A year ago this week, I concluded a presentation at the annual Bear Stearns real estate "Year Ahead" conference by saying "the next five years of real estate returns will not be as good as the past five years." Audience body language and comments afterwards expressed bemused skepticism. Afterwards, several people took issue with my suggestion that underwriting standards would turn more stringent during 2007. "We haven't seen that yet." Well, it was late 2006, the new year hadn't yet begun and the EOP/Blackstone deal was about to close.  I thought the gist of my comments was pretty grounded -- how could core real estate continue to produce mid-to high teens annualized performance when the historic mean for unlevered core returns lies in the high single digits?  Ross Smotrich, Bear's lead REIT analyst, also signaled that stocks he covered looked way too toppy.  We shrugged over the reaction. And who could argue too stridently -- the markets continued to pump property prices.

I was back at Ross's conference this week. Let's just say the mood was "somber."  Speakers talked about  "defensive" strategies  and operating  from "caution." It was hard to hear mention of the dreaded "R" word, but most attendees seem resigned to at least a "slow growth" economy next year, and wondered how much property cash flows will be impacted. Charts showed how rent growth and demand indicators seem to be moving in the wrong direction. Nobody was showcasing optimistic forecasts, and the housing outlook steadily gets gloomier. Some grumbled about how the "press" was fomenting a downturn with all their negative headlines. On the positive side, speakers talked up the prime global pathway markets along the coasts and Ross suggested that select REIT companies with strong management teams might be prime buy opportunities in coming months after getting beat up.

I'll say it again -- the next five years of real estate performance will not be as good as the past five. Let's just call it -- reversion to the mean.