"REITs across the board are looking to get their hands on New York Properties," says Robert Eychner, head of Eychner Associates. Post Properties, Inc. (NYSE: PPS) and AvalonBay Communities, Inc. (NYSE: AVB) have more than $460 million of apartment projects in Manhattan. Archstone Communities Trust (NYSE: ASN) has said expansion in New York is a priority, through both purchases and development.

With sales and absorption tightening elsewhere, REITs are now ready to overlook New York's expense and bureaucracy to tap into a rent growth of almost twice the national average and a supply-constrained market that is likely to keep rents stable if not climbing. Manhattan rents rose an average of 15 percent last year. Nationwide, rents rose an average of 8.7 in 2000. It costs approximately $225 per square foot to build an apartment in New York City compared to about $85 in the suburbs.