Eurozone crisis - the solution for property [chocolate biscuits?]

Bruce Dear, partner and head of real estate investment at international law firm Eversheds, is at the FT Property Conference.

"Shall we go down the pub and drown our sorrows?" says the fund manager sitting next me. It's 9:50 am and I'm at the FT Property Conference.

The pub seems extreme; though mildly tempting given the mood in the room-the chill atmosphere is not due to the air conditioning.

Anyway, I settle for breaking my diet and eating two large chocolate biscuits (that's better!).

We have just had an overview of the World Economy from a man who (appropriately) looks like a small silver haired bear.

I'll give it to you straight, like a brick on a stick:

The 2007 crisis isn't over. It hasn't even begun yet. The banking crisis has become a major sovereign debt crisis. Greece will default and so will Portugal. Ireland, with strong government and externals, may not.

For the next five years the Western economies will be low interest rate and sluggish growth environments; as their long de-leveraging and the correction of their economic imbalances continues.

Central banks will continue with QE, Operation Twists and other unconventional monetary policy steps on a platform of low interest rates.

In doing this, they will be continuing the most aggressive course of central bank action in history. They have only matched it in time of Total War.

Recovery, you say? Probably not till 2017ish, says the small silver bear.

And the Eurozone?

It will "probably survive", but only if the ECB is prepared to become a lender of unlimited last resort and the core countries of Europe find unified political will.

The Eurozone's leaders' nightmares are Italy shaped. Its debt spreads are getting near junk levels-which only emphasises the urgency of a coordinated management of Greek default and of the creation of a multi-trillion Euro stability fund,

Now you understand the need for those chocolate biscuits.

So, what should we property people do?

1. Plug into Asia. Chinese and Indian growth remains strong and the gap between their growth and Western countries is at historically wide levels. Go East Young Man-go to Hong Kong, China, Singapore or indeed almost anywhere Far East (or even Middle-there are still inward investment opportunities there).

2. Look at the BRICs and emerging markets. Turkey's real estate market is strong, so is Brazil's. But investors are avoiding the Eurozone. One Canadian real estate fund at this conference has re-directed its real estate investments out of Europe, so that 25 per cent of the fund is now in emerging markets.

3. London is Europe's real estate capital; make sure you're playing in it. 39 per cent of all real estate inward investment into Europe came into London in 2010/11.

4. Income is not just king, it's emperor. Capital growth is currently moving sideways in the UK market and rental growth will probably be sluggish (apart from a few micro-markets such as West End Hedgefundshire).

So make sure that you are buying good quality buildings that will attract and retain strong tenants with thick wallet covenants.

5. Joint venture. The banks aren't lending and the government's not spending-so share your risk, pool your equity, enhance your expertise and improve your ability to leverage by forming new vehicles to buy (and even develop) property.

6. Intensify Due Diligence, Armour Plate your documents and be prepared to be patient.

Take your time with deals, be prepared to re-structure the complex equity, mezz and debt stacks that sit over so many of our market's major properties.

With rental growth sluggish, investors will make most of their money as they go in. The right price locks in the right return; rushing in rarely will in this market.

7. Don't go to too many conferences and get spooked. There are opportunities and large pools of liquidity out there-go and find them.

If all else fails, I can recommend the therapeutic effects of two large chocolate biscuits and a strong coffee.

Photo by thepeachpeddler via Flickr.