However, said the executives gathered at the Park Hyatt hotel in Washington, DC, don't think they're changing the way they approach the market. Rather, they're shifting the way they're implementing their strategies—through seeking off-market deals, entering non-core markets and even development, among other tactics. Read on for what else they had to say.

PARTICIPANTS (FROM LEFT)

JOHN CLARK is managing director with CIGNA Realty Investors, where he runs the national debt and equity investment platform. The Hartford, CT-based firm has $5 billion in assets under management, $3 billion of which is in debt and $2 billion in equity.

DIRK MOSIS is executive managing director of San Antonio-based USAA's real estate investment group. The firm has about $13 billion in assets under management, about $6 billion of which is in equity.

MICHAEL DESIATO is vice president and group publisher of ALM's Real Estate Media Group in New York City.

KEVIN R. SMITH is head of Madison, NJ-based Prudential Real Estate Investors' US business. The real estate investment arm of Prudential Financial has about $55 billion in assets under management, $35 billion of which is in the United States.

STEVE PUMPER is an executive managing director for Transwestern in Houston.

PAUL HANSON is a managing director with Northwestern Mutual in Milwaukee, where he oversees a $7.5-billion real estate equity portfolio. The firm's total investment portfolio is about $186 billion, $28 billion of which is direct mortgage loans.

JIM HALLIWELL is a managing director for Principal Real Estate Investors, part of Des Moines-based Principal Global Investors. The firm has about $51 billion in real estate assets under management.

MICHAEL FISK is a Charlotte, NC-based senior director and regional head of acquisitions for TIAA-CREF. He is responsible for acquisitions in the area from Washington, DC down to Florida and out to Texas, as well as regional malls throughout the US. TIAA manages $45 billion in real estate debt and equity in the US. Through a 60% ownership position in Henderson Real Estate, TIAA has another $20 billion of assets under management in the US and Far East.

STEVE PUMPER: Real estate continues to be a highly sought-after investment vehicle for investors, both domestic and international. Is there enough give on it to meet your needs?

JIM HALLIWELL: If you look at the statistics regarding the demand for the sector and supply of properties, probably not. Investors are not getting their money out as they would like. For instance, today most open-end funds have an inbound queue to get into the fund, and it may take up to 24 months to get into some funds. This suggests overall deal flow is not there and/or risk-adjusted returns are below levels where many feel comfortable executing. In terms of getting money out, we have not really been that competitive in the fully bid venues. Thus, we are manufacturing transactions. In some of the recent initiatives, we are doing programmatic investing with operating partners. For example, on the retail side, we have a “high street” strategy with an operator where we are looking at markets such as Miami, New York and Southern California. On the office side, we are doing value-added initiatives in both Midtown South and Downtown Manhattan. In general, it has been more value-add or lease-to-core situations with several being off-market.

DIRK MOSIS: In 2011 we acquired about $2-plus billion. In 2012, it was just over $1 billion. Last year it was under $1 billion. This year, while statistically the transactions are up maybe 20% from a year ago, it's a challenge for us to find what we want. Our primary acquisition vehicle is Eagle Fund, which is open-ended for all product types, plus government building funds at GSA and then some smaller separate accounts. It's a challenge to find product. We've been net sellers for the past three years.

This year, we're close to buying more than we are selling. The real estate company, the investment arm of the parent, needs to get mid-teen returns to be in business. Otherwise, we look like bonds. And then they don't need us.

MICHAEL FISK: We have a pretty large appetite for real estate. We have several vehicles that we invest on behalf of—the TIAA general account, which is the company's balance sheet; the TIAA Separate Real Estate Account, which is an open-ended fund that is available to members of TIAA's participant institutions, and the Core Property Fund, which is an open ended institutional fund; we also manage separate accounts. Our goal for this year is somewhere in the $5-billion range in the US for acquisitions.

It's a daunting challenge. We're very selective in the markets and asset types that we go after. We're razor-focused and when we find deals that meet our criteria we go after them as long as the pricing doesn't get away from us. We've seen that on a couple of occasions, but I think everybody in the core space with really high-quality assets is pricing assets somewhere around 6% to 6.5% unleveraged IRR. We've been buyers in that range. So we are more or less on target to hit our goals, but it's not easy at all.

PUMPER: Have you changed or widened your strategy to get capital out in this competitive environment?

KEVIN R. SMITH: Yes, and not because we are more courageous than five years ago. It has more to do with the job growth in more markets. It hasn't been limited to tech firms in Silicon Valley, Boston and Austin, TX. The fundamentals are improving in more markets, including cities that we haven't historically been active in, like Raleigh and Charlotte.

Our US transaction volume this year will likely be in the $4-billion to $5-billion range, gross, which is similar to 2013. But the landscape is changing. Today, we're investing in fewer multifamily properties and focusing more on the office and warehouse sector. In terms of the fundamentals, we're seeing strong demand for industrial, and on a relative basis, we believe there is more opportunity in the recovery of office and industrial than in multifamily, although the demographics are still strong.

PAUL HANSON: We have a similar view on industrial and are primarily invested in the bigger distribution markets. However, we have seen opportunities in other markets as well, including Kansas City and Indianapolis where we currently have industrial projects under development. We've also seen improving fundamentals in a number of other markets and have regularly invested outside of the big six markets. We have a lot of very capable people in our regional offices that know these markets well and have developed good relationships with partners in these markets over time that produce good investment opportunities.

This year, we have been primarily funding the development pipeline that we started over the past couple of years on the apartment side. More recently, we've been seeing opportunities on the industrial side as well. By year-end, we will commit to between $400 and $500 million of new equity investments as we remain targeted in what we look at.

PUMPER: How do you feel about multifamily right now?

HANSON: I'm optimistic about multifamily. The demographics are still extremely favorable as we see the unbundling of households occurring in the market over time. Millennials are delaying homeownership given a propensity to rent longer to keep better mobility for their careers and since they will form families later in life. We're very selective in terms of where we are considering development projects given the supply pipeline in a number of markets, but there are still good opportunities in multifamily.

JOHN CLARK: For Cigna, our focus is on development. We find it a challenging market as land prices and construction cost continue to rise. We were early movers in the multifamily development space, which has played out well. Like everyone else, we continue to see a lot of deals but it's harder to make the numbers work. Going forward, we have changed our tactics more than our strategies. We are still going to focus on the coastal markets we know best. We do like the job stories in Dallas and Houston, so we moved there. Today we're trying some different approaches, whether it's getting into development deals earlier or looking at longer hold periods for our assets. We have one source of money, which is the CIGNA surplus account. We have the flexibility to build lease and sell as the markets allow, but we can also hold through a cycle if the markets turn on us. So we're buying strong locations now and accepting lower yields.

In terms of other property types, we're trying to get industrial scale, specifically, build-to-lease scale. The IRRs are terrific but the equities multiples aren't that great. We'll be very selective in terms of office acquisitions. I still expect about 75% of our investment program this year will be ground-up development. We hope to get out somewhere around $100 million to $150 million.

MICHAEL DESIATO: We talked a little bit about challenges. Has anything surprised you at all in the first six months of this year with regard to deals, with regard to property, deal availability, pricing in markets?

MOSIS: What's been most surprising is how quickly equity has moved into office development. Nine months ago nobody was even talking about it. And now you guys are going after it, and some of it is really secondary.

FISK: I'm surprised at how aggressive the capital is. In almost every transaction in the past 18 months, pricing has gone up 10% to 20% above where the broker thought it would be. First, I thought it was an anomaly, and then I finally got smart and figured out the pattern.

SMITH: I'm surprised about how much long-term interest rates have come down and stayed down. At the beginning of the year, 10-year Treasury bonds were about 3%, and rates were headed up. That led us to re-think the assumption that long-term interest rates were going to head up, and cap rates would follow. As such, we have taken a cue from Prudential's fixed-income team, who tend to be much more conservative, and don't think long-term rates are headed up drastically any time soon. That has led us to think differently about the positive impact to valuations over the next few years.

CLARK: When we sat here in December, we thought the economy would perform much better year to date. It feels like Groundhog Day all over again. In most markets the fundamentals are improving, but it is just slow and steady. Therefore, you have got to pick your spots.

SMITH: There aren't any indications that capital is going to pull back. Investors are finding themselves challenged to find better risk-adjusted returns on their real estate investments. And as long as the economy continues with this slow and steady pace, the outlook for real estate investing remains compelling because this environment keeps the industry from ramping up the supply.

HANSON: I agree. Earlier, we discussed real estate returns of 6% or 6.5% and, in some markets, even lower. But as we look at the landscape and compare those returns to corporate debt yields, Treasury rates, the stock market and relative to high yield debt that's yielding around 5%, real estate returns continue to look good on a risk-adjusted basis.

HALLIWELL: If you compare the cap rate in some of these gateway markets to the stock market, the stock market doesn't look that bad. The earnings per square foot compared to the price per square in a market like New York is getting really scary—you may be netting $40, but you're paying $800. So, if you do a P/E on many of these real estate transactions, it may not look that good compared to the stock market.

PUMPER: We talked about Charlotte and Raleigh, but what are some of the other secondary markets you're looking at, and what industries do you like?

HALLIWELL: Raleigh has been a good market, as has Denver, Boston and Austin. Our belief is that the retail product type can work in many of these secondary markets if you pick the correct location and have the appropriate tenant mix. We're active in Chicago, but less so in other secondary markets in the Midwest. Louisville is an industrial market where we have exposure and we own industrial in other secondary markets such as Nashville.

In terms of industries, we like education, tech, commodities, energy, and healthcare. Where these industries are prevalent is where we're doing most of the investments. Primary markets such has Houston, San Francisco, and Boston, and smaller markets such as Austin and Raleigh.

MOSIS: We like energy, technology, medical and, actually, financial services. Just look at what State Farm is doing with its expansion and what USAA, the parent, is doing for them on our books. In the Midwest, within the past 12 months, we bought a warehouse with our Middle East partners for a major grocery store. We're going to acquire a core-plus office asset of around 80,000 square feet in two buildings in Minneapolis. We'll probably expand a bit in that market.

Another secondary city is Seattle, where we have 12 to 14 build-to-suit industrial investments. We're also doing multifamily up there and a spec office building. In Phoenix, interestingly enough, office space for development is coming on pretty strong, which is interesting.

We have a tough time in the Southeast. We have a couple of value-added investments in Atlanta, and we're going to turn out one office and one multifamily with Wood as our sponsor. We've looked at quite a few things in Charlotte and Raleigh but we just haven't been able to pull the trigger. I wish we could get into Miami because we spent a lot of time there, but we have not been successful.

FISK: We're still very active in the DC region and have done very well here. I think it's probably going to be a few years of treading water in the office market. There is a lot of downsizing going on with law firms and the GSA. It's difficult to see what the driver will be for the next era of growth, but it is a very attractive region—a great, highly educated workforce and low unemployment; it's extremely vibrant. We've made a big bet the past few years on multifamily here and continue to do so, but we're very selective, and picking our spots very carefully.

As far as other parts of the Southeast for office and industrial and multifamily, we have a disciplined target market strategy focused on selecting markets that are going to outperform going forward and that have liquidity. If you're buying a good asset in a market that's going to outperform, it's better than buying a great asset in a market that's not going to outperform. We like South Florida quite a bit, particularly for industrial. We would like to buy more multifamily in South Florida, though it's very difficult. Houston has performed really well; the activity there is really incredible.

This is interesting about Texas: you would think Dallas and Houston behaved the same way, but they don't. Atlanta and Dallas are both generally chronic under-performers. Houston has outperformed and I don't know exactly why. In Houston, there's no zoning so anybody can build anything anywhere any time and it is outperforming. Maybe it is only because everybody got so much scar tissue from what happened in the late '80s and early '90s. But it creates a caution and a discipline there that Atlanta and Dallas do not have, because you have big developers based in those cities and governments that are extraordinarily pre-growth. We believe supply constraints are important.

DESIATO: How about property sectors? Is it easier to invest in one over another in most markets?

FISK: We have a lot more flexibility as to where we can invest in terms of retail. Retail is really trade area specific and driven by the demographics in that particular area. Our preference would probably be regional malls and urban retail. I think regional malls are number-one performing asset class over a long period of time. The best malls seem to continue to get better, but they have to continually be reinvested in.

SMITH: We find retail challenging. The most secure investments are grocery-anchored centers, but they have become expensive, which has led us to be more selective. There's a broad middle area, which is vulnerable to the impact of online retailing. Finding the best investments comes down to location, online sales, track record and a proven ability to replace inventory. With respect to community centers or power centers, there are a lot of good assets that have been able evolve with the changes in the retail landscape.

PUMPER: Let's go back to pricing. What's your view for pricing over the next 12 months?

HALLIWELL: Pricing will continue to move up a little bit. It's going to be a challenge for gateway core pricing to continue moving up much more as those income returns are very low. Hotel, industrial, and portions of the retail sector may still have some movement. I also think the suburbs have some movement given the relatively large spread between the income returns of suburban vs. CBD assets. Overall, it is likely we see a double-digit NCRIEF return this calendar year with the appreciation component half of that.

Our strategy has not changed much. For the most part we are still focused on urban gateway markets with good job growth. The manner in which we pursue assets may change where we may have a greater percentage in value add activities such as recapitalizations or development. So the strategy is the same but the tactics of pursuing the strategy may adjust.

MOSIS: In terms of strategy, the one thing we haven't done before that we are going to do now is going into class B and C apartments and upgrading them a bit to get a rent bump. We generally have not built garden-style apartments, but I think in certain markets, we will probably get a little bit better return.

The thing about pricing is it either comes as a shock or a surprise. For almost everything we buy, we have some form of co-investment partners. It is rare that we are buying something ourselves. Recently, Korean investors have started coming to the Government Building Fund. There's an influx of fairly significant capital here, and I think we've seen it. You'll see it more from the Chinese; they will still drive up the core product because that's a safe thing for them.

FISK: In terms of pricing, we're clearly not in the first or second innings of the recovery. But we don't think we are at the ninth inning, either. It's somewhere in between. A lot of the cap rate compression is probably over, although you may still see it in the secondary markets. Returns are going to become more dependent on income growth over the next few years in the cycle. While we have seen good income growth in the multi and retail sectors, we think we will start to see some solid income growth in industrial and within some office markets. A final consideration is the large amount of foreign capital out there. And a lot of it is on the sidelines because they want co-investment partners.

PUMPER: What factors outside of the industry are the greatest causes for concern over the next 12 months?

CLARK: With what we're seeing in terms of capital flows, I wouldn't be surprised to see more cap rate compression in the short term. The flight to quality is going to drive money to the US and make it even more competitive. It does appear everybody is playing in everybody else's sandbox to find opportunities. We're seeing a few of our development partners becoming long-term holders of quality assets. One thing that concerns us is that cheap debt is driving some asset values above replacement costs so it is starting to feel a little like it is 2007-2008. Also, the national labor market remains challenged in terms of wage growth and participation levels. Without strong job growth, it will be difficult to grow property level income ahead of rising interest rates.

SMITH: China's balancing act is worrisome because its scale can have a real impact on the US economy. I don't worry about the capital flows. I think that's going to continue. But if China's GDP growth slows and its job growth follows, then markets around the world will feel it and I think it will be hard for the United States to maintain an island of economic health.

Notwithstanding my concerns about China, I feel pretty good about where our economy is and the ability to generate healthy demand. It has become more advantageous to be a landlord again. We're looking at a lot of markets, and the landlords have a lot more pricing power.

FISK: The biggest concern whether or not we are in a secular period of slow growth in the US. We have seen this kind of slug-it-out period of 2% growth for the last several years. That has a lot of implications for real estate demand and interest rates as well.

MOSIS: I say it's job growth or the uncertainty with the government. What are they going to do next? Is it healthcare, and how is that impacting? And I am sure everybody in here has got an antidote. It's this sort of a slow chipping away.

HALLIWELL: The impact that interest rates have in our business can be considerable. If you look over the past 12 months at the REIT industry, total returns have shown a high correlation to the bond market and less so to the stock market. So if interest rates go up and assuming the recent correlation continues, REITs likely go down. Thus, the public quadrant may become more attractive to investors, which may cause downward pressure on private quadrants.

The same holds true with CMBS. Today, institutional clients' ability to sector-rotate within real estate from public to private can be quite rapid as they search for the best relative value. We saw this during the last crash, where the public markets declined quite rapidly and severely. When this occurred, the private markets followed given a relative value proposition that was no longer appealing.