GlobeSt.com: And your geographic reach? Shorenstein: Our portfolio throughout all our funds usually tends to be about 60% in primary markets (New York, Boston, Chicago, San Francisco, Los Angeles), and then about 20% to 30% in other smaller markets (Seattle, Miami). The balance may be more opportunistic deals in other cities.

GlobeSt.com: You have some strong opinions about opportunity funds. Share them, please.

Shorenstein: You can't be an opportunistic investor for 15 years. By definition, opportunities are new and there's so much capital that there are very few opportunistic situations. I define opportunistic situations as a 20% plus return on a deal and they just don't exist. Many funds that call themselves opportunistic are either kidding themselves or using a marketing ploy.

GlobeSt.com: What kind of returns do your investors expect?

Shorenstein: Over 15 years we've averaged a 16% net to our investors. But going forward, I don't think the market is there for that level of return. We aim for returns that we think we can generate in the market that's in front of us. Today we're focused more on the downside of each deal than on the upside. So if a deal underwrites out to a seven or an eight on the downside, let's says if the leasing markets get hammered, the capital markets drop or interest rates spike, we'll be able to ride through it.

If we ever lose principal or have a negative IRR, that would be catastrophic. But if our worst return is in the low single digits, we can live with that. So we make sure that in each deal we do we can keep the building leased and that we don't over-lever it so if there's a downturn we're not going to get wiped out. Throughout our history as an investor we never lost principal on a deal and in our funds the lowest returning deal has been 7%.

GlobeSt.com: How long do you hold?

Shorenstein: When we set up our first fund we wanted to mirror what we had done in the past as a family, meaning longer-term holds and investing our own family money. So we have a 20-year life to our funds and we invest a lot of our own money. The average hold is about eight years. The 20-year horizon gives us flexibility to work an asset. If there is a downturn we don't want to battle the clock.

GlobeSt.com: Development is starting to figure more heavily in your strategy, isn't it?

Shorenstein: Absolutely. The starting point for us is how to find deals that underwrite to a logical return. We did a recent deal with 1.2 million sf of existing high-quality office, but there's about 500,000 sf of additional development rights. So we'll add development but we're starting from an existing base, which mitigates risk. So there's a way to play the development market with the safety of existing product.

GlobeSt.com: Talk bout your approach to risk avoidance and diversification.Shorenstein: First, we've built in relatively conservative debt (we average about 65% debt). Second, we buy or develop class A properties, assets that have a leasing advantage. If we can keep a building leased and we don't over-lever it, we can keep cash flow going in a downturn. We can meet debt service and survive to the next cycle. We also structure each building so less than 10% of rents roll in any year. We may leave money on the table when rents move back up, but that's ok.

So I look at everything on a risk adjusted basis. You have to take into consideration that this market could correct and when there is a correction rarely is it slow or moderate. Often times it's a fast violent correction. You just have to be ready for it.

GlobeSt.com: Ever think of Europe?

Shorenstein: We seriously considered it, but life is too short. Shorenstein has no competitive advantage there, where local people are going to see deals before we ever do. That's not true in Miami or Seattle or any major US city. We don't understand how to do a deal and operate a building in Kiev. We understand the rules in the US. I know the players. Europe is a different world.

GlobeSt.com: So many organizations have rediscovered building fundamentals. Does this surprise you?

Shorenstein: We've always focused on fundamentals. People forget that this is a service business; you have to service your tenants. If you have a good building and you service your tenants and you keep the building leased, that's about as fundamental as it gets and that's the essence of the business. If you lose sight of that, if you look at real estate as just a financial tool, you're going to get hurt.