As their country faces the possibility of default on its debt to the International Monetary Fund (IMF) and potential exit from the European Union, Greek citizens woke up this Monday to face bank closures and strict limits on how much money they could withdraw from their accounts using ATMs. With Greece teetering on the brink of collapse, the financial markets in Europe and U.S. reacted with volatility. But U.S. real estate economists say the possibility of a “Grexit” will not have any substantial impact on commercial real estate investment in the U.S., and if it will, the impact is likely to be positive.
To start, chances are the Greeks will opt to adapt the austerity measures proposed by the E.U. and the crisis will be resolved relatively quickly, according to Richard Barkham, executive director and global chief economist with real estate services firm CBRE. “Even though the cuts are hard, they are better than being outside the Eurozone,” Barkham notes. Even if the situations spirals out of control, the E.U. as a whole is in much better financial health than it was two years ago, when the situation in Greece first came to a head, and could withstand a Greek exit without sustaining irreparable damage or facing financial “contagion” in other parts of the union.
“We [now] have quantitative easing in Europe and this allows bond market contagion to be suppressed,” Barkham says. “And countries to which the contagion might have spread—mainly Ireland, Portugal and Spain—are now bouncing back economically. So I think that even if things spiral out of control, they can be contained in Europe.”
In fact, if the situation persists it may convince the Federal Reserve to hold off on raising interest rates in the U.S. until next year due to global instability, thus prolonging the extremely favorable environment for property acquisitions here, Barkham adds. According to Raymond Torto, a lecturer at Harvard University and retired chief economist with CBRE, any negative fallout from the Greek debt crisis will be most pronounced when it comes to bond-like securities. Property owners and investors in the U.S. with no ties to Greek tenants have no cause to worry.
“What happens to commercial real estate or to Europe does not depend on what happens on Monday or Tuesday of this week,” Torto adds. “The key will be the duration and the outcome of the Greek crisis. A short-time crisis will be a nuisance and some money will be lost in the security markets. A long-time crisis would be generally positive for commercial real estate in the U.S., but the direct impact will probably be immeasurable. The indirect effects will be [the flow of] more foreign money into U.S. commercial real estate and a Fed more likely to delay raising short-term interest rates.”
Christopher Macke, managing director of research and strategy with American Realty Advisors, a commercial real estate investment management firm, offers a similar outlook. The Greek debt crisis would be a threat to U.S. commercial real estate only if it caused capital illiquidity on a global scale—something that is not expected to happen, he points out. What’s more likely is that U.S. assets might become even more popular as a “safe” investment.
“Absent a surprise in the impact of a Greek default on the financial system, we don’t expect significant negative consequences and actually think a default might push more money into U.S. commercial real estate as investors seek out a port in the storm,” Macke says.
In spite of this benign outlook, the situation unfolding in Greece should serve as a reminder for U.S. investors of something they should have learned during the last downturn, according to Torto:
“There is a lesson here for commercial real estate investors… to not get too much into debt!”