In retrospect, it's fascinating how sophisticatedinvestors bought into the whole risk/return spectrum rationale forcommercial real estate. Back in the 1980s, investors invested inreal estate funds for income and some appreciation. If you wantedto take the risk for bigger returns, you did development deals.Then consultants got more involved and institutional investorsbegan depending more on research based strategies. The pensionfunds had their asset allocation models. It started to getcomplicated.

Real estate investment managers began adapting to the marketdemand and realized they could sell more funds and potentiallyraise more money with different strategies. They distinguishedbetween core, value add and opportunistic strategies. Core focusedon well-leased income producing properties. Value add investmentswere touted as property enhancement or releasing plays. Opportunitystarted out as development and morphed into global investing, andin the end involved putting down little equity and a lot ofmortgage debt on core properties.The value add portfolio managersstarted depending more on leverage to boost returns too and thencore managers followed suit.

Of course, the capital and credit wave superchargedperformance--even core funds produced opportunistic-like returnsfor a few years. Now the credit crash wipes out many opportunityfunds, while erasing the heady gains and then some of core funds.Before it's all over the core-based NCREIF Index couldlose 35-40% of its value from peak to trough. I guessthat's what some pension consultant might call a riskadjusted return. Well at least the core investors have somethingleft.

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Jonathan D. Miller

A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.