As we all are aware, the real estate and hospitality industry has recovered nicely from the “bust” of 2008-2012. However, home sales and prices are beginning to stagnate, mortgage rates are slowly rising, new tax legislation can be disruptive, over-development in many areas is starting to scare investors yet again, and builders are starting to take lower down payments, once again, on new development. While a recession may not be imminent, especially like the one seen in 2008, investors, family offices, developers, owners and lenders should begin considering what the next cycle will look like.

It is unlikely that the next down cycle will resemble the bust in structure or in severity. In 2008, virtually all development and many seasoned projects, went “bad” simultaneously and entire lending portfolios were underwater. As a result, regulators were setting the rules for restructuring, often with negative long-term economic consequences. Significantly, the capital markets also froze at the same time that projects were defaulting, making new capital investments in troubled deals extremely difficult.