Real estate cycles are predictable patterns. 
Those of us that adapt to the ups and downs will do well over time.
Historically, real estate cycles follow a 10 year pattern – within this period is a transition period between cycles.
Further, history has showed us that these growth cycles begin on the 3’s and end on the 8’s followed by transition.
The cycle in the mid 80’s was the cycle of the baby boomers; the go-go years…then the tax laws changed and the late 80’s and early 90’s was awful. Remember when Sam Zell famously said stay alive to 95? This is when I got into the business – thank got I was young and didn’t know any better!
The cycle in the mid to late 90’s was centered around the tech craze. It was the age of the start up – a little area known as Silicon Valley was born…then the bubble burst.
The current cycle we just came out of, dubbed the Great Recession, will come to be known as the period of too much leverage and unprecedented consumer spending. This was a period of time that lacked innovation and consumers continued to bid up prices (look at the housing market)…And we all know how that ended.
This next cycle which I think will start in 2013, and will require us with legacy assets to come clean…
What do I mean by that?
Get your workouts done, clean up the balance sheet and arrange your capital. And most important get ready to the re-set and new normal. Personally, because of what I have learned in this last cycle, I am preparing myself to exit the market in the later part of this decade.
I think the biggest potential for growth are in the following asset classes:
- Apartments – I can’t tell you how many people have told me that home ownership is over rated! That tells me that we will move to a more renter based society and young people will move out of their parents house and into rentals.
- Medical – Because of the aging baby boomers and their parents who will require more care, medical product will be hot.
- Industrial – I personally think there is a pent -up supply of innovative ideas and products ready in the pipeline. We got away from that in the last cycle.
Why commercial real estate? Simple…
The NAREIT Property Index has outperformed the stock market since 1996 (when it started to be tracked).
I think the markets that offer good growth prospects, lower regulation and lower taxes will perform best. I do however subscribe to the fact that a great real estate portfolio can be accumulated in virtually any market.
Smart people are putting their business plan together now. They are also arranging their capital stack.
You have to determine where you are and where you want to go, always be raising capital. You have to establish relationships if you are a newbie or re-establish them if you are starting chapter 2 or 3. You are going to have to go out and create the opportunities…they are not going to fall in your lap like they did 5-6 years ago. Put your team of talent together…
If you have…
The right vision;
Capital arranged;
A good brand;
Good systems and processes in place;
YOU WILL WIN !
