Jon Levy: European Real Estate Opportunities

Jon Levy is a European Union analyst with Eurasia Group and a frequent commentator on European issues, appearing on CNN, CNBC and NPR.  He was previously director of national security policy for John Kerry’s presidential campaign.  In a recent interview for the Alter NOW podcasts, Levy discussed several factors shaping European real estate markets – as well as European investment in U.S. assets.  His comments touch on the outlook for eastern Europe, investment thinking in Germany and some of the macroeconomic challenges facing the U.K.  Levy’s comments add a unique perspective to some of the key trends we are watching in the European markets.

A few insights…

German open-ended real estate mutual funds are expected to invest 12 billion euros (approximately $18 billion) in Europe and the United States over the next few years.  These funds have already raised three billion euros in the first eight months of 2009, reinforcing a sense that – at least for Germany – the worst of the financial crisis is over and markets are stabilizing.  Germany is now one of the most aggressive investors in American real estate, behind only Australia.  These funds display a preference for high-quality, income-producing assets.

Levy noted that there has been dramatic tightening of credit and liquidity in Eastern Europe.  However, as he notes, the ability to adopt the euro – while an uneven and politically charged process – provides an exit from this environment – a key distinction with other emerging market crises.  Furthermore, within Eastern Europe, there are significant differences in outlook, with several regions and sectors poised for growth.  This situation, Levy argues, may present attractive entry points as broader credit and liquidity conditions lead to more favorable asset prices.

In the United Kingdom, an estimated $350 billion is needed to refinance commercial real estate loans in a market where many properties have gone into default and values have declined 44 percent since 2007.  The leasing pool in the City of London has been dramatically reduced as there is a consolidation in the banking and asset management industry.  There is a strong emerging view that the UK needs to diversify its economy away from financial services and back into manufacturing and agriculture to achieve a healthier balance.  Levy also provides some insight into the situation in the UK.

Eurasia Group is the world’s leading political risk and consulting firm that helps corporations make informed business decisions in countries around the world.