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We are changing from the viewpoint of capital flowing into the sector and having a huge spread, explained Circ. In the REIT markets, you had lots of capital flowing, with a lot of it initially devoted to paying down debt and refinancing, but not a lot of for development, he said.

“If you look at the fundamentals, vacancies have come down tremendously,” Circ said. “Who would have thought that slow economic growth would help?” Penner disagreed, noting that “We have seen periods of incredible new construction having very little to do with growth.”

Moderater Rick Chichester, president and CEO of Faris Lee Investments, then turned to Andrew McCulloch, managing director of Green Street Advisors, whose take was that “Slow growth has translated to low inflation.” He explained that “Demand isn't strong, but it is strong enough in an environment with no supply.”

Demographics dramatically impact real estate, McCulloch added. As far as overall economic growth is concerned, “the 'new normal' is still there. We are seeing a low-growth environment, not a booming one.”

In terms of which sectors are slowing and which are accelerating, Circ predicted that economic growth will be strong this year, and therefore he doesn't see any asset classes slowing. “The apartment sector has already bottomed on the vacancy side and there is another four to six quarters for industrial, where demand will outpace supply,” he said.

On the office side, Circ's forecast is out five years. Retail, he said, is “tough, because we are seeing footprints shrinking. We are seeing the slowest recovery of the supply/demand fundamentals in retail.”

Asked about the broader economy over the next two to five years with hundreds of billions of dollars in loan maturities, Penner explained that on the CMBS side, we have already seen the inclination of the powers that be in the market to extend and pretend. “We are in a world where the economy is based on production and consumption.”

According to Penner, for the ratio of production and consumption to be healthy, it has to be somewhat in equilibrium. “The issue is the monetary inequality.” It isn't about the fairness of it, he saids, it is about the balance of production and consumption. “If there is a huge disparity, which there is today, and it continues to grow, then the balance between production and consumption is out of whack.”

The masses have to be able to afford consumption while not financing it with debt, he explained. “Cheap debt masks over this problem. Unless we fix that, I think we will have rough patches.”

When panelists talked about if we are susceptible to another recession where things currently stand, Circ reminded the audience that we have been out of a recession for five years, so technically we are due for another. Having said that, he explained that one of the reasons why recessions get created is because there is overheating in the economy and the Federal Reserve tightens and tends to overshoot. Today, that is off the table, somewhat, he explained.

“It will still be a favorable environment for capital. Slower economic growth actually delays the prospects of another recession,” he said. “If you think at it in terms of real estate, you have to think about it that there will be another recession and you have to think about which markets will hold up going forward. Income disparity is an important point, but it is unpredictable in that arena. But the demographic stuff is sort of set.”

Penner warned that our society makes the exact mistakes over and over. “If you look at how our government and society get out of every cycle, it is by increasing consumer spending and it involves pushing cheap money and leverage.” This is something we're seeing again, Penner said. There's broad availability of debt capital. “It is cheaper and cheaper and the terms are looser and looser.”

He added that “The crack in the financial system that has occurred has been remedied to an extent, but we will have new cracks. It will be interesting to see what those new cracks will be.”

The RealShare Conference is produced by ALM's Real Estate Media Group. Stay tuned for more coverage from the day-long event.