STEVE WALLACE: It's not easy. We're all showing up at the same core property offerings that often end up feeling like an auction. We're all trying to look for any advantage we might have. When you're on your third best and final offer, it gets a little frustrating. So we try to rifle shot a little more. We don't offer on a lot of things. But the things we do pursue, they meet whatever investment parameters we've designated. We go hard after those. But it's very difficult. We're looking at other smaller markets.

At the end of the day, we have to make the determination—do you really get a yield premium in the smaller market? Do you really think you can maintain the yield premium on the exit? There is no rocket science to it. We're just working hard to find things we like and try to buy them.

In terms of deal flow, Steve's transaction statistics seem high to me, I'm not disputing them, but it seemed like the first quarter wasn't that busy. Maybe it was fourth-quarter 2012 stuff that carried over to this year. The second quarter has been a little better, especially toward the end. It's going to be interesting to see, with rates picking up, whether it's going to motivate some sellers to pull the trigger.

WILLIAM CARLSON: We try to avoid the auctions and don't buy a lot of existing product. That's driven by our strategy. We probably do 75% new development. If we buy an existing asset, we are looking for some competitive advantage, and that would come from our local partner. Everything we do is in a partnership format, and their local or inside knowledge might allow us to be the winning bidder.

On the development side, the number of deals we've invested in has remained relatively consistent. We're pretty selective and only competing and building in six to eight markets—the gateway markets, plus a couple of others. It's a competitive time to invest. We're a small shop, and our money is the same color green as everyone else's. To be an effective partner, we have to be able to move quickly.

JAMIE STOLPESTAD: Our equity investment activities are partner based. But we're focused on very long-term investments and being aligned with significant operators. We're moving a fairly considerable amount of capital at a time, looking at larger programs or very large assets or portfolios where we can invest $100 million to $250 million in a shot. It's a different market environment. We've seen a fair amount of activity this year. People have many more choices, frankly. A year or two ago if somebody wanted a long-term capital partner, there would be a shortlist of choices. Now it's a much longer list and a lot more debt choices, too.

We've gone beyond the traditional gateway markets, which a foreign-based investor would typically look at. We've looked at the Texas markets and some secondary markets. We've almost doubled the number of markets in the US that we will really focus on, from about six to maybe a dozen.

KEVIN SMITH: I think of it in terms of the capital flows. In '09, '10 and '11, it was much more fun to be a buyer than seller. It evened out in 2012. Now selling is a lot more entertaining in terms of who shows up for the auction and what you can demand in pricing and terms.

In terms of markets, since 2010 we've been very active in apartment development. We felt like that was going to be very successful early in the cycle, over a pretty broad range of markets. And a lot of those were Sunbelt markets where we would not look to hold as long as we would in the higher barrier markets. For office, we have been fairly narrowly focused on markets where we felt there would be job growth, and that's been a short list to date. I think it's going to spread out a bit and as it does, we'll chase more deals because we like where we are in the demand cycle there, but the pricing is still really tough on the buy side.

JIM HALLIWELL: Where we go depends on product type and whether we develop or buy, and how that sector compares to reproduction costs. In virtually every market, the build-versus-buy in the apartment sector favors the build. On acquisitions, the spread over reproduction cost is quite rich and core pricing is very unattractive in terms of unlevered 10-year IRRs. So in multifamily, we've primarily obtained our exposure vis-à-vis development.

We've been a little different on the office side. Within the past two years, we've been able to buy some deep discounts—what we call lease to core. That's a fancier way to say value-add or opportunistic, for assets on which we may have a longer-term view than a flip view. We've also done a few programmatic ventures, particularly in retail, where we've bought into a collection of assets with an operating company and have a growth plan with those operators. One sector that's been more elusive to us, albeit one in which we really have our roots, is industrial. The ability to buy core industrial has been extraordinarily challenging. And with rental rates, the return on costs hasn't made sense in most markets for development.

STEVE TAYLOR: We were a major player in the market in 2012 and we're continuing that this year and looking forward to 2014 and '15. We've tried a few auctions, but we didn't like where they ended up. Now we're trying to find something where we have a competitive advantage, such as with scale—something large enough to buy unlevered and we can bring in a partner, write two big checks and buy it levered. Something that has a lease-to-core or value-add component that isn't going to command the most aggressive debt pricing today. Maybe take away a bit of the debt advantage leverage for some buyers.

Year-to-date, we've tried to do 75% to 80% core assets, with the balance in value-add opportunistic plays. If you look at what we have done so far this year, it has been a little bit more value-add opportunistic. In terms of markets, we've been focused on the top 12 or so, though we're probably a little more aggressive in those where you expect higher job growth.

PUMPER: Has it gotten as competitive to place capital on the debt side as on equity?

TAYLOR: On the debt side, we always seem to do between $8 billion and $ 11 billion. We are on track to hit that volume again this year. This year, however, has been a lot lumpier. We haven't had the consistent, historical flow of $25-million to $50-million, 65% loan-to-value, 10-year deals. We've been looking for unique situations, whether it's deal size, a risk that we're willing to underwrite or accept, or doing a lot of floating rate. Not a lot of people compete on the floating rate side, so we have an advantage there. I don't think our debt appetite will change much from last year.

HALLIWELL: We're probably ahead of schedule on the debt side. Our projected volume was a little more than last year, and we have done about $1.7 billion for the first half of the year. On our life insurance side, we generally choose to participate in the lower-leveraged, safer transactions. There's been a lot more of that, a lot of institutional financings, a lot of people buying deals and putting in only 50% leverage. It's very competitive on all levels—the banks are back in a big way on some of these swap products they can offer, in addition to the CMBS, which seems to be back as well.

DESIATO: How much has the comeback of the CMBS market impacted your debt business?

TAYLOR: The CMBS market has definitely come back and it's much more efficient. A few years ago, you'd see CMBS quotes farther out in the suburbs than in some of the secondary markets. You rarely saw them competing for deals in primary markets. Now it's like everybody has converged, and CMBS quotes are coming in and competing on the inside-the-Beltway deals again.

HALLIWELL: It's hurting overall volume more in our mezzanine area than it is our first mortgage side. As a borrower, you're either a low-rate, low-leveraged life company type or, if you want to go higher in the stack, you may do an A-note or B-note. The increase in the CMBS has driven the yields down for the subordinate debt, which has impacted us a little.

SMITH: Earlier I was talking about whether it's more fun to be a buyer or seller. I think it's the most fun to be a borrower right now. Not only is there a lot of very cheap debt capital available, but it's also kept a lot of property from coming to market because people can borrow increasing amounts in terms of LTV. The CMBS market has a lot to do with that. People haven't been compelled to sell. That's been behind a lot of the frustration that I'm guessing you all feel, in terms of sluggish transaction volumes.

STOLPESTAD: I will echo some of the other comments. We've found it to be very competitive. CMBS is back. The banks are very active. All of the life companies are very active. I would agree that we've seen increasing convergence; players that you'd have assumed would play in one sector seem to be playing in other people's sandboxes. It's very challenging. If you still have an appetite for fixed income, where do you play? We've found that we just have to be more flexible. We don't have to meet the origination volumes that some of our peers do.

So we're spreading out to different markets. We're looking for adjacencies in terms of property types. If multifamily is great, maybe student housing is really interesting.

CARLSON: I'm glad CMBS is back. Real estate is a liquidity-starved business, and we need CMBS to provide capital. We don't normally compete with CMBS in our mortgage business. I consider the type of lending we do more value-add or structured lending compared to CMBS. We also play in a different place in the property quality spectrum. As a result, our business model is less affected by the reviving CMBS market.

WALLACE: Our view on CMBS may be slightly different from some. We think it is back, and I'd take the under-$100 billion bet in terms of volume this year. We see some resistance starting to show up. Whether that will continue, we're somewhat skeptical, but I don't think that changes the equation at all. It's a meaningful part of the capital stack again.

One thing we're doing a little differently is, through our UK subsidiary, direct lending in London and the UK, and it may migrate to the Continent. We're actually going to have boots on the ground there shortly, as opposed to running it out of our domestic platform. That's one area where we're trying to access a different market. There seems to be a reasonable demand for long-term, fixed-rate mortgage financing in those areas.

PUMPER: Over the next 12 months, are you going to be increasing your real estate investments, holding steady or taking more of a defensive posture?

WALLACE: Our goal is to be a net buyer. We have plenty of capital that needs to be placed. We have separate accounts, commingled funds, and they all have different yield requirements and risk tolerances. So we can compete and bid on a lot of different classes of real estate. At the same time, we have investors and funds that need to sell a certain amount of real estate. It will be a good balance.

In terms of preferences, it's more risk tolerance than asset type—either core or value-add or opportunistic. We also have some development capital, but we're not emphasizing that right now because we have more capital that's time sensitive. Development deals, although they're fun, are a real time drag. It really has to be an extra special development opportunity.

CARLSON: We would hope to be a net buyer, but if you were to add up my numbers right now, I'm probably net even for the year in terms of buying and selling. It's a great time to be a seller; that's the fun part of the game right now. We've been holding some assets through the downturn and now were seeing some pretty attractive pricing. In terms of property-type preferences, again, the new development is going to be mostly multifamily and a handful of industrial deals, likely in Southern California. Any existing property acquisitions would likely be office, mostly value-add in our target markets.

STOLPESTAD: We're a net investor on both the equity and debt side—up to a point. One of the big question marks is where pricing will be and how much appetite we'll have at that price. Every quarter, there's a bit more hand-wringing about where we are in the pricing cycle.

In 12 months, I think cap rates will be lower overall. While yes interest rates are higher, there is a significant “weight” of capital especially in the core space. The spread that equity real estate commands over fixed-income that we all trumpet as being favorable at historic, attractive levels will be a little bit closer to normal levels. We'll have to really be right about our underwriting and rent growth assumptions. That's the key question, and there's a pretty wide differential in how markets and properties are really behaving. To be successful, we need to think carefully and be more accurate about our growth assumptions.

SMITH: We hope to be a net buyer this year at a ratio of, say, three to two. I feel much more certain about the two than the three right now. We came into this year thinking the great opportunity was to buy office, with the market recovery taking hold, and still able to buy below replacement cost in most markets. Yet we found that in a lot of markets—the better ones—people seem to be pricing through that risk in many cases. You're not really getting paid to take that risk. Washington D.C. is a great example of how the pricing on assets seems to be completely divorced from the weak fundamentals of demand and leases that are being priced right now.

HALLIWELL: To the net investment question, I would echo Bruce almost verbatim about that ratio. The confidence level for meeting acquisition goals is much less than the disposition side. What's happening in a lot of urban areas goes against conventional wisdom. If I ask the panelists whether they'd rather have vacant space in Downtown Denver, Raleigh, Charlotte or Austin, versus vacant space on Sixth Avenue in New York and K Street in DC, I'd bet they'd choose the former. A lot of it has to do with those markets' job picture or lack of exposure to government tenants. The jobs some secondary or non-gateway markets have are in the tech, information, energy, education and health care sectors. Couple growth industries and lack of new building in these markets, and you have a healthy supply-demand equation.

If you really break it down and look at where the jobs come from, it's almost sector specific more than location. What industries are in your community? What industries have pricing power? New York is a great example. If you have vacancy in Midtown South that caters to the media, technology or information companies, you're happy. If you have a 50,000-square-foot space on Sixth Avenue between 45th and 52nd streets, you're not so happy. The dynamics are so much more specific to industries and buildings catering to specific tenants than overall generalizations.

TAYLOR: We hope to be a net investor. We're looking at core real estate in the top-tier real estate markets, as well as opportunities in select secondary markets.

DESIATO: If we were going to place bets on all of you saying you wanted to be net buyers, I don't think anybody would have won that bet. Given that, are you expanding in terms of new hires?

WALLACE: We made a commitment to our clients when the market turned that we weren't going to reduce staff. We felt that we needed more resources rather than fewer working on our portfolio. Once things started to work again, we were ready to jump back in. We've had an increase in staff in our regional offices in the past 12 months.

CARLSON: We would be, too. If you're a net buyer, you are adding assets. You need help on any front.

STOLPESTAD: We are hiring.

TAYLOR: We're increasing staff commensurate with our business, so as our business grows we are increasing staff to accommodate it.

SMITH: So are we. The degree of difficulty of buying things leads to the need for more people to try to find good opportunities. We're not hiring a huge number, but it's definitely a net positive.

HALLIWELL: We are net positive as well. The need from clients for more information, interaction, and reporting on their portfolios has done nothing but go up. And it should. The marketing needs, client interface needs, and the analysis and research needs have increased for all of our firms lately. Therefore, there has been hiring for these activities.