No, this is not some twisted high-school cheer – “Give me U!” This is what economists do in their spare time trying to figure out the shape of this recession/recovery.  Although I did major in Economics in my days at Vanderbilt, I am not qualified to say with authority what shape this thing is going to take.

I do know from extensive conversations with local (and national) developers that not much has changed in our world since a year ago: banks won’t lend, equity is scared.  Wood Partners, a national multi-family developer (I am an alum) has declared that they are no longer a development company – they are all about asset management and acquisitions.  Just about every builder I know is now in the “distressed assets” business.  So for us right now, the green shoots look a lot more like mold.

More evidence of the sad state of real estate is documented in this piece by Tim Cavanaugh over at Reason.com.   The “re-default” rates are creeping back up, Fannie and Freddie are still hemorrhaging, and the commercial shoe hasn’t fully dropped yet.  Spoke to a couple of high-flyers that have unsold condo deals in the past week that told me that the banks were willing to extend their construction loans out…anything to prevent having to foreclose.

There is a sense of gloom among the entrepreneurial class too as we look to Washington.  The proposed “Cap and Trade” bill, if it passes, will increase builder costs by an estimated 15-25%…bye-bye affordable housing.  Further, the union friendly health care reform bills do not bode well for our future tax structure, further eroding the ability to build one’s net worth.  The overall debt being foisted on the American people – our children, is immoral if not criminal.

One thing I did learn is that capitalism can be ugly.  Schumpeter talked of “Creative destruction,” and we entrepreneurs live by that.  All the bail outs have done is prolonged the slow pull off of the band-aid.  Any kid knows that the faster the band-aid comes off, the less it hurts and the greater chance you have of getting the wound to heal up.   Any common sense citizen knows you don’t get wealthy by going further into debt.  These maxims have obviously not been learned by the solons of Capital Hill.

Well, we slog on.  For us in the real estate business, the shape is an “L.” There are ways out, and hopefully, in the “even a blind rat finds the cheese” scenario, the Congress and this Administration will start to use them.  The best place to start is with another common sense maxim – “when you are in a hole, stop digging.”

The good news in this is the future opportunity.  Delayed construction will allow more time for absorption and for market pricing to get to a more reasonable equilibrium.  How long? Anybody’s guess, but right now, the shape of things to come for us looks like:  [———-].

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