Hodes Weill & Associates published their May 2010 Market Commentary this week. I thought there were some poignant observations which I'd like to share with you:

• The past few weeks have given rise to a discernable change in the mood. 
• Suddenly, deal flow is improving and we continue to hear that “deals are making sense.” 
• The market for stable assets with secure income is quite frothy, with anecdotes of pre-crash pricing levels and numerous competitive bidders. 
• Every day we read about assets being acquired at prices that are surprisingly high. 
• Debt is once again becoming plentiful, and unlike before, it is now available in size. 

So....

• Sounds positively rosy. So, why is there still so much uneasiness and, certainly within our shop, the sense that this renewed wave of investment and optimism defies the cold fact that most existing US portfolios held privately remain over-leveraged, undercapitalized and illiquid?
• Closer to the ground, little has improved in the real estate market.
  From the perspective of real estate pricing fundamentals, NOIs, especially in the office sector, are poised for several more years of  declines, given the overhang of space (primary or sublet) in nearly every market, and weak tenant demand. 
• While a few property types are doing better than others (multi-family, hotels) in terms of stanching the decline in revenues, even these sectors face the challenges of sluggish economic growth and reluctance by businesses and consumers to spend. And decline in NOIs is going to be met head-on by rising debt maturities over the next 12-24 months. 
• Within institutional portfolios, in particular the real estate private funds invested in the 2004-2008 time frame, we have not seen widespread improvements. 

And what about fund managers?

• As we enter the third year of this market correction, some managers may be starting to run out of steam and we believe that 2010 will be the year that these businesses will have no alternative but to evolve. 
• With little or no new capital on the horizon, human resources and other assets will have to be stretched further.  
• The overall market has not really corrected and attractive investments remain pretty scarce today. Without indications of economic growth on the horizon, the risks of investing remain very, very high. 

But....

• there are many positive steps that can be taken now to better position businesses and teams in our rapidly changing industry. 
• To the list of “R’s” that define our industry today: Re-structuring, Re-positioning and Re-capping, let’s add a few that keep with our spring theme: Rebirth and Rejuvenation. Let’s all find ways to channel our collective energy into improving our businesses and positioning for the future, and maybe worry a little less about missing deals in a highly volatile environment.

This is clearly not the entire piece and I took the liberty of extracting these items.  But what I like about this is that, firstly, it is written by some very experienced people who have been through multiple cycles and who are able to step back from the day to day challenges to take a philosophical look at the bigger picture and have a vision for the industry.  I took some time this week just to 'think' rather than to 'do'.  About how I'm doing my job, about whether we are leveraging our 'collective energy' to move our business forward and what things I might do differently.  It's been a helpful exercise for me and as the Hodes Weill paper suggests, we're in a time of Rebirth and Rejuvenation which gives us all opportunities to rethink how we're approaching business and determine the time is right to make some changes.  It's an exciting and challenging time for us all and I believe the uncertainty of things is what is making it difficult for some of us to get a good night's sleep.  But, going back to something I wrote a while back:  we can drive ourselves crazy thinking about the past; what we might have done differently, what mistakes we made, etc.  And, likewise, we can drive ourselves crazy trying to predict the future because we don't really have any control (as much as we think we do) over the future.  What we can control is what we do today, right now and this holds true for our business as well as our personal lives.  I write this to remind myself as well that this really is a very important component of life-health and when I find myself slipping, I step out of the moment and remind myself:  Even on a heavily overcast day, the sun is still there on the other side of the clouds.

Enjoy your weekend.




These are my views and not that of my employer.