WHAT LESSONS HAVE YOU LEARNED?

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Cycles Rule! Despite the widespread belief, born of therecent high-times, that commercial real estate was no longercyclical--or only mildly so--respondents to last week's Quick Pollapparently weren't fooled. Some 75% of the 304 voters believe thatthe current slump will Teach Us That Cycles Always Rule. Another23%, possibly taught caution by the lousy market, cautiously statethat It's Too Early To Tell. Only 2% think that we'll come out ofthis recession-or-not Bulletproof. Richard Davidson, president andCOO of Parsippany, NJ-based Coldwell Banker Commercial/OncorInternational, has lived through a downturn or two, and he has hisown thoughts on the subject. Here they are:

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"If you look at cycles back to the early 1970s, we run on a10-year cycle: five years of growth and expansion followed by twoto five years of some sort of transition. What's different fromwhat I have seen in other cycles is that you have the value sideand the fundamental side, and they're not running together."Thevalue cycle actually accelerated beyond the fundamentals cycle. Asa result--and clearly it's a matter of availability andaffordability of debt capital that has reduced the number ofbuyers--there's less competition for quality assets, which meanslower pricing pretty much across the board.

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"But, in terms of fundamentals, it's been a very interestingmarket. There was a lot of transparency in our industry as a resultof securitized debt and the equity markets and the continued growthof institutional capital. If a project didn't make good financialor fundamental sense, it didn't get funded. It's not like the go-godays of the late 1980s.

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"The key is that there was access to very affordable debtcapital plus a tremendous amount of equity. The equity sidecontinues, of course, and, even though values began their declinein the latter part of 2007, cash and low-leverage buyers saw realopportunity.

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"My bet is that most respondents will say cycles will rule, andthat it's still a cyclical business. That's how I cast my vote.But, because of the discipline that's being shown in themarketplace from a supply standpoint, we'll see a softening ofcycles.

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"We're not in the business of predicting the economy, so Iwouldn't use the R word. But I think it will be relatively short-lived. Unless, of course, there's something looming within theeconomic picture that I don't understand that could have an impacton the commercial real estate sector."

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John Salustri

John Salustri has covered the commercial real estate industry for nearly 25 years. He was the founding editor of GlobeSt.com, and is a four-time recipient of the Excellence in Journalism award from the National Association of Real Estate Editors.