In the last week of February, the National Association of Realtors chief economist Lawrence Yun predicted that demand for commercial real estate isn't expected to improve until 2011 at the earliest. Retail vacancies were predicted to climb, while rents were seen shrinking. Industrial vacancy rates, constrained by obsolescence, were also expected to escalate, with rent moving in the opposite direction, while the office market is expected to see the vacancy rate of 17.6% by the fourth quarter. Throw in the estimated $1.4 trillion of commercial real estate loans that will mature by 2014, and it becomes a little more clear why those in real estate may be greying early.

By April, however, while the macroeconomic picture was still depressing, a number of signs seemed to point to a possible bottom. General Growth found a buyer, and Bill Ackman, who invested in the company through his hedge fund Pershing Square Capital Management told CNBC in the last week of April that his investment in the company qualifies as the "best investment [he] ever made."

Right around the same time, TPG Capital teamed up with Caruso Capital Partners to launch a $750 million joint venture to buy up retail centers and mixed use properties across the country. And a number of commercial real estate investment trusts managed to raise capital through secondary offerings. CapLease, AMB Property and Cominar were among those to do so.
 
To some, the firming in the market makes sense given the recovery in the broader economy. Gil Menna, co-chair of Goodwin Procter’s real estate, REITs and real estate capital markets group, believes this is behind some of the recent good cheer.

“Retail properties are attractive because as the economy turns, they become increasingly appealing,” he told Mergers & Acquisitions.

He may have a point. Take a company like Aeropostale. The value-oriented retailer reported record results for the fourth quarter and fiscal 2009. Its growth strategy is focused on opening new stores. The company's most recent 10K identified plans to open 25 new Aeropostale locations and between 25 and 30 'PS from Aeropostale' stores, a new casual clothing offering targeting children between the ages of seven and 12. As of January 30, the company had 14 PS stores.

It's just one example, but these are building blocks that can draw buyer interest in this kind of market.

Few, though, could be classified as a bull when it comes to real estate.

Jeffrey Manning, a managing director with BDO Capital Advisors, is among those that aren't so confident.

“There is a large festering boil in real estate hanging over our gains in the [overall] economy,” he says, pointing specifically to the $1 trillion-plus CRE debt that looms over the market.

He cites that a lot these assets are so undesirable that no floor yet exists for certain vacancies. "You can't even get a bid," he says, referring to some properties.

Meanwhile, John Horrigan, director in Keybanc Capital Markets real estate investment banking group, notes that a dichotomy exists between public and private real estate companies. He cites that publicly held companies have moved faster to clean up their balance sheets, which has made investors more comfortable backing those assets.
 
Menna points to the apartment REITs, in particular, noting that "any flight from home ownership is going to help the multi-family [rental] sector."

Horrigan agrees, saying "It feels like there is a bottom."

Others think the market could be hit or miss for a long time. Real estate that is dependent on consumers could continue to suffer, based on the geography and local employment figures.

Hotels is another area that could remain spotty. Duff Meyercord, a partner with Carl Marks & Co., cites that operators outside of metropolitan areas have yet to benefit from the return of the business traveler.

Still, it's the distress and uncertainty clouding the space that is attracting the more wily investors. Carl Icahn, in February, paid a measly $156 million for the unfinished Fontainebleau casino in Las Vegas, once valued at $3 billion. He nearly gained control of Donald Trump's Atlantic City properties but fell short after the Bankruptcy Court judge sided with he bondholders, who preferred Trump maintain a stake in the property.