Can We Survive a Recovery With Issues?

CANNES, FRANCE-It's probably one of the ugliest recoveries we've ever seen. Nouriel Roubini, keynote speaker Thursday morning at MIPIM here, didn't use those exact words. But he could have. And his rather dour assessment of where we are headed--at a snail's pace--dovetailed nicely with a follow-up session on the nature and future of the global distressed marketplace.

Roubini, professor of economy at NYU's Stern School of Real Estate, made a list of our current economic pros and cons, and to me, it seemed that the second far outweighed the first. The economy is chugging ahead in fits and starts, employment is diminishing and corporations are spending. That's the good news. But oil and other consumer goods are rising, the overall recovery is still far below "normal," and unemployment though improving is still high--and not at 9%, but closer to 16 in real terms, Roubini stated.

Ironic to this Yankee was that emerging nations seem to be doing better than the US in terms of springing back. Even the UK is dealing with its deficit while the US "just keeps kicking the can down the road," while Republicans and Democrats enage in a useless tug-of-war.

But there is forward movement in the US, and projections that real estate investment velocity will double this year over last cannot be ignored. More broadly, Roubini also held out some good news for the US and other advanced economies in that while ever-rising consumer costs are a burden, Roubini doesn't believe they will lead to core inflation enough to worry about. 

Overall, the economist put to bed any lingering worry about a double-dip recession, preferring to characterize the trajectory of the economy as a "slowdown."  But, timing is everything, and in his final thoughts to the assembled crowd, he asked if "there is enough resilience on the part of both the corporate sector and consumers to withstand," what will continue to be a drawn-out recovery.

Double dips were the topic in another Thursday-morning session, this one entitled "Distressed Investing or Distressing Investments." Mahdi Mokrane of AEW Europe believes that while the economy is on a rocky path to recovery, he wouldn't be surprised if real estate experiences a double dip. (Watch next week for my GlobeSt.TV video for Mokrane's thinking on the subject).

All panelists agreed that the coming mid-term dynamic for distress will be much as it has been for the US over the past 18 months.  A trickle of deals, workouts and extensions. "You need equity to resolve all of the distress that's out there," stated Raymond Jacobs of Franklin Templeton Real Estate Advisors.  "It's an underwhelming market in terms of debt opportunities."

We'll need equity, yes and new thinking, he continued: "There are real opportunities out there for managers, equity partners, who can come in with a new business plan."