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Vornado is stretching itself to the limit. The real estate investment trust has now twice trumped Blackstone’s offers for Equity Office Properties. The latest bid, at $56 a share, is 15.5 per cent above Blackstone’s opening shot. With potential returns getting squeezed, does it make sense for Blackstone to chase the price yet higher?

It might not have to. Even with an offer $2 lower than Vornado’s, Blackstone has a strong position. Its bid is all in cash while Vornado’s has a big share component (the value of which is not guaranteed if its own shares fall more than 8 per cent). Meanwhile, Blackstone offers certainty because it can close the deal almost immediately. EOP shareholders would have to wait months for the rival offer to close, during which time the red-hot commercial real estate market could cool and Vornado shareholders could vote the deal down.

It is a delicate decision. A bird in the hand is probably worth 1.037 birds in the bush. But if EOP’s board chooses Vornado or the real estate group pushes a tad higher or lessens the risks of its offer, Blackstone will face an unenviable choice.

It has the cards to win, including huge cash resources and the advantage of a $500m break fee. And there are reasons that the multiples being offered for EOP are pushing into record territory: commercial real estate demand is strong and EOP’s portfolio has plenty of room for rent increases.

But there is the ghost of RJR Nabisco to contend with. In the 1980s, KKR broke records for the biggest buy-out after a frantic bidding war for RJR only to enjoy measly returns. The last thing Blackstone needs is the reputational stain of getting carried away and overpaying for the new record deal.

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