UPDATED, 10:34 a.m., July 7: Greek voters’ overwhelming rejection of European creditors’ austerity-laden loan package makes a Greek exit from the euro more likely than ever. But while prior crises in Europe have led investors there to seek relative safety in assets like New York City real estate, experts told The Real Deal that the effect of the latest turmoil on the property market here will be minimal.
“Are we going to see a surge into the New York market? No,” said Sam Chandan, president of Chandan Economics and former chief economist at Real Capital Analytics. “The forces that are pushing it have been in play for some time. This won’t be the thing that convinced new investors to diversify into U.S. real estate.”
Sunday’s referendum marked the climax of a months-long showdown between the Greek government and its creditors over the terms of a reform program that accompanied the country’s 2010 and 2012 bailouts. Voters handed a resounding 20-point victory to Prime Minister Alexis Tsipras, elected in January to end, or at least mitigate, the program’s austerity requirements, which have led to a persistent depression and widespread unemployment in the country.
“No matter what happens now, Greece doesn’t come out a winner,” said Chandan.
Negotiations to resume
European and Greek leaders announced a new round of talks set for Tuesday, but in the meantime, an array of major international banks, including JPMorgan, BNP Paribas, RBS, Barclays and Societe Generale, revised their forecasts, casting Greek exit from the Euro as the new base case, Reuters reported.
But, none of this is expected to have a great impact on the real estate market.
“The reality is that not much capital has gone into Greek real estate,” said Borja Sierra, head of U.S. capital markets at Savills Studley. He said while international investors like the Blackstone Group and Wilson Kennedy might see some properties in other troubled countries like Italy and Spain lose value, “Its not evident that they’ve triggered sells.”
Likewise, he said, there are “very few” Greek investors in New York.
“The Greek crisis is a pimple on an elephant,” said John Catsimatidis, former mayoral candidate and owner of Red Apple Group and Gristedes Foods, “The United States is a stable environment. If anyone was going to invest money, what better place to invest it than the capital of the world, New York City.
Corcoran broker Marie Schmon, who was born in Greece, regularly visits Athens and works with Greek clients, said, “Nobody has called to say ‘Masha, we need to get our money out of here.’” Her Greek clients here, she said, are used to the turmoil after the last few years of crisis. “It’s business as usual,” she said. Schmon believes her clients, like many Greeks, keep their savings outside Greece. “It is a country where there are lots of political changes all the time,” she said.
Thomas Guss, president of the brokerage New York Residence, which has many European clients, said he did see a spike in interest in properties here but it stretches back to when the Greek crisis began nearly eight years ago. In an email, he noted that many Europeans investing overseas “are increasingly disenchanted by the way their economy developed in recent years,” and many are concerned about whether the euro will keep its value in the future.
“We see interest not only from wealthy Greeks but from investors of nearly all European countries,” Guss said. And he expects that to continue, “because regardless how the Greek crisis will be resolved or disposed of, discussions will be ongoing and the uncertainty will remain for a long time to come.” And, he added, Greece is just one of several countries that is struggling to recover from the economic crisis.
A small part of Europe
Greece is a small economy, its $200 billion of GDP making up just 2 percent of the eurozone’s total.
“If the Greeks default and leave the eurozone, that would be devastating for them, but more of a blip for Europe,” said Adam Kamins, senior economist at Moody’s Analytics.
The greater danger was always the possibility of Lehman-Brothers-style “contagion,” a chain of uncertainty-driven panics beginning in Greece and ultimately spreading to larger economies of the European periphery, primarily Italy and Spain, which are also still recovering from the financial crisis.
That risk has all but vanished. Greece’s creditors, notably Germany, “haven’t buckled, because they have a reasonable confidence that they can contain any impact from Greece.” said Patrick Chovanec, chief strategist at investment advisor Silvercrest Asset Management and adjunct professor at Columbia’s School of International and Public Affairs.
This is primarily due to the European Central Bank’s commitment, voiced famously in 2012 by its president, Mario Draghi, to do “whatever it takes” to defend the euro from speculative runs.
European financial assets dropped in response to the Greek vote, as did euro itself . Germany’s DAX fell 1.5 percent while the CAC-40 in France fell 2 percent. The FTSE 100 index of leading British shares was 0.8 percent lower. In Italy, Milan’s main index fell 4.0 percent, while Madrid’s market lost 2.2 percent. The euro traded 0.5 percent lower against the dollar, and Spanish and Italian 10-year bond yields edged up around 0.1 percentage points.
A political contagion?
The largest potential danger to Europe identified by the experts was, counter-intuitively, the risk of Greeks getting what they want, debt relief and less austerity, which the International Monetary Fund, one of Greece’s creditors, supported last week.
“If the deal is much more favorable to Greece than we expect, that could have a contagion effect,” said Moody’s Kamins.
That, said Saville Studley’s Sierra, could pave the way for other radical parties, like Spain’s Podemos, to win power and make the similar demands on Europe. That would be “a major scare for most international investors,” said Sierra, as Spain’s economy is much larger and more consequential than Greece’s, and its debts consequently harder for the European core to absorb.
If that occurs, said Kamins, it would “rattle confidence in Europe” and lead to an “upside to the New York real estate market,” because investors there would try to move their holdings to assets perceived as safe.
But Kamins reckons the risk of this scenario as small.
Chovanec, in fact, predicted the opposite. “Other countries are going to see how difficult it’s been for Greece,” he said. “It will give pause to any government thinking of taking this strategic approach in dealing with its creditors.”
Sierra cited Great Britain’s possible exist from the EU next year as a greater risk for European stability, and Chandan pointed Russia’s machinations in Ukraine as having “far greater implications” than what happens with Greece.
“A few nervous investors among Europe’s wealthiest may be somewhat more likely to invest in NYC real estate,” Kamins said, but added, “You’re not going to see the kind widespread impact globally that hits wealth and finance employment too badly outside of Greece.”