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Cautious Optimism

Is it safe to open our eyes now? It's been a terrifying run for the past 12 months, ever since the amazing weekend when Lehman Brothers went belly up and Bank of America swallowed Merrill Lynch. In the aftermath, the bottom fell out in a big way on retail and retail real estate. It's been a period unlike anything most of those in the industry have ever experienced before.

We're in a much different place today. The stars have begun to align, indicating that even if a robust recovery isn't coming, at least things aren't getting any worse.

Better still, the government seems determined to lend a hand in addressing one of the industry's most pressing issues — the volume of mortgages that will need to be refinanced in the coming years. In addition to several financing programs from the Federal Reserve and the Treasury Department, the Internal Revenue Service recently issued a ruling changing tax rules that will make it easier to alter mortgages that have been packaged into commercial mortgage-backed securities.

There will still be some painful defaults, delinquencies and foreclosures. But at the very least, the government's continued willingness to intervene in commercial real estate will have a calming effect on the market.

Beyond that, there are things to be downright optimistic about. For example, Starbucks and Pier 1 both recently reversed course on some previously announced store closures. Things for both firms have looked brighter in recent months. Meanwhile, a select number of retailers are slowly beginning to expand again.

We're still a long way from what can be considered a robust leasing environment. But we should stop and appreciate how much things have changed.

Early in 2009 the headlines were brutal. It seemed troubled retailers were going through rapid death spirals. First, firms would announce closures, then the bankruptcy filing would come. The companies always laid out schemes for re-emerging. In more than a few cases, though, the bankruptcy filing was merely a prelude to liquidation.

That cycle has ceased.

There have been no liquidations in months. The announcements of mass closings have slowed to a trickle. In fact, one retailer that filed for bankruptcy earlier this year, regional department store chain Boscov's, recently re-emerged with success.

Recent projections also call for the holiday sales season to be flat — a better result than last year's 4.5 percent year-over-year decline. It's not the kind of robust season we'd like to see. It is, however, a necessary step on the road to recovery. Sales will recover slowly. And a good first step is for the declines to stop.

So while it's not quite time to celebrate, there are reasons to believe that the worst is behind us. Hopefully, the ride back up won't be a slow one.

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