It’s that time of year when we’re forced to think about budgets and business plans. The pointy headed types from the accounting department want to know exactly what we’ll be doing the second week of next May and, as I’m sure every one of you have said (or thought) when confronted with such bureaucratic insanity: If I knew exactly what I’d be doing and what the business environment would look like next year, I would (A) not tell you, and (B) stop doing this. But with that said, and notwithstanding my crystal ball is as opaque as the bottom of a Stygian cave, we need to plan.

So, I’ve been thinking. What the heck are we going to do next year? Is the CMBS market irrevocably broken? Was Credit Suisse trigger happy or prescient, stepping away from the market? Will investors buy bonds? Will European banks sell assets like it is the last hour of a bake sale? How about the US banks? Will banks make loans? Will we pare down the list of eager CMBS lenders to 10? Will the life companies replicate their boisterous 2010-2011? Will we finally see the bubble of refinancing we have been predicting to occur in two years for the past five, actually happen in 2012?    Will investors commit enough money to the high yield sector and will the mezzanine market really be hot? Will we ever do a covered bond? Will we ever do a CRE CDO (like I’ve been prattling along about for quite a while now)?   Live in hope; die in despair, as my daddy-in-law used to say. Will real estate people actually build new stuff and launch new projects? Do you think China would lend us a construction crane or two just for a while? Will risk retention arrive? Reg AB 2.0? What about the Volcker Rule? Will the rating agencies continue to conduct business as usual? What will the elections bring? Will the Greeks sell the Parthenon? Will the Italians sell the Tower of Pisa? Will haughty France play the poodle to Mrs. Merkel? What ultimately about Germany? Will the Europeans continue to support their champion national banks while they compete for a starring role in the next Night of the Living Dead movie? Forever?

As you can see, I’m pretty good at questions. The trouble is that, when you run a business, you’ve got to come up with some answers. As I’ve said to my colleagues around here, we need to have a view. Not taking a view is taking a view and no matter how daunting the prognostication game can be, you gotta do it.

So, with that said, this is what I think.

·         No deep recession for the United States (if there is, ignore everything below).

·         The job situation will continue to steadily improve, but the new normal of structural unemployment will be 6-7%, not 4-5%. The new normal of full employment notwithstanding, this will lead to continued firming of the demand for commercial real estate space.

·         Private deleveraging will continue, housing will finally make a bottom, and CRE markets will modestly expand.

·         Here in the U.S., we won’t fix the debt problem anytime soon. I hope Keynes was right about aggregate demand and government spending, but I doubt it.

·         EU banks will sell U.S. and EU assets

·         U.S. banks will sell assets in a less panicky way – portfolios will be balanced

·         The EU crisis will have its own “trading range”. The EU will not collapse, no one will leave, but it will not get healthy, either. No European economic growth for the foreseeable future, or until they finally learn high taxation, protectionism and a massive regulatory apparatus is not a recipe for growth.

·         EU countries will not let national champion banks fail, period.

·         There will be a global tightening of credit and U.S. banks will have a material competitive advantage, if our own regulators don’t do more stupid things.

·         Kicking the can down the road on bad loans is getting closer to its final denouement. More loans will get resolved, loan sales, real restructurings and rescue capital trades will accelerate

·         Structured finance will be used broadly to facilitate disintermediation. Liquidating trusts, seasoned low leverage CMBS, and CRE CDOs will all be broadly used.

·         There will be a CMBS business. Modestly better than 2011. What’s broken will trend toward being fixed – bid/ask spreads will come in. Rating agency models will migrate to levels at which capital formation can occur, and the gap between the CMBS bid and the portfolio bid will come in as the portfolio bid will simply be insufficient to deliver all the capital required by a modestly growing CRE sector.

·         Further, regulatory action will continue to be characterized by unintended consequences being markedly more costly than the value of the intended good. This will continue to threaten the recovery and all of the good stuff above.

·         The election matters, hugely. If the market concludes that Mr. Obama will remain in the White House and the Democrats may get more seats in the House and Senate, much of the good news above is materially trumped.

·         Macro/global tail risks are at an all time high. Really bad stuff could completely shuffle the deck.


So what does all this mean for planning? We will see increased transactional activity in the CRE and structured finance space. Our clients are likely to be busy. There will be a premium on ingenuity, and innovation and scale will be rewarded.


So, here’s my plan: Go all in.  We’ll grow. We’ll invest in innovation and deliver scale. When the risk/reward traffic lights are flashing green and the downside risks, while pretty catastrophic, still look tailish, it’s an easy call.


I’m looking forward to 2012; I think.