LYNETTE PINEDA: I also think we're in a recovery; however, it's a tempered one and it's going to take a few years to really get back to the peak. We are very much long-term holders, but we're focusing on the markets where we see strong long-term fundamentals and good demographics. That's why we're focused on the core gateway markets right now.

JAMES STREET: I don't really think anyone was content at the beginning of the year. We began 2011 content, if not optimistic, because people felt that job growth would begin to kick in during the second half of the year. That optimism was reflected in the transaction volume. Then we got into the summer, and we saw the debt ceiling discussions, the S&P downgrade and so forth. Everything slowed down in the second half of the year.

So going into 2012, I think people were more cautious. And as we moved into the year, we've kind of flipped the normal course of our business, whereas historically there's been a lot of activity in the fourth quarter. I like to call it the Labor Day lap bell—after the bell, everybody scrambles. The past two years have seen the opposite, and the concern this year is having to get the production done in the first half, since you don't know what's going to happen in the second half, given the general election and continued issues in Europe. That's set the stage for what we're seeing in 2012.

STEVE WALLACE: I agree partially with everyone, but I have a little slightly different take. The low job growth numbers have tempered expectations for the balance of the year. I look at this as the third year of Ground Hog Day. In the first half of 2010, everyone was talking about the green shoots of employment. In 2011, a lot of research departments expected an employment increase, but then there were budget issues. This year, we had a very active first quarter for both debt and equity. If we could have extrapolated that, it would have been a record year for Cornerstone. But that's all ratcheted back now.

Having said that, if you look at some of our research studies, we just keep moving back the commencement of job growth and I think that's prudent. There's really been no reason to get more optimistic. We're thinking it'll be 2013 or '14 before you really have job growth that's going to create demand for office space, particularly.

JIM HALLIWELL: This industry has been pretty good lately. If you look at the NCREIF returns for the past two years, the average annual return is nearly 15%. Quarter-to-quarter, appreciation has been about 1.5% to 2%. So things have been pretty good. At the beginning of the year, there was positive activity. What's caused some sentiment shift is the recent volatility in the public quadrants of real estate. The B-pieces of CMBS have traded off. If you compare REITs about a year ago, the dividend yield over Treasury is about 160 basis points. In March of last year it was inverted, so that's trading off. When the public markets get very volatile, the private markets tend to follow. That's creating some nervousness.

ANTHONY POLSTON: I cover the mortgage account, so as a lender, I have to be more worried about things than everybody on the equity side. We have a lot of debate about the state of the economy and where things are going internally. When we take deals into our investment committee for approval, there's definitely more debate and drilling down than in the past. The risk managers in our house are definitely very outspoken about things.

Personally, I feel like we're not anywhere near a recovery. The Fed is artificially keeping Treasury yields low. The central banks throughout Europe are trying to do that to stave off problems over there. No one's really sure what the state of the banking system is and how healthy it really is. And the limited amount of job creation has been driven by the stimulus funding, and it's been concentrated in a few sectors. Manufacturing is still not very strong and, if you look outside of Washington, DC and maybe Texas, you don't have a lot of very strong employment growth, broadly speaking.

STEVE PUMPER: The tech sector is creating a lot of jobs in markets like San Francisco. The question is, are they sustainable, and what does it mean for space demand?

PINEDA: Because we're a long-term holder, we don't really focus on individual sectors, per se. We look at the long-term trends and the demographics in markets we feel will withstand the times. San Francisco is definitely one of our target markets, but it's a tempered approach. We've seen the volatility there for many years. But San Francisco is a place where people want to live, there are strong industries that will grow in that market and there's a little bit of diversification, so there is an attraction there, but not at $800-per-foot sales prices, either. It's very difficult to buy right now in San Francisco and we're constantly looking for new opportunities.

WALLACE: We currently have a follow-up fund to what we did after the tech meltdown of the early 2000s. We're trying to find value-add opportunities, markets with job growth and, in some respects, lowerbarrier-to-entry markets. The difference this time in terms of strategy is in the last cycle, there were fewer impacted markets. This time, the "barrier" markets had their turn getting whipped, so going into this we felt that there were more places to execute our strategy. The difficulty for us has been the lack of a persuasive job story—how can you go buy an office building that has an existing or upcoming vacancy? How do you lease it up? That's been difficult to execute.

Multifamily, on the other hand, has been easier. It's a combination of young people moving out and getting jobs, and the decrease in, or aversion to, homeownership. Outside of Houston or Austin, where there's huge job creation, it's hard to say that you're going to see job growth in the next couple of years. We're trying to target markets that we believe will be the first to improve. Then you place your money there and hope that when the jobs do come, you've identified those industries and markets that'll experience growth.

DESIATO: Have you looked at secondary markets in which to invest, since the top-tier markets have been so heated?

STREET: We're starting to focus more on acquisition and development opportunities in secondary markets that are demonstrating meaningful net job growth. For example, this year we acquired two class A properties in Atlanta, one office and one apartment community, after several years of avoiding the market. There's been very positive job growth numbers in Atlanta over the past six to nine months, which was kind of strange and a lot of us that live there don't really understand how it happened. We went from losing about 8,000 jobs in 2011 to a restated 50,000-job gain for 2011.

Atlanta hasn't had the energy story that the Texas markets have had, or the tech story we saw in San Francisco and Silicon Valley. It's sort of been a patient waiting game. In terms of sectors, the healthcare and service industries are strong. We've landed some headquarter relocations and some industry relocations, so that's a positive. I think the idea is that with the airport and infrastructure in place and the reasonable cost of living, it's all bringing jobs back to Atlanta.

HALLIWELL: Our general strategy involves larger primary gateway cities and high-quality urban product. We do some tactical plays, though. We've done some deep discounted office plays in markets such as Austin, where we bought and sold a building in the same day. In Houston, we bought an empty building and leased it out. They're all high-quality new buildings bought at a massive discount to reproduction cost. We did a deal for a brand-new building in Downtown Charlotte at $160 a foot. When you look at the spread, we bought a 60% leased building at a six-cap, at 60% or 70% of reproduction cost. In New York, you'd buy a 100% leased building at a four-cap. The spread between urban and suburban office is as large as it's been in the history of NCREIF. There are decent opportunities in secondary markets, but the margin for error is huge. You've got to be very judicious and selective.

POLSTON: Being on the debt side, the top 15 metro markets represent roughly about 75% of our debt portfolio. We prefer the largest markets with deeper and more diverse economies, educated workforces, and good metro GDP. Our equity portfolio is comprised similarly. We're fairly comfortable with CBD office, but we're not at all excited about suburban in most markets. Part of that is the lack of real job creation among tenants, as well as the overall trend of downsizing among a lot of office users.

PUMPER: How do you feel about retail these days?

POLSTON: We've been very active in commercial mortgage lending on regional malls the past few years. Since 2008, we've developed a strategy where we're targeting the top malls in the top markets in the country. We've probably done 10 or 15 mall deals over the past few years. It's been a big part of our portfolio in terms of new production activity on the debt side.

Relative to our peer group, we're a bit overweight in terms of our retail exposure within the mortgage portfolio, but we're comfortable with that because we're targeting malls that have very good favorable demographics within a 10-mile radius and sales well above $500 a foot. In the markets where people still have incomes and the jobs are still there, the malls are doing just fine.

HALLIWELL: It's been a good sector for us and for the industry. If you avoided the lifestyle centers and stuck to community, grocery and power centers—as long as you stayed away from some of the unfortunate boxes that have gone away—it's been okay. We've been very surprised that consumer spending is up a little bit, and tenant activity is up considerably. In 2009, you couldn't get a national chain to return your call. I think there's been, to some degree, pent-up demand on the tenant side.

WALLACE: Our strategy at Cornerstone is kind of bifurcated. Our debt guys have been targeted the best-performing, highest-sales malls and, to a lesser extent, some of the dominant power centers. On the equity side, we don't try to compete with the Simons of the world, so we'll go and buy the smaller, grocery-anchored centers. In our view, there's a need for that kind of retail and it's not going to be made obsolete by the Internet. Those are very competitive on the bidding side. And one of the things that's making it work right now is that debt is so cheap you can still get a decent leveraged return.

PINEDA: Our strategy is also twofold. We have a strong interest in regional malls, number-one or-two in their markets. We focus on the trade area, the demographics supporting the centers and certainly a history of strong sales—$400 to $500 minimum per square foot. On the other hand, we'll look at community shopping centers with the number-one or-two grocer in the area, in a strong location with good employment trends and so forth. We would stay away from power and lifestyle. We've invested in those in the past, but they haven't been as fruitful as we'd hoped.

PUMPER: Are any of you considering development, either on your own or in a JV? Or looking at alternative investments?

PINEDA: Traditionally we've held the belief that we'd rather just control the entire asset on our own. We've expanded our view over the years, especially when afforded joint venture opportunities with the Simons, CBLs and so forth, where we didn't feel we had an internal core competency in the area. With multifamily development, for instance, we need to bring in a more local partner. In the past year or so, we've formed a dedicated joint venture team focused on bringing in third-party money. So we would actually create a joint venture including assets already in our portfolio. That's mainly to increase our assets under management, so it's more a fee-based situation. That's been a significant focus of the real estate team.

STREET: We've actually moved back into apartments, in JV development, in a big way. We currently have about 31 apartment projects totaling a little under $2 billion in the pipeline. Our JV development program across all property types has been a key piece of our business in the good years. We did what we had to do in 2009-2010, as far as restructuring debt and joint venture terms, to help keep our best partners in business. The payoff for us is we saw good sites and good development opportunities and we moved pretty aggressively, particularly last year, back into that arena.

We'll probably branch out to other property types, but it's going to be very selective. We're looking at some office development on a selective basis in places like Downtown San Francisco or Houston, for example. We're doing some JV development in senior housing, which I find interesting. Until recently, there was no construction financing available for senior housing. Obviously, you can still pick decent assets up for a substantial discount to replacement cost, but we have a dedicated team and dedicated senior housing funds, and those guys tell me that they are now doing some JV development.

We already had a big JV investment in self-storage, which continues to perform very well for us. We've not necessarily looked at developing self-storage; that's still on a selective basis. But certainly, it's a property type we'll continue to hold—we'll sell a few and buy a few or develop a few. We just acquired a $100-million medical office portfolio in the Mid-Atlantic, so we're starting to re-enter that market.

HALLIWELL: We've been active in joint ventures, namely, opportunistic deep-discounted office space. We did a loan-to-own recently with a JV partner. As we start to drift outside of the core space and into heavy value-add initiatives, we tend to engage a partner or vice versa. In terms of non-traditional property types, we have a fairly large student housing program with one of our separate accounts. It's been doing reasonably well. We're looking into medical office.

WALLACE: JVs, for us, are almost exclusively either ground-up development or substantial rehabs. We really haven't done anything where someone is just looking for a partner on a stabilized asset.

As for alternative investments, a lot of people view hotels as niche. That's a core competency of ours and we're going to continue to do that. On the lending side, one thing that's new for us is we're establishing a debt platform in the UK. We found that there's a market for long-term fixed-rate mortgages, so we've got boots on the ground in London now and we're producing long-term fixed-rate mortgages.

POLSTON: On the equity side, we've got about 7,500 apartment units under construction nationwide, probably about 30% to 40% complete. Joint ventures have been an active part of our equity program for a long time, in terms of development. We have an active construction program on the debt side, as well, that ties in with our equity program. Since 2008, one of the things we've paid closer attention to—and I think this is true for every financial institution—is liquidity. So with joint ventures, it's a great part of our program and it's always going to be, but it does tie your hands a little bit on the liquidity side when you do want to sell. As a result, we're probably going to be more active sellers than we have been in the past, so we're going to need to be more fluid in and out of the developments than we have traditionally been.

CASEY: One of the driving factors of JV partnerships is not necessarily development. It's really whether we're going to leverage the deal or not. If we're owning 100% ourselves, we typically do not lever that asset at all. On the development side, debt is so cheap that maybe we would bring on a partner so we could go get third-party debt on that. We won't even put MetLife leverage on a joint venture, developerowned asset. Where we're a bit more interested in joint venturing right now is on acquisitions, to look for a 50/50 partner and take advantage of what we think is historically a good time to borrow.

We have had programmatic joint venture development partners in student housing, industrial, multifamily and some hotel. It would be our preference, except for select opportunities, to either do the deals ourselves or bring in those same partners on a fee basis, as opposed to a true development JV partner from the beginning.

You know, sometimes we forget we violate that first rule of real estate, which is don't have a partner. If you look back on a lot of things that we would like to have either gotten quicker resolutions or when interest became a little bit misaligned, it would have been a lot easier to not have had another party at the table. So if leverage is there and the party at the table walks and talks and has a pocket that looks a lot like MetLife's pocket, then that's a good conversation for a partner. But, 90/10 JV developments with splits, press and waterfalls won't come back until we lose a little bit more of our memory.

DESIATO: How have your strategies changed in the past 12 months and what's your prediction for 2012 volume?

POLSTON: Volume-wise, we're expecting it to be higher in 2012 that 2011. Right now, we're on pace to do over $5 billion. Last year we did $4.6 on the debt side and that was equivalent to our highest year in terms of volume. We're on pace to do more business, but probably with fewer transactions. So the deal side is getting bigger.

STREET: I can't say that there's been that much of a strategy change over the year. As I mentioned, we got back in the JV development arena a year ago and will continue to do that. So for us, 2012 is going to look a lot like 2011—production of about $3 billion on each side, acquisitions and dispositions.

HALLIWELL: The strategies really haven't changed. What has changed more is clients and consultants demanding managers adhere to their strategies. If you engage in strategy drift, you get criticized, and rightly so. People are really sticking to their strategies a lot more and if you deviate from them, you'd better have a good story. So what happens is you spend more time on fewer deals and end up doing bigger deals. So our volume might be a little less than last year, but not far off. We have a couple of bigger programs, but it's a lot more work. Last year we were probably $1 or 2 billion two, give or take. Our top years were probably around $2.6 billion, so we'll maybe be around half of that.

PINEDA: Our strategy hasn't changed, either. If anything, on a portfolio basis, some of where our funds are being allocated has probably changed because the two largest funds have minimum exposure to office at this point in time, so they're trying to diversify a bit more. And some of our target markets may have changed. But for the most part, it's pretty much a core strategy.

The acquisitions program is about $3.5 billion for the year, similar to last year. The key is finding the product, which is scarce. Dispositions have grown quite a bit. We have more in our pipeline this year than since 2007 or so. We have a program of $2 billionplus for the year. That's driven by the portfolio strategy, reduced office exposure, exiting non-target markets and non-target assets, and redeploying the funds according to our current strategy.

CASEY: On the equity side, we came into this year trying to do $1 billion, and that's a primarily unlevered number. But if it were levered with partners, that's potentially $2 billion. We're trying hard. We've been the second-place bid more than a handful of times over the past couple of quarters. For 2013, it's probably the same target—around $1 billion unlevered.

WALLACE: Through the end of May, our debt guys have probably done 75% of what they did in all of last year. They had a big first five months. On the equity side, we're at roughly half of what we did last year. Both of those numbers were records. So at the start of the year we felt that if we could replicate last year, it would be good. There are still big question marks as it relates to pipeline and product availability in the last half of the year.

(Standing, from left):

James Street is an Atlanta-based principal of dispositions for Prudential Real Estate Investors. As of year-end 2011, the firm had about $42 billion in gross assets under management, $12 billion of it offshore. These assets are held in approximately 12 equity funds and two mezzanine debt funds.

Anthony Polston is a director with Milwaukee-based Northwestern Mutual, which has a $31.3-billion portfolio of commercial mortgages and real estate equities, of which $24.7 billion is debt.

Michael Desiato (moderator) is vice president and group publisher of ALM's Real Estate Media Group in New York City.

Steve Pumper (moderator) is executive managing director of invesments for Transwestern in Houston.

Lynette Pineda is director of dispositions, global real estate for TIAA-CREF in New York City, which has about $50 billion in real estate exposure, including mortgage, CMBS and direct real estate.

Jim Halliwell is managing director, eastern US investments, for Principal Real Estate Investors in Des Moines. At the end of 2011, the firm had $35 billion in assets under management, including $14 billion in equity. (Seated, from left):

Steve Wallace is the Chicago-based managing director of the Central Equity Region for Cornerstone Real Estate Advisers. The firm had $32 billion in assets under management as of year-eld 2011, split into approximately $20 billion in debt and $12 billion in equity.

Brian Casey is Mid-Atlantic region head for MetLife Real Estate Investments. The firm holds some $40 billion in mortgages and $10 billion in equity in its portfolio.