Recession, Depression, Recovery: What's in a Name, Anyway?

I am in a obscure quotations mode today, so please excuse me in advance.  No, I am not about to start brushing up on my Shakespeare or start quoting him now. (In fact, I'm not sure I ever even seen Kiss Me Kate all the way through.)  But this weekend I had to think about what I have seen the last few years.

I know economists have their own definitions of recession and depression and all that. But I also know that you can cook the books on statistics such as unemployment.  (This is nothing new, by the way.  And thank you, Benjamin Disraeli.) We are seeing more talk of depression-like problems: the so-called 99 weekers (a term I first saw here), a real unemployment rate that is higher than the statistics indicate as people just plain give up on looking for work and thus are no longer in the stats, companies that refuse to spend the money they are making and declining to hire out of a fear of higher taxes and low demand for products (aside: I don't know a single small business person looking to hire anyone in the foreseeable future), and commercial real estate discounts of -- well, let's just say big discounts if that's okay.  And the prices at the top were too darn high anyway.

On the other hand, you read that lenders are starting to foreclose and dump REO deals to get them off the book, which is good news for buyers and bad news of course for those being foreclosed upon.  Others say the market is choppy.  Still others say prosperity is just around the corner if not already here. (Thank you Herbert Hoover.)

Finally, I am seeing and hearing a lot of what my father called NATO: No Action, Talk Only.  What do I mean?  If you read this blog regularly you can figure it out, as you are probably pretty savvy about the market.  We don't cater to the rank beginners here.

Traffic Court hit this one on the head a month ago from the commercial real estate perspective:

The lesson, again, is that commercial real estate is a complex business with lots of moving parts. We’re going to have crisis alongside recovery. There’s no simple narrative to be had here. We’re not going to see a clear commercial real estate recovery nor are we going to come upon a moment where all is collapsing. So let’s stop looking for the one-line takeaways about commercial real estate.

Okay, I'll stop here.  My point, at the risk of burying the lede?  Let's all stop worrying about how to put a name on what is going on right now.  Whatever you call it, what is really important is what is actually happening and not its label.  So, you go and do that voodoo that you do so well and meet me back here with some deals! (Thank you Cole Porter.)

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Good news and bad news on CMBS - which is it?

Both, probably, but more good than bad in my opinion.

Depending on what you read, CMBS delinquency rates are at an all-time high of 8.71%.  This article citing Trepp LLC is the first I came across. And I remember when I said, oh, that 2.1% default rate is not so bad.  And Fitch is telling us that the default rate is 9.48%, even closer to the 11-12% predictions that have been out there.  So that is bad news, yes?  Some call it part of the continuing slo-mo crash.  Yes and no.

The good news, if you look at the chart, is that the upward trend is flattening.  Is that a sign of moderation?  Maybe.  But let's not forget that there is a ton of CMBS debt coming due - a trillion dollars of it over the next five years.  Again, good and bad.

But what I find most encouraging is this: loan mods.  According to Trepp we have had more mods in the first half of 2010 than in 2008 and 2009 combined.  So the servicers are getting their acts together, borrowers are coming to the table, and more deals are even going to REO. 

And that brings to mind another factor that I like: pricing. I'm reading and hearing about some deals being done at fire sale prices.  No matter the fundamentals or the market or the conditions, sometimes the price is just so right that you pull the trigger and do it.  And as I have been reading, some private equity folks just can't sit on money forever and are taking that plunge, even back into development where the potential returns can be the best.  (The offset to that, however, is whether Dodd-Frank will helpful or harmful to CRE; we just do not know yet and we all know uncertainty is not a good thing.)

So, I feel like Tevye in Fiddler on the Roof: On one hand, this; on the other hand, on the other hand....But I come out a little more positive than negative at the end of the day.

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