For most of the past three-plus years, retail real estate has been a cautious business.

When you talked to investors, lenders, owners and other stakeholders, it was almost as if they were reading from a script. “We want class-A centers in primary markets with long term leases in place.

Basically, everyone was standing in the shallow end of the pool. Nobody wanted to venture much deeper than that.

Investors wanted sure things and hoped to get them at discounted prices. Lenders would only finance the best properties and even then, at much lower leverage levels than borrowers had become accustomed to before the financial market imploded in 2008.

The problem is that with everyone chasing the same deals, it's gotten very crowded in the three-foot deep waters. Values on core assets keep rising while cap rates and returns are falling. As a result, the returns on riskier assets are looking more enticing and players are taking tentative steps towards the deep end.

At the same time, retail real estate fundamentals continue to get better — in spite of a still weak jobs picture. And the industry is growing more confident that it learned its lessons from the last cycle. It can take on risk without losing control. So more class-B product is beginning to trade and deal activity is rising in less glamorous markets.

The big challenge that faces the industry now — as a new upswing begins to take shape — is how to avoid making the same mistakes it did last time around.

In hindsight, it is clear that an era of easy money pushed the last property boom beyond the point of rationality. Perhaps no quote captures what went so wrong as what Citigroup CEO Charles Prince told the Financial Times in July 2007 when talking about the firm's continued aggressiveness in financing leveraged buyouts. “As long as the music is playing, you've got to get up and dance. We're still dancing.”

And of course it wasn't just Citi and it wasn't just private equity investors that were the beneficiaries of this kind of attitude. Capital markets were led by the false security of the CMBS financing model, which purported to diminish risk but instead simply spread it around.

Before things crashed, however, the financing picture was a major culprit in propelling property values to unsustainable heights — levels we may not see again for years.

So when things imploded, a lot of people felt the pain. It was especially damaging for investors that wrongly assumed that the AAA ratings slapped on CMBS issuances were accurate reflections of the inherent risk.

Delinquencies on CMBS loans issued at the height of the market remain high and there's still pain to be dealt with. Yet, improbably, even that market is recovering and experts are projecting $40 billion to $50 billion by the end of the year.

So we are at a point where risk is reentering the picture. It's necessary if investors want to continue to hit their return targets. Let's just hope that nobody drowns this time around.