LOS ANGELES—Evaluating where we are in the cycle and whether we're ready for another cyclical downturn is crucial to remaining above water when it hits, said speakers at RealShare National Investment & Finance here last week. During the panel session “The Heavyweights: Institutional Investment Strategies,” speakers said one thing we learned from the last downturn is that we need to recognize when the next one is coming and prepare for it.

Moderator Steve Pumper, executive managing partner, capital markets and asset strategies for Transwestern, asked the panelists to state the similarities between 2007 and 2015 and which metrics they look at. Armand Charbonneau, CIO of Diamond Realty Investments Inc., said his firm looks at both multifamily and single-family metrics in addition to job growth. “The homeownership rate dropped from 68% to 62%—will it come back? We don't know. There are a little over a million new renters when the homeownership rate drops a point.”

Jim Hime, CFO of USAA Real Estate Co., said he's seeing pricing that encourages his firm to be sellers. We moved a lot of our cash into investment and development last year. The difference between 2007 and 2015 is that we have seen the effects of regulation on the lending side—there's more restraint. People are focused on the DSCR, as they should be, and there's more mezzanine lending.”

Michael Escalante, CIO of Griffin Capital Corp., said, “Our investment thesis is geared toward investment cash flow.” He said his firm keeps a keen eye toward debt, keeping leverage between 35% and 50%. “You need to pick your spots as we get late into the innings.” He sees a lot of competition, and his firm was one of the early movers to a seven-to-nine-year strategy. “We're trying to understand why a particular tenant needs that particular real estate.”

Damian Manolis, principal of Prudential Real Estate Investors, said his firm is raising money from sovereign wealth plans, inheritances and other sources. “Our job is to invest in the most effective way for the investor's underlying strategy. Where are we in the cycle, and how do we position ourselves for the next downturn? We didn't do enough of that in 2007-2008. On average, debt is a lot lower now than it was in 2007-2008.”

Regarding debt opportunities in 2015, Ted Norman, head of commercial mortgage origination for TIAA-CREF, said in 2007, there was a lot more leverage throughout the system. “Deals were highly structured and leveraged, so when that broke, a lot went down. Today, there's a lot less leverage in the market. We're focusing on debt yield and a lot more interest only.”

Norman added that his firm wants to be in markets that have outperformed. “We are heading into the peak maturity cycle. We just have to be disciplined about the leverage part.”

We regard to portfolio deals, most of the speakers said they were heading toward them, but Manolis cautioned, “Make sure you're really happy with what you're buying. It's like any corporate transaction—you might like some parts but not others. That's what makes me nervous.”

Norman said his firm likes to see weaker properties in a portfolio go out first when selling it off, but buying portfolios is a “great way to aggregate products in industrial.”

Pumper said there is good discipline on the lending side, which bodes well. Charbonneau cautioned about investing too much in student housing at this point. “Universities are not growing. A looming factor is the costs are staggering in student-housing and conventional multifamily development. It's mainly labor that is the driver behind this. We thought lower oil prices would help costs, but it hasn't.”

Escalante said in the past, we always believed “replacement costs would be higher than buying existing property, but now prices have been run up and cap rates are so compressed that the margin has become very thin.”

Pumper asked where the panelists were spending their time and in which product types, and Hime said industrial, office and limited-service hotels in the Northeast, Southeast and Southwest. Escalante said his firm is looking at build-to-suits and just completed a Restoration Hardware build in the Central Valley. “We like brand-new real estate, locations and commitments.” Manolis said his firm remains very active in the multifamily and industrial development space, but “the average deal in industrial is small, so we don't do a lot of them.” Retail, he said, is a tough sector.

While some concerns mentioned included M&A activity in the Houston market and how that would impact oil prices, confusing a real estate play for a technology play and the potential retreat of foreign capital, but all agreed that the outlook for the next six to 12 months is positive for the industry.