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- Buy or Build? Hines Challenges Conventional Real Estate Cycle Wisdom
Buy or Build? Hines Challenges Conventional Real Estate Cycle Wisdom
The “buy early, build late” mantra doesn’t hold up to the data. Hines research tells a different story.
Jordan B.
October 02, 2025
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Good morning. New research from Hines challenges a long-standing investment mantra. A closer look at historical data reveals early-cycle development may offer stronger, risk-adjusted returns than previously thought.
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Market Snapshot
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Timing is Everything
Research: Development Outperforms Acquisition Early in the Real Estate Cycle
A new report from Hines challenges the conventional wisdom that you should buy low and build high in the real estate cycle.
Traditional wisdom says: Buy when prices are low (early cycle), build when fundamentals are strong (late cycle). But Hines’ latest research shows that development may actually yield better returns when initiated earlier in the cycle—contrary to the prevailing strategy.
The findings: Based on analysis of historical data from NCREIF, JLL, CBRE, and others, Hines found that development returns tend to peak early in the cycle and taper off as the market heats up. In contrast, acquisition returns generally track more closely with rising asset prices—but face growing risk.
What the data shows: Using over 80,000 market observations, Hines analyzed returns and risk across real estate cycle phases.
Early Buy Phase: Prices are low, risk is 32% below average, but institutional players tend to stay on the sidelines. Development returns offer a premium here.
Late Buy to Sell Phases: Fundamentals look strong, but pricing runs hot, increasing risk. Development returns decline, and acquisition competition intensifies.
Development Outperforms: Across almost every phase (except “Hold”), development outpaces acquisition in unlevered total returns—but only if entered at the right time.
Measuring risk: Hines uses a proprietary risk multiplier for each real estate cycle phase—1.0 is neutral, with lower values signaling less risk. Early in the cycle, fundamentals like rent and occupancy may be weak, but pricing risk is typically low. In the “Early Buy” phase, the average risk multiplier is just 0.68, with five-year unlevered returns at 15.5%. Many U.S. office markets are in this low-risk, early-stage zone today.
The early advantage: Two-year return data shows development consistently outpacing acquisitions, especially in the early and mid-cycle phases. Waiting too long to build can erode returns—“sell” phases often look strong but deliver the weakest results due to high pricing and elevated risk.
Strategic moves: Rather than breaking ground during early-cycle uncertainty, Hines recommends optioning land early and holding for the rebound. With less competition, buyers gain negotiating power. Later in the cycle, build-to-core strategies with longer holds can help offset market softening—unlike riskier merchant-build models.
➥ THE TAKEAWAY
Rethinking the cycle: Forget the simplistic "buy low, build high" mantra. Hines makes a compelling case for a data-driven, flexible strategy that adapts to market phases, not myths. If you’re looking for outsized returns, earlier-cycle development might be where the real opportunity lies.
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Antitrust alert: The FTC is suing to unwind Zillow’s $100 million partnership with Redfin, arguing the deal illegally reduces competition in the online rental listing market.
Shock absorbers: CRE deal structures are shifting toward higher equity, lower leverage, and less personal risk, creating a more resilient market.
🏘️ MULTIFAMILY
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Lender return: Multifamily borrowers are finally seeing relief as banks, private lenders, and agencies return with more competitive debt options.
Debt reshuffle: Blackstone is refinancing a five-property multifamily portfolio with $465M in CMBS and mezz debt across three states.
Tariff trouble: Builders warn that Trump’s tariffs could compound supply chain issues and make affordable housing even harder to deliver.
Liquidity lift: A key reform to D.C.’s TOPA law is expected to revive multifamily investment by providing new buildings with a 15-year window before tenant rights take effect.
Renter red flags: As apartment fraud becomes more advanced and commercialized, landlords struggle to verify tenant data without slowing down the leasing process.
🏭 Industrial
Resilience tested: Small- and mid-bay industrial users are holding steady despite rising tariffs, but shorter leases and longer vacancies hint at growing strain.
DST demand: NexPoint raised $137M for a fully leased semiconductor facility in Temecula, highlighting strong investor demand for industrial DSTs.
Border bet: New York Life funded a $102M construction loan for a border-adjacent industrial park designed to capitalize on nearshoring and U.S.-Mexico trade growth.
Infill focus: Berkeley Partners surpassed its target with a $610.5M close for Fund VI, aimed at small-bay, infill industrial assets essential to local economies.
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Miami debut: Dubai-based Kerzner International is launching its first U.S. Siro-branded condo-hotel in Miami’s Brickell neighborhood.
Design complexity: Luxury hotel construction projects face outsized risks due to evolving designs, brand mandates, long timelines, and coordination among multiple stakeholders.
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📈 CHART OF THE DAY
Affordable Southern and Midwestern apartment markets saw the strongest year-over-year occupancy gains, with Memphis topping the list.
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