Distress in Europe is shaking fear into even the most high-profile investors and analysts — but there’s still plenty of upside in the land of opportunity.
The European debt crisis tops most lists as the number one drag on the global economy, and it isn’t going away soon, experts said at the 3rd Annual Distressed Debt and Assets Symposium, sponsored by Deloitte and NYU Schack last week (Thursday).
There’s no end in sight. But there’s also an unprecedented “opportunity” — a word that was thrown around during the conference almost as much as the word “Europe” — to capitalize on distress if investors stick to their guns, wait it out, and identify healthy, long-term investments.
“I never thought in my life that I would first pick up the (newspaper) in the morning and flip back to the international pages,” said Richard Walsh, managing director of the real estate group at New York Life Insurance Company. “Every Monday morning, when we have our pricing meeting, that’s the first topic of conversation — what’s going on in Europe, what’s going on with Greece, how’s it going to impact Spain.”
Hitting 21.9 percent in March, the jobless rate in Greece hit a new high. The country might be on its way out of the Euro Zone. Meanwhile, Madrid is expected to ask for Euro Zone help in recapitalizing its banks. Even Germany, which just increased its GDP growth estimate for this year from 0.6 percent to 1 percent, is feeling the effects of the crisis, as imports fell at the fastest rate in two years in April (exports also fell more than expected).
“You’re going to continue to have a rolling crisis in Europe over the next several years, which is disappointing and frustrating,” said Ira Jersey, director of the U.S. interest rate strategy team at Credit Suisse. But, he added, “There are a lot of opportunities out there, particularly if you have a longer term horizon,” urging investors to “be in multiple asset classes simultaneously.”
Bruce Richards, CEO at Marathon Asset Management, mapped out and ranked his deepest fears. Behind Europe is “political dysfunction” at home, the Arab Spring (including the risk of an Israeli attack on Iran), and competition from China.
“We know with our one White House and our one legislative branch, how hard it is for them to work together,” Richards said, asking attendees to imagine “17 white houses, 17 presidents and 17 legislative bodies.”
The Euro could “disintegrate,” as more and more countries “fall to their death,” he added, putting the probability of such a calamity at 35 percent.
But in some cases, one country’s sorrow may turn into another country’s joy.
“As distress investors, we love these risk factors,” Richards said. “The European banks, which are incredibly overleveraged and undercapitalized, are presenting us with a once-in-a-generation opportunity to buy these assets. For decades they built up their balance sheets and now they’re taking them down and that’s a huge opportunity for us.”
*this article appeared in the June 13, 2012 print edition of Real Estate Weekly