The roughly 6,000 retail real estate pros that congregated at the Hilton New York Hotel for ICSC’s New York National Conference and Deal Making show walked away feeling better than they did this time last year, but there is still a sense that the industry faces a tough road to recovery.

Anecdotally, leasing representatives at the show reported more retailers present at the conference than last year, with many of them looking to expand in 2010. In 2009, most of the positive leasing momentum came from supermarkets, discounters and health club operators. But Monday’s Retailer Runway portion featured tenants that rely on discretionary spending — for example, arts and crafts seller Hobby Lobby and outdoor equipment seller REI — who are planning to invest in new stores.

The problem is that the pace of expansion is still very conservative. “If a tenant opened 15 stores in 2009, they maybe plan to open 20 in 2010,” said John Bemis, director of retail leasing and development with Atlanta-based Jones Lang LaSalle. In addition, most of the discussions taking place involve renewals rather than brand new leases.

Perhaps the biggest question hanging over the conference was: Have the government’s measures to support banks and ease how commercial real estate loans are accounted for delayed the process of banks recognizing losses, or is it buying time for an actual recovery in property values and fundamentals?

The most pessimistic assessment is that the process is actually making things worse, according to Richard Walter, president of Irvine, Calif.-based Faris Lee Investments. In that scenario, property fundamentals, rather than stabilizing or improving, will erode because there would be no capable company managing the assets. Properties being held in limbo could end up losing tenants, making losses worse once banks are forced to recognize them.

The more tepid view — and what most attendees endorsed — is that the process of recovery is only being strung along by what’s happening with the banks. Fundamentals are unlikely to improve in the coming months and the inevitable losses are just being delayed instead of avoided. Few expect that the bid for time will be long enough that we’ll see any real recovery in property fundamentals or prices. Instead, many see the government’s efforts as a ‘Hail Mary’.

In addition, the binge of buying that everyone thought might happen in 2009 in which investors came in and grabbed armloads of assets from distressed owners is simply not happening. Many investors thought they’d be able to take good properties from indebted owners at bargain basement prices and hit internal rate of return targets of 25%. But those deals are not out there, according Walter.

Instead, what are available are distressed properties that require some real care and investment in turning around. And the overall volume of available assets is very low. Those with cash are finding it makes more sense to just buy corporate bonds and lock in solid returns. In other cases, funds that were raised for direct investment are being reconfigured as mezzanine or preferred equity funds, according to Jonathan Brinsden, COO of Houston-based Midway Cos.