When people fail to make money from investing, it is because they do what feels good. Unfortunately to invest successfully, you have to do what feels bad. An old investment strategist once wrote, if your stomach isn't churning when you make an investment, it mostly means you are going to lose money.

Tom McManus, the very fine investment strategist from Bank Of America, wrote this to his clients this week:

Demand for open-end funds concentrating in Real Estate equities slowed a little in the latest week, but still set an all-time record for any week other than the previous two. Net inflows amounted to +$511M, down from the average of $686M seen over the prior two weeks, but sharply higher than the +$30M weekly average seen during February 2006. Total assets of open-end REIT funds have increased +50% in the past year to $77B, and represent about 20% of the equity market capitalization of the REIT sector. By contrast, technology sector mutual funds controlled about $170B of assets at the top in March 2000, less than 4% of the equity market capitalization of the sector.

As McManus writes, investor enthusiasm for real estate remains high despite horrible fundamentals in the residential business and investors are chasing the performance of the office building space.

Investors are following The Blackstone Group's lead, which paid a big price for Equity Office Properties a few weeks back.

It feels good to invest in what is going up and what is popular. But just remember, Sam Zell, Equity Office Properties owner, is selling out. When did he buy? When the real estate sector was in the dumps. Zell was thinking, not feeling.

In theory, the role of private equity is to buy an under performing business and then spend time restructuring the operations. Ideally, after a few years, there will be an improved valuation.

But in the case of the Blackstone Group's $39 billion purchase of Equity Office Properties (NYSE: EOP), this theory is going out the window.

Instead, the firm is aggressively unloading the property portfolio of EOP. Some of the deals include the sale of 10 San Francisco buildings to Morgan Stanley (NYSE: MS) and a $750 million deal for some Denver office properties.

In fact, according to a report on Bloomberg.com, Blackstone has agreements in place to sell about $21 billion in EOP properties. Keep in mind that Blackstone bought the company about two weeks ago (yes, these guys don't waste time).

However, because of the hot office market, Blackstone is getting good valuations on these sales.

Basically, Blackstone is just doing an arbitrage play -- that is, it's pure financial engineering. But, hey, it does seem to be working quite well.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Making about $1 billion is not a bad way to start the year.

That's the case with Sam Zell, who is the cofounder of Equity Office Properties (NYSE: EOP), which sold for $39 billion to the Blackstone Group (a major private equity firm).

But who is the real winner? Maybe Blackstone will ultimately get more upside? Of course, it's too early to tell. However, Blackstone is wasting no time in selling off properties (billions of dollars worth).

Well today's Chicago Tribune has a piece that has the take from Zell.

First of all, he is going to do what anyone does with a windfall: Try to build a new portfolio of investments that meets his growth needs. In fact, one idea is to buy the Chicago Tribune.

As for the selling of EOP, he definitely thinks he got a great deal. In fact, it looks like it was at a nice premium to his company's internal projections -- a spread that he refers to as "immense."

He hasn't given up on real estate. Actually, he is putting his money into foreign venues, even Egypt.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

With companies like Equity Office Properties (NYSE: EOP) and Harrah's (NYSE: HET) getting bought out, it seems that just about any company is in play.

A big reason is that there is a tremendous amount of debt capital in the global markets. What's more, the debt is fairly cheap and does not have tough contractual terms.

But, there is another key part of the puzzle: private equity firms have raised a huge amount of capital. In fact, according to a recent report from Credit Suisse, the potential buying power for private equity is a stunning $2 trillion.

And, there's a good chance that the money will be put to work over the next few years. The main reason is the compensation structure for private equity firms. Basically, the portfolio managers typically make 20%-25% of the profits from the overall portfolio. So, to get this, it makes a lot of sense to start the dealmaking as soon as possible.

OK, so what can $2 trillion buy? Well, according to Credit Suisse, it could take out about 20% of all US and European companies with market caps under $30 billion.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

There's an old saying in deal-making: "Buying a company is easy. The hard part is making it work once you own it."

That's the situation for Blackstone's star real estate guru, Jonathan Gray. He won the bidding for Equity Office Properties (NYSE: EOP), which cost about $39 billion.

For a deal like this, there is often a big party.But that's not what Gray did. Apparently, he is constantly scared that the deal will fail. After all, the last similar mega deal was the buyout of RJR Nabisco (back in 1989), which almost imploded.

Interestingly enough, while Gray was bidding for EOP, he was also planning and even negotiating the exit strategy. In fact, he is already unloading properties so as to pay down the enormous debt.

Moreover, he's a big-time Chicago Bears fan and despite having tickets to the Super Bowl, he instead opted to spend his time wheeling and dealing to get the EOP deal done.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

The shareholder vote for Blackstone's $55.50 offer for Equity Office Properties Trust (NYSE: EOP) was overwhelming -- 92% in favor.

Now, Blackstone is the proud owner of 543 commercial properties.

But it will also mean raising $31.9 billion in debt. Keep in mind that EOP already has $16 billion in debt.

In fact, according to the Wall Street Journal, Blackstone has already negotiated deals to sell-off properties [subscription required].

Speed is critical. Currently, the commercial real estate market is hot and EOP has choice properties, such as in New York City.

Apparently, Blackstone's valuation on EOP is roughly 33.8X its cash flows. That is roughly double the average for the shares that trade on the Bloomberg Real Estate Investment Trust Index.

So, if your rent goes up, you can blame Blackstone.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

The old saying goes: "Sometimes your best deal is the one you didn't do."

That could be the case with Vornado Realty Trust (NYSE: VNO), which backed-out of its mega bid for Equity Office Properties Trust (NYSE: EOP).

Now, by default, the prize goes to Blackstone -- for a whopping $39 billion. Actually, this will be the biggest buyout ever.

In Vornado's latest press release, the company provided a simple explanation; that is, the deal would " not be in its shareholders' interest."

And, Wall Street agrees, as Vornado's stock price is up 5.5% to $134.02.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Blackstone, which is a massive private equity firm, has increased its bid to $55.50 for Equity Office Properties (NYSE: EOP).

True, Vornado's (NYSE:VNO) bid is 50 cents higher. However, it is also composed of a chunk of stock and the deal will take at least three months to close. Also, Blackstone was able to increase the break-up fee from $500 million to $720 million, which means the overall offer is higher (by about 3%).

So, it looks like -- at least for now -- Blackstone is the winner.

But, the deal is now at a nose-bleed valuation. In fact, the cap rate for EOP's real estate properties is actually below 5%, which is not very appealing. In other words, Blackstone will be under lots of pressure to wring value out of EOP and pay the huge debt obligations.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

It's a basic concept in finance: investors should get a higher return for increased risk.

It's a no-brainer. However, it's been somewhat elusive in the corporate credit markets. This is according to a piece in the Wall Street Journal [subscription only].

True, inflation appears to be in-check. With a fairly strong economy, the default rates have been minor. It also helps that there are huge pools of capital – such as from other countries and hedge funds – that are moving into debt investments.

As a result, it's possible for troubled companies to borrow money at cheap rates, such was the case with Ford (NYSE: F). And, of course, private equity firms are taking advantage of the situation by doing many buyouts -- at high multiples. Just look at Blackstone's bid for Equity Office Properties (NYSE: EOP).

But if history is any indication, credit markets can move quickly. So, if a couple private equity deals implode, there's a good chance the credit nirvana could turn into a nightmare.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Over the past day, the investment bankers for Equity Office Properties Trust (NYSE:EOP) crunched the numbers on the latest bid from Vornado Realty Trust (NYSE:VNO). And, the board of trustees of EOP wasted little time in getting to a decision: EOP is going to stick with its $54 deal with Blackstone, which is a top private equity firm. Key reasons include: its all-cash and the paperwork.

As for Vornado, a big chunk of its price is in the form of stock. And, of course, this can be volatile. Besides, it will take at least three months for a closing.

No doubt, EOP's CEO and founder, Sam Zell, is playing this auction with incredible savvy. Basically, Vornado needs to up its offer. In fact, it looks like it will need to be about $57.50 to $58 to get any traction.

But, in the meantime, Zell is guaranteed a huge cash windfall. Yes, at the age of 64, he is certainly doing the deal of a lifetime.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Equity Office Properties (NYSE: EOP) has been in a pretty nice position lately as the the real estate investment trust has been entertaining two favorable buyout options. The company's BOD today decided they would be backing the all cash offer made by the Blackstone Group.

While this was not the highest offer presented to the company, the $22.3 billion offer by Blackstone is in all cash and in the end EOP decided that this presented less risky for shareholders. This works out to $54 per share.

The alternative option that they had been entertaining was from Vornado Realty Trust which offered up $56 a share but this would come in the form of cash and stock, and EOP decided the best thing to do at this time would be to just go with all cash. Never a bad idea if you ask me.

The second advantage to choosing Blackstone Group over Vornado Realty Trust is the speed with which the deal could be closed. The Blackstone deal could be completed within the next seven days as opposed to the half year wait that would come with going with Vornado and would require a Vornado shareholder vote and a possible review by the Securities & Exchange Commission.

If you ask me, EOP made the right decision in this one. The stock is trading pretty flat today, falling $0.09 to $55.06.

As Wall Street expected, Vornado Realty Trust (NYSE: EOP) made a counter bid for Equity Office Properties Trust (NYSE: EOP). The new offer is for $56 per share, which comes to about $41 billion.

The prior bid – which came from the private equity firm, Blackstone – was $54 per share.

However, Blackstone's bid is all-cash, whereas the Vornado bid is a combination of $31 in cash and $25 in stock.

There is a hitch, though. That is, Vornado has a collar on the deal. Basically, this means that if its stock price falls, more shares will be issued.

Vornado actually does not want all of EOP. Instead, it wants to sell-off billions of the portfolio – but keep choice properties in top markets, such as NY.

But the Vornado bid is far from secure. While the collar does help, the fact remains that it will take the firm about three months to close the deal. And, of course, as the old saying goes: "time is money."

Also, the deadline for the shareholder vote on Blackstone's bid is Monday. Thus, EOP's board has a lot to think about – and fast.

As for Blackstone, it says it will not up its bid. In light of the uncertainly regarding Vornado's offer – as well as the rich valuation for EOP – it looks like a smart move.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

In the latest proxy filing from Equity Office Properties Trust (NYSE: EOP), the company provides key reasons for accepting the latest bid from Blackstone, which is a top private equity firm.

They include: price ($54 in cash); timing (the expected close is on February 8, 2007); and the structure of the Vornado (NYSE: VNO) offer (which is a bit dicey, since part of the deal relies on the value of the company's stock).

Well, according to a report from Reuters, it looks like Vornado is not giving up. That is, a new offer may be imminent.

Currently, the stock price of EOP is at $55.23, which indicates that investors think there will be a new bid.

Then again, if Blackstone loses the deal, it will get a check for $500 million (which is the termination fee). Not bad for a losing a battle, huh?

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

As Wall Street expected, Blackstone Group made a counter offer for Equity Office Properties Trust (EOP). And it's a 11% higher than its original bid -- coming in at $22.3 billion.

The bid from Vornado Realty Trust is $21.5 billion.

Yes, Blackstone wants EOP in a bad way. And, given its newest offer, it looks like the firm will win this trophy.

What's more, the break-up fee will go from $200 million to $500 million. In other words, if Vornado wants to make another offer, it will certainly be expensive. What's more, the firm has a tight deadline -- January 31st -- to make a bid.

All in all, the co-founder and CEO of EOP, Sam Zell, has definitely shown he is a very skillful deal-maker. By initially establishing a low break-up fee, he created an auction environment. As a result, he's going to walk away with an even bigger fortune.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

Over the years, commercial real estate has made a variety of people multi-billionaires. Actually, in the buyout of Equity Office Properties (NYSE:EOP), we are seeing some of these all-stars compete on a grand scale. This is detailed in a great story in Bloomberg.com. Ok, let's take a look at the roster:

• Sam Zell: He is the cofounder and CEO of EOP. He got his start, back in the 1970s, as a skillful investor in distressed properties. His nickname became the "Gravedancer." Forbes has his net worth pegged at $4.5 billion.
• Stephen Schwarzman: He is the CEO and cofounder the Blackstone Group. True, a big part of his wealth has come from private equity. However, Blackstone is one of the world's largest real estate investors. His networth is about $2.5 billion.
• Steven Roth: He is the cofounder and CEO of Vornado Realty Trust (NYSE:VNO). His networth is about $1.1 billion. Yes, in terms of net worth, Roth is lagging. However, he now has the high bid for EOP – at about $37.6 billion. Moreover, he is being joined by Barry Sternlicht, who built Starwood Hotels & Resorts Worldwide, Inc. (NYSE:HOT).
  

True, if Blackstone loses the deal, it will get a $200 million break-up fee. But, this is chump change. Actually, it looks like Blackstone wants to make a counter bid. Funny enough, if Blackstone wins, it's a good bet that the firm will sell of some of its properties to Roth.

All in all, this shows that mega real estate moguls still see potential in commercial real estate -- that is except Zell, who wants to cash out. And, of course, he's the richest of the whole group. And about to get even richer.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.