Mastering The Market Cycle: Getting the Odds on Your Side

by Howard Marks

during the soft period and now coming on stream, this additional demand for space causes the supply/demand picture to tighten and thus rents and sale prices to rise. This improves the economics of real estate ownership, reawakening developers’ eagerness to build. The better times and improved economics also make providers of capital more optimistic. Their improved state of mind causes financing to become more readily available. Cheaper, easier financing raises the pro forma returns on potential projects, adding to their attractiveness and increasing developers’ desire to pursue them. Higher projected returns, more-optimistic developers and more-generous providers of capital combine for a ramp-up in building starts. The first completed projects encounter strong pent-up demand. They lease up or sell out quickly, giving their developers good returns. Those good returns—plus each day’s increasingly positive headlines—cause still more buildings to be