GlobeSt.com: Is your investment pace slowing?

Godbold: We're running slightly ahead of '04, but it isn't going to be like it was two years ago. There are more players in the market than there were two years ago, and the amount of capital flowing into our space has been nothing sort of phenomenal.

GlobeSt.com: We're hearing that along with those new players there's a new attitude, namely, more of an emphasis on longer holds. Are you finding that among your clientele?

Godbold: It's still a cyclical business, but I agree that we've had a fundamental shift in our industry. We're becoming a more efficient market across the board, very much so. Fifteen years ago we didn't have Wall Street or the capital markets or the CMBS market. Today we also have a capital structure that we didn't have 15 years ago. Back then, the majority of capital was senior debt from the banks.

GlobeSt.com: So it's still cyclical, but less so?

Godbold: You can find experts to argue each side of that point, but the band has certainly narrowed. We'll still be cyclical. All of those dynamics we mentioned haven't removed the cyclicality of the space.

Look what's happened in terms of diversification. There has always been a huge hesitation about taking on more than a little real estate because of its pure volatility, but people have started to diversify much more into the space for three reasons. First is pure diversity. Another is the longer-term return perspective. The third is the stability of that return. If you look at what's happened, particularly in the office arena with some of the prices we've seen assets trade for, real estate may begin to look like more of a bond play. And aspects of that are absolutely correct. However, let's understand the quality of our cash flows so we can truly analyze what the yields should be.

But you're right. There is a longer-term horizon out there, and people are willing to view that as acceptable within a portfolio mix. It's not as entrepreneurial today as it was 15 years ago. There's more transparency and structure and discipline, and that's what's attracting capital.

GlobeSt.com: Does the aggressive nature of underwriting bother you?

Godbold: That's the question we are all trying to sort through. But any time there's excessive capital, it causes crazy things to happen. We've clearly seen underwriting standards become more liberal, and we've seen spreads narrow to historically low levels. But lenders are all okay because there's still a capital structure in place; there are still A notes and B notes and true equity, although some of that equity does stand the risk of loss exposure given the aggressive valuations of the past year or so.

GlobeSt.com: So what will it take to back off of that aggressiveness?

Godbold: We could sit here and create a theoretical model for what would cause that to happen. But I've never seen a theoretical model work in the real world. In order for this trend to stop, there has to be another darling come along for capital. Capital is fickle and tends to move in a herd mentality. The majority of risk continues to sit on the equity level, as it should.

GlobeSt.com: Then what worries you?

Godbold: A couple of things. The most obvious is some sort of catastrophic event, but we can't control that. The interest rate increases aren't shocking to anyone. But here's what is of concern . . . if you look at appreciation in the major food groups in 2004 alone, we can't continue that pace. There has to be discipline in purchasing and underwriting for the remainder of the year and into next year. You have to look at the quality of the cash flow. Today we treat all cash flows as equal. Bond yields are good, but let's not lose the fundamentals of evaluating not only the tenure of the cash flow but also its quality and sustainability.

GlobeSt.com: The implication being that we're losing sight of this.

Godbold: Right. One of the things driving our industry right now is the chase for current yields. Yes, I can get a current yield of 6 or 6.5, all things being equal. But what is that yield going to be in 2009 or 2010?

GlobeSt.com: Do you expect the inflow of capital to continue?

Godbold: I expect it to continue but to slow. If some of the capital left the market right now, it would not be a bad thing.

GlobeSt.com: What about foreign capital? People are telling us it's being diverted to easier opportunities in Canada.

Godbold: That doesn't surprise me. I said before that capital is cyclical. I never said it wasn't smart.

GlobeSt.com: In all, what do you see more of? Cloud or silver lining?

Godbold: We have a serious responsibility to not do something stupid, something that would lead the nay-sayers to say I told you so. We've had the best run we've ever seen--low rates, cap rates and spreads falling--all coming together to escalate values within the industry. Is this a bubble or fundamental shift? Clearly time will tell. But if we continue to act responsibly it won't be a bust.