The post-recession commercial real estate market reached its pinnacle in 2015, with massive deal volume, robust investment, and accelerated growth. Though the numbers are not quite as profound, the 2016 market looks very similar to that of 2015, with the industry holding strong in the midst of an extended upswing.

By all accounts the industry has entered a mature phase of the business cycle. Maturity signals caution, austerity, precision, and the insight to use lessons learned from the past to inform decisions for the future. Maturity, in this case, also signals measured strength and stability.

Foreign investment continues to play a dramatic role in the US commercial real estate market. Further, real estate investors, both domestic and foreign, are aggressively moving beyond gateway cities and into secondary and tertiary markets. At the same time, the availability of debt capital for real estate has become more limited through traditional methods and, as a result, developers are turning to alternative financing sources.

Offshore investment in US real estate has continued to be a substantial part of our practice. The pipeline of investments does shift periodically as investors from specific countries or regions step back while others step up their investment, but the appeal of the yields and security available from investment in US real estate is compelling when you consider alternatives globally.

Most telling is the expansion of interest of inbound investors across asset classes and destinations. In the past, offshore interest in US real estate was typically concentrated on trophy properties in gateway cities. However, inbound investors are now receptive to a much broader spectrum of real estate investment opportunities across geographies, asset classes, and quality of property. Alongside the continued and long-standing interest in equity investing, there is considerable interest in debt investing as well.

Foreign investment continues into the US, taking both equity and debt positions on all forms of real estate in all markets, but predominantly in gateway cities such as New York, Miami, Los Angeles, and San Francisco, with smaller amounts in Boston and Washington DC. Asset prices have increased dramatically, even as there are news stories about the market cooling. Much of this money is flight-to-safety capital as foreign investors look for a safe place to park their capital while the Russian and Chinese economies cool, the Middle East and European economies continue to fluctuate, and everyone gauges the effects of Brexit.

Foreign investment in the US real estate market has both a positive and negative impact. On the positive side, long-term investors now have the opportunity to cash out, which allows them to reinvest in other asset classes and, of course, it brings offshore dollars back into the US. Foreign investment also promotes local employment. On the negative side, the influx of foreign capital is pricing out the ability of local owners and developers to acquire these assets, although they are often being hired by foreign capital sources to manage and redevelop those properties. Also, at any point in time investors could seek to liquidate their investments, which could cause a weakening in the market while the economy is still strong and lead to a broader sell off, thereby eroding prices.

Many of the transactions that I am working on currently involve capital that originated outside of the US. In my view there is not much difference between foreign investment and domestic investment in a commercial context. The key word is investment. As our economy continues to globalize, I do not think it really matters where the money comes from. In every asset class, New York City continues to constitute an attractive destination for long-term capital investment, and foreign investment has continued to fuel the real estate industry in New York City. Beyond New York City, we are continuing to see more investment in global cities and less investment in secondary and tertiary markets, reflecting the growing global urbanization trend.

We have had very strong inbound interest in real estate investment for several years, so I would not characterize last year as just coming out of the recession. If anything, last year we saw investors taking a pause after two to three years of exceptionally active investing. Investors in the 2016 market are more selective about picking specific market segments, particularly where expertise in those assets can provide a competitive advantage in sourcing investment opportunities or in winning those opportunities by leveraging demonstrated familiarity with market segments to show a higher likelihood of smooth deal completion. We also are seeing more development activity and construction lending, as previously acquired sites complete the permitting and pre-construction phases and are beginning to rise out of the ground.

The market has cooled slightly over the last year, which is evidenced by the velocity of deals coming to market and the length of time it takes to close a deal. However, the market is still stronger than what we would have expected for the height of the recovery, let alone four or five years into the recovery. The current market only seems like it is slowing compared to last year, but it is still a very strong market.

Some of the differences between the 2015 and 2016 markets are that we are seeing more negotiations over terms and a longer period between listing and sale (but not anything that is significant), and investors are more carefully studying how they can change the assets to increase the ultimate return because the prices are too high to provide an immediate return. Investors are looking for ways to increase their returns, which in most instances are years away.

Our practice has not really changed in the last year, except that we have a larger staff so we are not forced to work every night and weekend, but the aggregate time expended by the staff and the fees produced from our real estate practice is running ahead of 2015 through October 31, 2016. Of course, the last quarter is always the determining factor for weighing the year’s success, but we have a great deal of work in the pipeline, so I doubt the numbers will differ.

Looking at the New York City market, I have many general observations for 2016. I think that the 2016 market is more mature and less hysterical than the 2015 market. I am concerned that low interest rates, and not necessarily real estate fundamentals, continue to provide the underpinning for so much of current real estate values. I am also concerned that positive absorption of office space in New York City remains low. I am observing that buyers are not necessarily willing to pay any price to participate in the commercial market in New York City and that tenants are not necessarily willing to accept continually increasing rents.

Yet, I am heartened that the long-term prospects for New York City remain strong. To state it perhaps most bluntly, an investor who has a long-term investment horizon will overpay (from our current perspective) for New York City real estate because in 30 years all of us still really believe that the investor will look like a genius, regardless of what price the investor pays today.

Although the New York City market is perhaps the one market in the US that has consistently attracted capital, resulting in high prices and high transaction velocity, we have seen a similar environment in other major cities in the US, such as San Francisco, Miami, and Chicago. However, there are many other markets in the US, some of which are well within the geographic influence of these global cities, that are still adjusting to the new reality of less demand for office and retail space.

We are seeing a slight decline in interest in hotels generally, although there continues to be strong interest in high-value, large luxury hotel properties and in franchised select service properties nationally. We are also seeing less purchasing activity in urban office towers. However, this decline is offset by increased refinancing and leasing activity for these properties. As far as investment focus, there is considerable interest and activity in industrial and storage, assisted living, student housing, and life science spaces. We have not seen a return of strong demand for retail properties, but I would attribute that more to dramatic shifts in consumer behavior than to residual effects of the financial crisis.

We are seeing continued strong demand for multi-family housing and office buildings, although many of the office buildings that we have acquired for clients are being redeveloped for other uses, including multi-family and hospitality. The market for land to develop has certainly cooled, but that has more to do with the non-existent supply and the high cost of acquiring a property that would otherwise be demolished to pave the way for new developments.

We have not really seen any residual effects of the financial crisis on the market this year. The commercial banks have not been a major player in this market and their place in the market has been taken over by hedge funds and private equity funds, as well as sovereign wealth funds. We would never be able to do what we are doing if the banks and insurance companies that traditionally held positions in the market were the players, because they are so limited in what they can do by their regulators.

I think residential development (both rentals and condominiums) has a long way to go before it sputters. Lots of people from around the world want a place to live in New York City. I think there is very little risk that an apartment will remain vacant in New York City for very long. It is just a question of whether the occupant will pay 90% or 120% of the currently anticipated rent or purchase price. I think office and retail development is less certain, not really because of anything inherently at issue in New York City, but rather because of the fundamental shifts that are occurring in how and where we work and buy things. I believe that the effects of the financial crisis will remain with us for quite some time, particularly in the context of the availability of debt that is destined for securitization.

In secondary and tertiary markets, I believe there is substantial opportunity for investors to capitalize on industrial development as there appears to be the political will to jumpstart manufacturing capacity in the US. If I were 22 years old, I would seriously look at these cities and consider building a business that takes advantage of government incentives, a skilled workforce, and the interest rates that are currently at historic lows.

Retail assets seem to be less favored than others, which translates into very favorable pricing for some well-located assets. For many investors and developers, the development of new retail presences is interesting as part of a larger development with a significant residential component. The retail component can be pre-sold, with the proceeds contributing to the capital stack as equity. Investors also are more receptive to retail that is part of a cohesive development plan, so that there is a proximate customer base or an integrated marketing strategy. Clients looking at retail today want a business plan with clear and focused appeal to particular demographics and market segments. There has to be a compelling reason to shop at a brick-and-mortar store, and retailers are still working on how to refine what is compelling.

We are not seeing any of it in New York City. Although rents have gone down from their peaks last year, the demand for retail space has not abated. The rents demanded for prime locations were so high that it could not continue, but rents for retail spaces are still higher than they were before the recession. However, although rents have dipped, I do not anticipate any significant decline in rents because prime retail locations are at a premium and limited in supply, and I expect that retail rents will start to creep up again.

Of course our retail clients are adapting to the new world, but I believe that the new world is not entirely the result of the impact of the internet. For example, some people may express concern that retail rents in places like Madison Avenue are soft. I think this state of affairs has more to do with the fact that New York City is in so much better shape than it was 20 years ago, rather than the impact of the internet on the retail business. A luxury retailer simply does not have to be on Madison Avenue because there are many other terrific locations in New York City that are just as impressive.

I also do not think that our retail clients are necessarily trying to drive business to brick-and-mortar locations, but are instead challenging themselves to use their brick-and-mortar locations in new and exciting ways. For example, I have recently participated in transactions where the purpose of the retail location is not to attract customers, but instead to serve as a location where internet buyers can interact with the retailer in person to pick up goods, return goods, and make exchanges.

No. I do not see any sign of either of those impacts. Compliance takes more consideration and thus the process is slower in terms of the time required, but financings, including construction financings, remain very active and are getting closed, including with bank lenders. Bank lenders are leading syndicates in many of the largest financings we are handling and are acting for their own account, with less sensitivity to the CMBS market, across the board.

Yes, the Dodd-Frank Act has significantly reduced the involvement of the commercial banks in real estate lending and certainly construction lending. Other than as administrative agents, I have not seen the banks take a major piece of any of the financing that has occurred during this recovery. Basel III has thus far played less of a role in this slowdown.

I think these measures have definitely slowed down loan origination and made the loans that are being originated more expensive, which when taken together, may compound the effects of the “wall of maturities” that occur in the next two years.

I have not yet seen this speculation reflected in any shift in our business. Although our restructuring practice group has begun to see a meaningful increase in business, particularly in the retail sector which can affect the underlying real estate, that has not been the case in the pure real estate sector, and refinancings are, for the most part, occurring on an unremarkable basis. While low interest rates have led a number of lenders to sit on the sidelines, there are plenty of alternative lenders willing to step into the breach and originate at current rates.

The combination of the CMBS maturity cliff and the risk retention rules have created a great deal of concern leading up to December 31, 2016, including about how the maturing CMBS debt will be repaid and what will happen to CMBS afterwards. There is some thought that borrowers might get together and do their own form of CMBS since they do not have a problem retaining risk on their own, but we have not seen anything to indicate that this is going to happen. Our clients have been putting together debt stacks for their deals without a big emphasis on the CMBS market, and have instead been turning to alternative lenders for financing. I am not optimistic about the future of the CMBS market because of the combination of the new regulations and the risk retention rules, which will have a dampening impact on CMBS lending.

I am seeing refinancings occur at a much slower pace and lenders are making greater demands in negotiations, including requiring more guaranties. However, I do not think the current low interest rate environment is having any impact on lenders’ willingness to refinance. Lenders are very happy to get the points and loan fees which are not impacted by interest rates. Just last week one of my clients put together a $400 million debt stack and had three different groups bidding for it, so I believe the debt market is still strong.

I think that irresponsible capital is a bad thing and sooner or later we will need to pay the piper. I do not think we can create a framework that perpetuates poor underwriting. I think CMBS will continue its slow return, hopefully in a more responsible, measured manner than last time.

There are so many factors that can derail a transaction, and there is more volatility from unforeseen sources. As a result, I see increased emphasis on quality of sponsorship, both financial and operational, and on the ability to commit and close quickly. Lessons for counsel are to make the effort to go beyond the legal assignment to get a deeper understanding of the business rationale for your clients’ transactions, including what and where competition comes from. Pick well-defined market or geographic sectors and get to know the players and issues in those sectors well. Investing in knowing more about the facts of the assets, the contractual obligations, and anything else affecting the property than others is key to quickly identifying and seizing opportunities in a highly competitive market.

Do not fall in love with a property either before or after you purchase it. Be prepared to walk away from a deal if, as you review the due diligence, it turns out to have more hair on it than you thought or were told. If you can make an unbelievable profit, then sell when you have the opportunity. There is no certainty that when you want to sell you will be able to sell for as good of a price. Do not assume that you will be able to make 1031 Tax Deferred Exchanges in the future. When Congress takes a long, hard look at the Internal Revenue Code, I believe 1031 Tax Deferred Exchanges will be at risk.

The lessons remain the same. Do not be gullible, but do not do anything that would make your rabbi ashamed of you. I also believe that the real estate business is no different than other businesses in that it is essential to formulate a focused business plan and then implement it. In the past few years, we have seen some real estate investors undertake development projects for which they were really not prepared.

Predictability, security, and stability are golden words in real estate investment, and even more so when applied to cross-border investing. The unusual path of Brexit and the disturbing course of the US election certainly led some investors to stay on the sidelines until the effects of some of these external events became more visible. The unexpected electoral result probably extends the period that these investors will pause, watch, and assess. The result is not going to entice investors who have been sitting out of the market for a while to resume their investment activities in US real estate until there is more clarity on a range of issues which will affect the economic climate for, and the tax treatment of, real estate investments.

There still is a strong pipeline of real estate activity and continuing investor interest. Over time, more definition of policies and legislative goals under a Trump administration should clear the way for broader domestic and foreign interest in real estate investing.

I do not believe that we will be adversely affected by Brexit. I do not think that Great Britain will be adversely affected by it either. There will be some government offices moved to the continent, but all of our international agreements will continue to be resolved by arbitration in Great Britain, and not in Frankfurt, Paris, or Brussels. The British were wise to keep the Pound rather than adopt the Euro, so they are less affected than any other country. I also do not expect that Great Britain and the European Union will separate entirely, but rather have the relationship morph slightly.

I expect that the President and Congress will sit down in early 2017 and negotiate an economic package that will include:

I also expect that more funds will flow into the US from abroad because there is a reduced likelihood that the US will continue to be the world’s police.

If the foregoing is accomplished, then I do not expect the real estate market to change significantly in 2017 from where we are today, and I do not expect a real estate recession for at least another four years.

I believe that there are significant political challenges ahead that will impact the real estate industry. Will we find a way to rekindle manufacturing in the US? Will the demand for retail real estate reduce significantly as consumers use a digital means to acquire goods? Will the demand for office space decline as companies find ways to manage their workforce better? Will interest rates return to a more historically normalized level? I have no idea but when you find out please let me know. In any case, though, real estate will play an important role, but we need to be prepared to change with the times.