Discipline, research can minimize the effects of real estate cycles.

Signs may indicate that another real estate downturn is over the horizon, but restraint and good market analysis can make that drop much less severe, says Richard F. Muhlebach, CPM, incoming president of the Institute of Real Estate Management (IREM) and president of TRF Management Corporation of Tacoma, WA.

Does this mean that the real estate industry is already on the road to a crash equal to that of the early 1990's? "Certainly not," says Muhlebach.

"While another down cycle may be inevitable, the degree and severity of that cycle depends upon our willingness to exercise judgement and common sense in our activities during both the up and down portions of the cycle," he explains.

Muhlebach points to several factors that should mitigate the next real estate downturn. First is the tremendous increase in the quality and availability of data for project analysis. "Good market knowledge, from real estate managers and brokers in a local area, has always been the cornerstone of successful real estate development, but today's technologies make reliable data more accessible than ever before," says Muhlebach. "Thankfully, the days when real estate deals could be penciled out on an envelope are over."

Muhlebach also believes that increasing securitization and the accompanying role of Wall Street points the way to more in-depth scrutiny of market and performance data.

The other key to a less severe downturn, says Muhlebach, is the continuation of prudent lending practices. "Lenders are the gatekeepers of the development process; they must have the fiscal strength to turn a deaf ear to the siren song of the developer," he says.

Muhlebach notes that many of the conditions that prompted overbuilding in the 1980's, including liberal tax laws and overeager lenders and foreign investors, no longer exist and are unlikely to reoccur.

Yet, despite his optimism, Muhlebach sees some signs that the beginnings of the next downturn may already be forming. "Office construction has more than doubled in the last year, although demand is still stronger than supply," he notes. "The concern is what will happen in another year or so when much of the current demand has been absorbed." Muhlebach also predicts similar overbuilding in retail and multifamily properties.

Nevertheless, Muhlebach is positive about the future prosperity of real estate. "Fundamentally, real estate is a cyclical business; there have been four real estate cycles since 1969. The key is not if overbuilding will occur, but to what degree," he says. "It is important to remember that the height of the upward curve usually dictates the depth of the decline. If we can exercise restraint during the good times, we can, in all probability, ensure that the bad times won't be so bad after all."

The Institute of Real Estate Management, an affiliate of the National Association of Realtors, is an association of professional property and asset managers who have met strict criteria in the areas of education, experience, and commitment to a code of ethics. Founded in 1933, IREM's mission is to educate real estate managers, certify the competence and professionalism of individuals and organizations engaged in the management of real estate, serve as an advocate on issues affecting the real estate management industry, and enhance its members' professional competence so they can better identify and meet the needs of those who use their services.