Distressed in Europe

18-Mar-2012

I like this.

By

An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.







By Ronan McMahon, International Living,

The economies of the PIIGS (Portugal, Ireland, Italy, Greece, Spain) are in disarray.

Europe is in the throws of sovereign, political and financial crises. Greece is bankrupt and burning. Yields on Portuguese bonds hit 17% earlier this year.

This is the type of crisis situation that gets my attention. (I have told you in these Postcards about the opportunity to buy real estate at fire sale auctions in Ireland at discounts of 80% or more on peak prices.)

If you have been dreaming about that Spanish Hacienda or Portuguese villa in an olive grove, you are right to get excited. Prices have fallen. Almost every day I have a meeting or conference call to discuss a crisis opportunity on the Iberian peninsula.

But, PLEASE, PLEASE wait.

The deals are set to get much better. Why pay twice as much as you have to for any property? I’d rather wait. So far…waiting has saved me, and members of Real Estate Trend Alert, thousands.

On Portugal’s Algarve and Spain’s costas…Irish and British people bought villas on golf courses at inflated prices with 100% financing from developers who are now bankrupt.

This buyer in many instances is not making his monthly payments. The banks are sitting on the problem. They might realize 250,000 euro from the sale of a villa with an 800,000 euro mortgage. The shortfall would need to be written off and the bank’s loan book would need to be written down. They don’t want to do that.

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I visited Portugal’s Algarve on a scouting trip to find distressed opportunities two years ago. This is an area I like…and enjoy visiting. You haven’t yet heard about Portuguese distressed opportunities in these Postcards because there are much better deals to come.

Because the banks continue to sit on the inventory and hide the problem, fire sales in this part of the world haven’t played out the way we are seeing with the auctions in Ireland.

Estimates put the total of Spain’s excess supply and distressed inventory as high as 2 million units. Much of this inventory (50% is a reasonable guess) is along the touristy costas.

There has been no genuine effort to move this huge amount of inventory. Spanish banks have offered finance of up to 100% for some buyers of distressed properties on their books. But the prices offered don’t make any sense—they tend to be priced at a 30% – 40% discount from peak prices. On the open market these units would have to be discounted by another 50% to sell.

Before we will have any sense of how far prices will fall, we need a market. In Ireland we have been able to get a snapshot of the market through the fire sale auctions. They tell us that prices will likely be 65% to 90% off peak prices (depending, of course, on location, type of unit, etc.) if you need to sell today. If there was any true market in Spain or Portugal I expect that we could buy at discounts of this magnitude.

This year I have detected a change of tone in my contacts on the ground. Finally, the banks and developers are willing to admit that they can’t sit on this inventory forever. They need get the bulldozers rolling or sell it off. They’ll likely do a bit of both. When they sell, it will be “off market”. The prices won’t be made public. Otherwise the banks would find themselves with a lot of angry customers who bought at the “old” price.


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