A frequent topic of discussion at NAREIT's Annual Convention was where we are in the real estate cycle. In light of the convention being held in the home of baseball's World Champion Chicago White Sox, moderator Vivek Seth, managing director at Raymond James & Associates, asked a panel of leading REIT executives what inning their particular sector was in and to share their outlook for 2006.

Debra Cafaro,
chairman, president and CEO, Ventas, Inc.:
Health care is a very large and diverse sector of real estate, ranging from private-pay, independent- living, assisted-living, skilled-nursing, hospitals and medical office buildings. You'll find each of them in different innings.

The independent-living, assisted-living and medical office buildings are at very positive inflection points. For different reasons, they have great growth dynamics. I would say independent and assisted-living facilities are in the second inning because there's no new supply and increasing demand from seniors. The operators have pricing power and occupancy gains at the same time. Medical office buildings are thriving from baby boomers who need and want more medical services at lower cost outside of hospital settings. So those three sectors really are enjoying almost hockey-stick like forward trajectories.

Regarding skilled-nursing and hospitals, it's very hard to stick with your analogy. Those sectors are more like marathons than baseball games. And we see those sectors right now as very stable and positive, but more in equilibrium from a go- forward cash flow standpoint.

Timothy Callahan,
president and CEO, Trizec Properties, Inc.:
As for the office sector, I'm going to say we are in the fourth inning since it is still early in the game, but we've been making progress over the last couple of years. This has been a long inning, and as a sector we're fouling off a lot of pitches looking for the right one to hit.

We haven't had a spike in the cycle; it's just been slow and steady. As a result, you see increasing occupancies, but the costs of that occupancy are still challenging. So as it starts to turn, I think you always have the ability to not only move rents up but also move tenant improvements or the cost of leasing down. There will be tremendous leverage within the office sector when that starts to happen, which we expect to see more broadly in the second half of 2006.

John Bucksbaum,
CEO, General Growth Properties, Inc.:
It is difficult for me to pick an inning because in the retail business the game never ends, and that's the beauty of the business. While we don't have the luxury of being able to start a new game day in and day out, we have to do the best we can on a daily basis. Things have been very good in the retail industry for quite some time, and the consumer has been the driver behind our business. There's no question that this has been a good period for the retail companies.

Looking beyond the holiday season, a lot will depend upon what happens with the severity of the winter, especially when forecasts call for an average of $1,700 per household to be spent on additional energy costs.

The rising price of gasoline, while abating, coupled with increased home heating oil and natural gas prices, and with increasing interest rates causing more money to be applied toward mortgages, is taking money out of the consumer's pocket.

As a result we expect a little slow down in retail sales into 2006, but by no means does that bring an end to the game. Retailers continue to look for new space and this has been one of the best leasing environments in our business.

Michael Brennan,
president and CEO, First Industrial Realty Trust, Inc.:
For the industrial sector, we are in the seventh inning of the first game of a doubleheader. The industrial sector has recovered very nicely, and we can look forward to improving fundamentals. The capital flows have been good to all of us in the sector, and I think, while we've faced competition for acquisitions, it certainly has been beneficial in terms of dispositions.

However, the struggle will come a bit later as we look for innovative ways to grow our industrial businesses. So the doubleheader analogy is meant to show that we've had a good run, but we've got an interesting fight ahead of us in terms of how we grow. The great challenge in our business is to penetrate the corporate real estate market, which is the big owner of industrial real estate.

David Neithercut,
president, Equity Residential:
The multifamily space is in the early innings of a recovery. The last few years have been very challenging in the multifamily business as rents have rolled down and occupancies have dropped.

But we've begun to see things changing for the better as we have absorbed new supply and seen job growth and improving economic activity in our markets. We've also seen skyrocketing home prices in many of our core markets, and we've seen limited new supply because the new supply that has been delivered has been for-sale condos. Plus, we've seen apartments taken off the market and converted to condominiums. So we look for the multifamily space to have a very strong finish in 2005 and a terrific year in 2006.

Dennis Oklak,
chairman, president and CEO, Duke Realty Corporation:
Well, I'm going to talk about two product types, and I would equate this to a twi-night doubleheader. First, the light is shining fairly brightly on the industrial sector. Our bulk distribution business has really been coming back for the last 18 months to two years; our in-service occupancy reached the mid-90s and has stayed that way. The thing we really haven't seen yet on the bulk industrial side is an increase in rents. But we are now sensing that there are going to be some good opportunities for rent growth beginning in 2006.

Tim said before that the office sector was in the fourth inning, but I was going to say, that on the office side, we're still waiting for the game to start. We've made some good progress in the last 12 months in our office portfolio. For the trailing 12 months ended Sept. 30, we had four of our markets, all in the Southeast, where the occupancy increased by 8 percent or more. That's a pretty significant increase in a short time period. So our sense is that the office sector is starting to come back. But I agree with Tim that, when it comes back, a lot of times it can come back in a hurry. That's what we're cautiously optimistic about for 2006.