GlobeSt.com: Your study shows that cap rates won't figure as heavily tomorrow as they did yesterday. What's going to be the upshot of that?

Halter: We're back to the nuts and bolts of real estate investing and managers showing their value proposition by generating earnings power in the asset. Owners will have to show their ability to lease up properties at rent levels superior to their competitors and manage expenses more aggressively. We're getting back to Cash Flow and Fundamentals 101. In the past few years we've had this wonderful era of cap-rate compression, and it's covered up marginal performance and marginal managers. This is a great opportunity for us to differentiate ourselves and to show who the marginal players are. This market is oversaturated with players, and you should expect a weeding-out process.

GlobeSt.com: Won't it also weed out some of the private investors looking for high returns fast?

Halter: Marginally. There are strong underlying secular forces at play that will continue to attract capital into the asset class. GlobeSt.com: Forces such as . . .

Halter: Such as baby boomers getting closer to retirement age. They're shifting their focus more toward income-yielding investments as their preferred choice and weighting their allocations accordingly, recognizing that, comparatively, real estate provides some interesting income yields. People also want more diversification, and they perceive that real estate has less volatility than other asset classes. Finally, global investors still want to invest in the US market, so capital will continue to flow in.

GlobeSt.com: Of course, the global investors are less affected by the cap-rate shift, no?

Halter: That's right. In fact since the dollar is becoming much weaker relative to their local currency it only makes real estate more attractive.

GlobeSt.com: Why now? Why are cap rates running out of steam?

Halter: With 10-year Treasuries hovering around 4.65% and with transaction cap rates in the 5.5-to-6.5% range, you're seeing premiums over and above the risk-free rate. They're in the 100-to-200-basis-point range and, historically, that's low. You have to be careful not to drive the car by looking through the rearview mirror, but people are getting concerned because the Fed will continue to raise rates at least twice more. Since cap rates can't compress any further, it will slow people's willingness to live with premiums below where the levels are today. So that's the relative value discussion people are having.

GlobeSt.com: And, of course, interest rates will continue to rise.

Halter: We believe the Fed will continue to raise rates in December and January.

GlobeSt.com: This won't cause a major shakeout as much as a slight tweaking in how investors approach potential assets, correct?

Halter: There's no way 2006 will result in any sort of significant correction. This is just a healthy part of the maturation process. It will cool things off, take the gas pedal off the floor.

GlobeSt.com: Won't it also cool prices?

Halter: It's definitely a possibility, and if interest rates go up further you'll see a little repricing in cap rates. Our view is that you'll see maybe a 50-basis-point increase in the Fed funds rate. You might see the 10-year Treasury get up to five, maybe five-and-a-quarter. And then they'll be a stop. We see inflation as a short-term issue. Macro, we don't see a lot of pricing power in most industries, so I don't see long-term inflation in the system, and that will bode well for interest rates staying at the levels we expect.

GlobeSt.com: You've just come back from Australia. What's the climate like there?

Halter: As you know, Australia has a very sophisticated real estate market; a very developed securitization marketplace for equity investing; and in essence, they have a comparable REIT strategy to ours. A lot of listed property trusts are looking to augment their strategies by investing in US properties. In fact 30% of the Australian listed property trust asset holdings are now in the US.

GlobeSt.com: Do you expect that to grow in 2006?

Halter: I don't have a feel for that, but they are very interested in the US. There are questions about whether or not US markets have reached a peak in terms of price levels, but there is still active interest in investing here.

GlobeSt.com: Turning to other news, why the CMBS joint venture with US Bank? Why now?

Halter: It's a very exciting strategic alliance with US Bank, an organization that wanted to get into the securitization marketplace. We've teamed up to grow the level of securitization activity we've been involved with, and jointly we'll be originating and securitizing loans for the CMBS marketplace. We believe organizations like ours can get a bigger market share.

GlobeSt.com: How much do you see that market share growing?

Halter: We'll probably originate $2 billion in securitization activity in 2005. Obviously, we'd like to grow that in 2006. It could be $2.5 billion as we merge our skills in that arena.