“The sun is shining on the commercial real estate industry as brightly as I’ve seen it in at least a generation, and 2015 could be the best year yet in this cycle, thanks to sustained low interest rates, controlled levels of construction and escalating demand from both tenants and investors. Things are so good that some people ask, sotto voce, if we’re in a bubble. The answer is probably not, but the question serves to remind us that, even when times are good, it’s wise to have an exit strategy if things don’t go as planned. Also, keep an eye on interest rates and construction. They look benign now, but as they ramp up, they will test the CRE investment and leasing markets, respectively. Among the major property types, only apartment construction has risen to the level of aggregate demand, though demand remains robust. Office, industrial and retail construction is likely to lag demand for one or two more years.”

“The real estate market cycle is normally much longer than the stock market cycle—because it takes so much longer to construct a new commercial property than to adjust factory output or business employment—so the most important data for an investor to pay attention to is new construction activity relative to its long-term average. We’re still well below normal construction activity, in basically every property type and every part of the country, and as a result vacancy rates are likely to remain very low.”

“We are six years into this economic cycle. It is possible this one will last a little longer than the past three, which have averaged nine years in length, because the real level of unemployment is still quite high. However, investors should take the opportunity right now to place capital in good quality development projects. Mixed-use projects are probably the best bet, but development has been weak in all sectors this cycle. This window of opportunity will not last forever and projects need to be completed and let by the end of 2017. Carpe Diem!”

“With an impending increase in interest rates, it might be prudent to sell some assets that have earned a decent return; but don’t be fooled by the commonly held notion that increasing interest rates automatically imply rising cap rates. If the rise in interest rates is implemented prudently, it should be received as a vote of confidence in the resilience of the U.S. economy, and may drive investment volume higher. Cap rates may actually stay flat or even fall slightly as a result, in the most actively traded markets. Don’t lose your heads! Be defensive only up to a point—there are still buying opportunities out there.”

“Timing the exact inflexions in the market cycle is an impracticable task. Nonetheless, investors should remain mindful of the maturing recovery and the impact of low-cost capital saturation. Prevailing investment conditions underscore the need for actively stress-testing portfolios against a range of credible risks. The market has become rather inured to low interest rates; we cannot map the future rate path, but we should understand how higher rates might impact values for each of our assets differentially. Further into the medium term, it is possible if not probable that we will see the next recession within the current investment time horizon. There is good reason to be optimistic about the prospects for real estate, but current measures of market sentiment are not leading predictors of downturns, nor were they in 2007.”

“With sharply strengthening economic drivers supporting improving property market fundamentals, now is the time to acquire assets that involve taking on greater leasing risk. But investors would be wise to focus on under-managed assets in prime locations and/or sub-markets, as opposed to inferior assets in secondary locations awaiting general market recovery. Although the recovery is certainly broadening to more metros and sub-markets, changing market dynamics are leading to a widening bifurcation of winners and losers, with top assets commanding disproportionate investor attention and leasing activity at the expense of inferior assets and locations. This is particularly true in the retail sector, but this pattern is playing out in all property sectors to some extent. In short: seek out quality assets that would benefit from superior leasing and management efforts; do not expect the market to bail out the inferior product and locations.”

“Long-term rates and cap rates and discount rates will go up at some point over the next few years, but further out in the future than most expect. Make sure you weigh the ability of income growth to outpace cap rate and discount rate increases. Pay critical attention to specific market dynamics and asset types to make this cyclical market adjustment. In other words, do not get caught with the inability to raise rents for an asset given long term leases in-place without escalations, or in a market that cannot support the rent growth. You need to be in demand-pull environments.”

“Investors should think about re-balancing their portfolios and take advantage of strong capital markets to sell non-strategic assets. Keep in mind that timing the market can be very difficult to do. We encourage investors to think about their long-term exposure to real estate as an asset class, which offers high current income and the ability to hedge inflation. You want to hold great assets that can generate compelling rent growth and appreciation over the long run.”

“At this stage of the cycle, it is important to invest for the long term, not short term, and to invest in an asset where the net operating income will most likely grow over time much faster than market cap rates or yields [that] will rise due to the normalization of Fed policy. I advise long-term, as I think that all asset classes are on the verge of a mini construction boom which will raise vacancies, and an investor must plan to hold through this construction cycle. I also think the supply of capital will, in the long run, provide lots of support for higher CRE prices and liquidity in the long term.”