeping an eye on the future of rent stabilization as the possibility of more state regulation is of concern to investors,” Anton said.

Massey says his firm experienced an uptick in contracts at the end of the year, particularly in Brooklyn.

“The people who have stable investment properties can sell,” Massey said. “People were wondering if there was a market, and now they know there is.”