As we move later and later in the cycle, investors are becoming more cognizant of the end game. Of course, every investor is different. Long-term holders are less concerned about the next few years, paying closer attention to pricing and fundamentals, while value-add investors are much more focused on timing the cycle—and today, some of them aren't taking the risk, according to the panelists on the Investment Sales Market Overview panel at Allen Matkins annual View From the Top conference earlier this week at the Beverly Hilton in Los Angeles. Moderated by Alain R'bibo, a partner at Allen Matkins; the panel included Steve Briggs, principal and chief investment officer at LBA Realty, Jonathan Lange, VP at Boston Properties; Stephen A. Rosetta, EVP and CIO at Kilroy Realty Corp.; Kevin Shannon, president of West Coast capital markets at Newmark Knight Frank; and Scott Stafford, co-founder and principal of Strada Investment Group.

“I don't know what inning we are in, but we are closer to the end than the beginning,” Stafford said on the panel when asked where we are in the cycle and how it is impacting investment decisions. Stafford said that the firm is not really doing many standard value-add deals anymore, where you turn an asset in three to four years, because they don't know what the market will be like at that time. They are focused on class-B assets in A locations, finding undervalued opportunities—which is rare—and in value-add land plays, where the firm secures the entitlements on undeveloped land.

Shannon echoed Stafford's view that we are closer to the end than the beginning, but maintains a highly optimistic outlook in general. “It feels great and there is a wall of capital out there,” he said. Shannon said that the biggest change he has seen—from the broker perspective—is the reduction in foreign capital activity, but that also signals a return of domestic investment activity. “The domestic guys are back,” he said, adding that the trend is driven by increased transparency of real estate assets. “You are going to get more money going into real estate. Next year, we'll have the longest recovery in history, and I see a lot of green lights,” he said. “I know this game isn't going forever, but I don't think the downturn is going to be that dramatic.”

Lange and Rosetta take a longer market position, looking out decades into the future for potential returns. Lange said that the firm is focused on “creating inherent value through operations,” where is can create sustained value and capitalized outsized returns over decades—meaning 20, 30 or 40 years. Rosetta, echoing his firm's CEO John Kilroy from a speech earlier in the day, said that the firm is focused on 100-year projects that withstand the test of time. As a result, they aren't concerned about dips along the way, and aim to create assets that can withstand a downturn. “We are being careful about what we entitle and when, but we have a long-term view,” he said. “That gives us flexibility to ride out cycles. Even if the market dips, we will be able to ride out the cycle.”

Taking yet a third perspective, Briggs' firm operates a fund, and is focused on the cycle of the fund. “We spend a lot of time looking at the fund level,” he said. “Over the next 12 to 24 months, we have capital to deploy. So, we are active, but we are cognizant of the cycle. I am hedging the risk management and looking at the risk profile.”

For at least the next year, however, all of the panelists took a similarly optimistic view of the market. Stafford anticipates double digit rent office growth in San Francisco and an overall stronger year than 2018; while, Lange predicts continued challenges deploying capital in San Francisco due to a lack of opportunities, but added that there will still be attractive risk adjusted returns to be had. Shannon said that he is looking forward to the longest recovery in history. In L.A. Rosetta predicts continued rent growth, and Briggs remains cautiously optimistic.

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