1. What has been the biggest change you have witnessed in the industry over the last 10 years? What developments do you expect to see in the next decade?
It may be obvious, but I think it's the unavoidable answer: we have proven our staying power in the public markets, which will be viewed not just as a monumental change for real estate, but for the U.S. capital markets as well. More than one finance professor told me in 1999 that the decline in REIT prices was the beginning of their end.They strongly believed REITs were a necessary, but temporary, phenomenon to solve illiquidity in the real estate markets during the capital crunch of the early 1990s. REITs survived the technology bubble, and they survive today amid speculation that the current LBO/privatizations in the industry will hollow it out. It is increasingly becoming conventional wisdom that the names are here to stay.

Clearly, REITs have already received the bulk of the valuation benefit they were due for improving transparency and, more importantly, liquidity. But I think we're probably still looking at REITs today in their toddler stage, with their share of U.S. real estate assets still in the 5 percent to 10 percent range. From this perspective, in answer to your question about the next 10 years, I actually expect big things from REITs.

It's one thing for me to have a somewhat bearish view on prices over the next year, but I strongly believe these are basically healthy, thriving companies and that the public markets (with the liquidity, transparency and alignment of interest that they offer) are the right way for real estate to be held. So from this perspective, I think their share of ownership is set to increase enormously. We could debate how that happens for hours—right now it appears that JV structures represent the most likely vehicle—but I feel very strongly that the growth is ultimately inevitable.

I believe this growth will ultimately benefit more than the CEOs and investment banks that may see their compensation rise as a result. More importantly, it may help alter the historical cycle in which our previously inefficient and conflict-laden real estate capital allocation process hurt the whole economy. If REITs can calm and rationalize this system, I think they will more than justify their existence to all of us.

2. What is the biggest misconception investors have toward investing in REITs?
Having watched countless investors, friends and even relatives reallocate portfolios in the years following the tech bubble, it has become increasingly clear that one of the biggest misconceptions they have, not just about REITs but fixed income in general, is that this portion of their portfolio will by definition be the lowest risk component.

Over a long time period, fixed income securities have indeed exhibited less volatility than equities. But with the risk aversion that followed the technology crash, and the unprecedented bull market in all types of fixed income securities, I worry that a bubble in tech stocks may have been replaced by at least a "mini-bubble" in "lower risk" securities. This is being driven every day by financial advisors and others preaching conventional wisdom to baby boomers that they can secure their retirement savings by buying bonds and other income-oriented investments.

The undeniable truth that investors must understand when they buy REIT stocks is that, while these companies may own real estate, they are first and foremost publicly traded equities. As a result, no one should be surprised if REIT volatility is significantly higher or total returns are significantly lower than the rest of the market for an extended time period.

3. Over the next 12 months, which real estate sector or sectors will perform the best, and why? Which sector will face the biggest challenge?
We have been clear in our expectations that mall and industrial REITs have the most attractive pairing of reasonable relative value and positive fundamentals. That said, 2006 will probably also be a year when the differentiation in sector performance is perhaps not as significant as it has been in years past, mainly because there are signs of at least selective accelerating fundamentals among previously weaker sectors such as office and multifamily.

As for ongoing challenges, suburban office companies face little improvement in fundamentals and often high dividend payout ratios. We have also been saying (we now know prematurely) for some time that we expect companies with lower-quality grocery anchored shopping centers to face significant re-leasing, vacancy and overall asset obsolescence risk as the traditional grocery store industry goes through another round of consolidation.

4. If you were starting your own REIT, which executives would you recruit to help you build your company?
It's too easy to answer this question by picking the obvious dream team of executives who have become household names. I will focus on some executives who may still have a slightly lower profile but could clearly become the household names of tomorrow: Dan Hurwitz at Developers Diversified Realty Corporation (NYSE: DDR), Doug Linde at Boston Properties, Inc (NYSE: BXP), Tim Naughton at AvalonBay Communities, Inc. (NYSE: AVB), Bill Hosler, formerly of Catellus Development Corporation, Jeff Olson at Kimco Realty Corporation (NYSE: KIM), Lisa Palmer from Regency Centers Corporation (NYSE: REG), and Charles Mueller at Archstone-Smith (NYSE: ASN).

I would try to dig deeper into organizations to find undiscovered talent. The good news is that the REITs of today have become large and professional enough that there is an enormous amount of talent from which to choose.