It’s hard to believe that just four years ago when we did our first Special Report on Commercial Real Estate it was jam packed with stories about brokers who had leased huge amounts of office space. The slowdown in leasing that would characterize the next few years was just beginning, and many brokers were still doing what they had done since the end of the last real estate recession: showing still-plentiful office space and cutting deals. Each year, when we begin to develop the story content for these special reports, we try to tap into the dynamics that define the market of the moment. And in the four years since our stories all revolved around leasing there has been a 180 degree turnaround in the local real estate market. Sure, leases continue to be signed, but what really defines the current market is a frenzied pace of sales activity, not just the handful of large, trophy office buildings that every so often are passed from one real estate investment trust to another, but buildings of all sizes, types and conditions sought after by just as divergent a group of buyers. It may seem as though developing, selling or buying properties or transacting those deals would be easy in a market where prices and demand are sky high. But as I spoke with the various players in the market I learned that is not the case. The scarcity of land and the rising activism of community groups have made development especially tricky. A developer today has to be first and foremost, a detective to find a suitable parcel. Today’s infill developments often require assembling different parcels from different owners. So developers also have to be accomplished mediators and salesmen to make the parcel they envision come together. They also have to be politicians who can successfully navigate their way through the various community groups that hold sway in the neighborhood where they are working. Finally, they have to be fortune tellers, successfully predicting where materials prices will be in the years it will take to get the land under contract and their permits in hand. Things aren’t much easier for investors who have to decide whether the prices they’re being asked to pay will still make sense two or three years from now. Will the economy continue to grow? Where will interest rates be when they have to renegotiate their loans? Will there still be a market if they want to divest their expensive assets down the road? It was interesting to learn that many of those involved in real estate sales and development are fairly serious athletes, weekend and otherwise. How else do you cope with the stress from the unknowns that are part and parcel of the job? As I usually do when I embark on these special reports, I learned a lot of things about surviving and succeeding in real estate. Today’s market is not one for brokers who like to parachute in, transact a deal and move on. Prices are too high, the risk is too great, and those that are taking the plunge want to make sure that the guy or gal at their side really is on their side. Many of the brokers we’ve highlighted elsewhere in this special report (and there are others we simply didn’t have the room to highlight) owe their successes to long standing relationships with both buyers and sellers. Those relationships helped them both to identify properties that came on the market and to tap into buyers that, in some cases, bought several properties this year. The practitioners I spoke with over the past few weeks also taught me a little more about real estate cycles. No one is bucking the basic idea that what goes up must come down, that real estate is cyclical and there are good times and bad times. But the real art to predicting how those cycles play out lies well beyond that basic premise. In the last big real estate recession of the early and mid-1990s, the aerospace and defense industry crashed, and, arguably, another important industry sector in the greater San Fernando Valley could experience the same downturn. But even if that happens, one important element that drove the last down cycle will not be present in the current day. When the economy crashed in the early 1990s there was a great deal of development underway, so much so that the additional space coming on the market alone may have caused a recession in the real estate market. That cannot happen today. There simply is not enough land available for building. The many developers, investors and brokers I consulted for this report are largely convinced that there is no bubble in the current commercial real estate market and, while the pace of activity is likely to slow down, it is not likely to come to a screeching halt. That doesn’t mean, however, that there are no underlying causes for concern. It was disconcerting, at the very least, to learn that so many developers had so many projects underway in other states. Unable to find parcels of land or properties that work within their business models, they are looking elsewhere to ply their trade. All those opportunities for businesses to expand, hire new workers and pay taxes will be lost to our local area. Some developers told me that they think city officials are becoming aware that, without new development, the economy becomes stagnant, and they are taking steps to correct some of the policies and procedures that have limited opportunities in the local area. But I’m not so certain that the solution to these problems lies entirely in the government arena. As it has in the residential sector, the market is creating an environment where only those with very deep pockets can afford to build here, and what they build will only be affordable to a small slice of the economy. Just as smaller, independent developers and investors are going elsewhere, so too might the independent businesses and entrepreneurial ventures that helped to build the Valley follow. That, rather than a potential bubble, may just be the cloud in this silver lining.