To paraphrase Clint Eastwood, are ya' feelin' lucky? The majority of respondents to last week's Feedback Poll seem to be, and it's a good thing, since risk in months to come will factor more into their investment plays, they say. No one's talking about a major correction here, but the dynamic is shifting, gently, and 59% reported that yes, in fact, their investments will be farther out on the risk scale than the have been to date. To make sense of the findings, we've asked commentator Halter to shed some light. . . .

"Real estate, relative to other asset classes, still offers relative value. We just need to be a lot more selective.

"That said, there definitely is a strong case to be made for investor caution going into 2007. Investor confidence has been very high and it's been emboldened by virtually all volatility being on the upside. With that sort of preconditioning, investors continue to drive the car forward by looking through the rearview mirror.

"People will be taking more risk, but great performance and returns cannot last forever. Investors are taking less risk premiums in their pricing, and we're seeing that in cap rates, which continue to stay very low. And on the debt side the spreads that we're getting are also very low. So there's not a lot of return for the risk you're taking imbedded in pricing.

"Since 2000, some 400 real estate equity funds were launched in the US and 78% have been value-add or opportunistic in nature. This, plus the record capital flows, means aggressive pricing relative to reproduction cost. As people look at the pro formas and cash-flow analyses, there will be more bets based on where the value of the property is going to be from a residential cap-rate perspective.

"Obviously we're seeing more use of financial leverage in the marketplace, which manifests itself in more risk-taking. So there's a general level of concern we have about complacency. That will be a key theme in 2007.

"Smart players and prudent investors will be a lot more prudent and selective. PREI will be investing in markets where there's strong landlord pricing power and getting back to basics--looking at the cash flow, how you grow revenues and how you manage expenses aggressively. Remember, make sure you don't fall in love with the asset class because the asset class won't fall in love with you."