The big issue at this week's MIPIM real estate event in the South of France and last week's International Hotel Investment Forum in Berlin has been what are the banks going to do with their distressed debt.
And the answer seems to depend on which side of the Atlantic you are based. North Americans seem to believe it is all about foreclosing and seizing bargains while for Europeans it is about trading it out.
Some in Europe, however, believe it is simply a matter of time before there is a change in approach. Desmond Taljaard, COO at Starwood Capital, said in Berlin during a panel: "We are still in a phoney peace. We haven't seen the differentiation between debt which won't recover and that capable of redemption."
Taljaard believes the banks will have to go through the process of deciding which way to jump with their existing troubled debt before we see new debt. The Alternative Hotel Group deal (see separate story) was a puzzle to Taljaard. He suggested that perhaps four-star conference hotels might yet survive this cycle.
But Starwood Capital had a "barbell" approach to the market, investing in budget / economy and luxury. Through Louvre, he plans to open a hotel a week this year.
The challenge for operators was fighting a commoditisation process that is getting stronger and stronger, argued Taljaard. "Operators have not wrestled with this issue enough. They have to deliver a revpar premium." The current refresh of Campanile would be judged on its ability to deliver such premiums.
Stephen Little, who is on the advisory side at Goldman Sachs based in London, said during the same panel that there was a huge hesitancy by big lenders to foreclose. "They are willing to hold as long as it takes to get back to par," he said.
He predicted that as trading recovered the banks would gain the confidence to push out the management team.
Debt lenders are focused on the robustness of EBITDA. There were signs in the US of a return to syndication although in Europe deal sizes remained below Eu100m.
Development financing though was difficult as it typically lags the funding of existing real estate deals by 12 months, added Little.
So far, there has been little in the way of debt transactions in Europe, said Little. The future would see a much more prominent role for public equity, he argued. "Public equity markets are far more competitive than they have been for five or six years."
There was a lot of pressure to invest right now, said Little. "Once there has been one or two deals the flood gates will open. I expect to see some mega mergers – there is a lot of potential for value creation," he said.
Governments giving money away via stimuli packages had hindered debt workouts, reckons Bromme Cole of boutique capital advisory firm Hampton-Hoerter. Speaking at the MIPIM Property Talks, Cole said that the injections of tax-payer money into the economy had encouraged banks to delay taking action on their distressed loans.
The experience so far in North America was of banks forebearing on loans rather than restructuring them. Where the banks lost patience they would foreclose rather than alter terms of the loan.
The future would be of banks asking borrowers to adhere to more conservative lending for at least the next two to three years.
Cole also warned that the recovery was not yet strong enough. In particular he feared that the jobless nature of the rebound so far made some property sectors such as retail particularly vulnerable.
"The big difference this time around compared to the 1990s is the abundance of equity," he said. But the ongoing absence of debt finance meant that consolidation would not rescue the property sector as it did in the 1990s.
Isabelle Scemama, Head of CRE Loans at AXA Real Estate, said it remained an open question as to whether banks in Europe would decide to work out loans rather than foreclose.
"Banks are sitting on their books at the moment. They don't want additional losses," she said. It probably will come but right now if banks tried to sell their loan books they would be required to write-down huge losses.
"The objective of the banks is to spread losses over as long a period as possible," she said. But she warned that the "wall of refinancing" ahead in 2011 to 2013 would create distressed buying opportunities.
Thierry Leleu, general manager Europe at GE Capital Real Estate Investment, said that if banks were to acknowledge their real estate losses they would need "exponentially more capital". He added: "For banks to say they will ride the cycle makes a lot of sense."
Shoji Misawa, managing director at ORIX Corporation, said that during the previous Japanese downturn of the 1990s and 2000s, buyers of distressed real estate had made huge gains.
The view of banks was to see if debt was recoverable over three to five years. If it was then the banks are keen to sit down with borrowers.
Michael Fishbin, national director, hospitality and leisure, at Ernst & Young uttered the phrase "a rolling loan gathers no loss" from the platform in Berlin to explain why we have not seen more distressed loans.
The low interest rate environment has effectively thwarted the vulture funds, he argued, and there had not been the deluge anticipated.
But Derek Gammage of CBRE Hotels said product was now coming to market – but possibly not open market – and would trade. The difference this year compared to last is that equity is no longer "delusional".
HA Perspective: It is clear that there is a difference in outlook between North America and Europe on how we will work out the crisis. Historically, Europeans have been more reluctant to write-off losses and move on.
Partly, this is down to how the sources of debt and equity are structured. Steady and cautious is preferred in Europe to the roller coaster ride offered in North America.
So far Europe has seen little in the way of foreclosure and restructuring action seen in the US such as Extended Stay which has been unable to service its $7bn debt pile after being bought for $8bn in June 2007. It went bankrupt two years later.
Starwood Capital now look to be in the frame to secure a deal by promising to inject $600m of new equity, topping the previous $450m promised by rival bidders. There is still a way to run on this deal, however.
And there is still a way to run before we see exactly how the banks will resolve their problem loans.