Billions have been raised by a variety of funds and investors to buy assets in Europe. While there is clear evidence that the financial situation in Europe has stabilized, it has not turned the corner to genuine improvement. Both the IMF and ECB have clearly been warning recently that Europe faces a potential Japan problem of deflation and stagnation. Spain and Italy are not going to default, and Greece is alive, but that is far from providing a sound investment environment. There are several banks still in serious problems like HSBC and Deutche. French banks have stabilized but are not healthy. France is stagnant and unlikely under Hollande to change for the better until the next election and then it will take awhile depending on who is elected. France is not a good place to be investing in illiquid assets. Greece has a far right wing problem that is so severe that the government has had to arrest members of the right wing party. In other countries, far right politicians have gained ground. Standards of living outside Germany are not improving and the Muslim immigrant population is increasing substantially. These are all the sorts of ingredients that breed political problems or worse, and will make it harder for Europe to find consensus to solve the economic problems.

Add to all of this the German issue. Germany, as the one major economy and the one with the money, is now viewed as pushing its exports vs building a domestic demand that would help other European countries. They are the creditor and have pushed other countries to do things their way- right or wrong- it rankles others. This makes it much harder to reach agreement on things like a uniform banking oversight program.

There is another phenomenon going on in Europe that is very under the radar but has real investment implications. Due largely to the huge influx of Muslims into many countries, the level of anti Semitism and harassment has increased materially to the point that many of the best and brightest of the Jewish population in France, Holland and some other important countries has begun to quietly leave permanently for Israel, the US and the UK. This is a slow brain and capital drain taking place that will over time impact business and in turn asset values. It is very quiet, but it is happening at rates that are growing. It is the group that build technology companies, and new businesses. It is not by accident that Europe is way behind the US and Asia in technology start ups and technological breakthroughs. This is not going to cause a crisis in Europe, but what it does do is keep the technology sector under performing and the entrepreneurs from staying. Over time this will inhibit growth and value enhancement to some degree. Not what Europe needs right now. In addition, the large influx of immigrants is a drain on national budgets as many of these people are living at the lower end of society and require subsides and other services that cost the government resources that are simply not there.

I have felt for a long time that investing in Europe may pan out over the very long term, but it is going to be longer and harder than most envision. Yes you can buy assets in certain countries for what appears to be a deep discount, but then what. If the economies of these countries stagnate as the IMF fears, then what is the shorter term upside. The risk reward may work out eventually, but is it worth it. Do you really think the Europeans can get things pulled together to rebuild badly damaged economies in the next few years. Or are you better to stay home in the US and seek the few remaining deals where there are issues that allow smart investors to come in and rework the deal to generate good returns with less risk. While the distressed asset buys in the US are pretty much over and done, there remain what has always existed. The badly run assets, the under invested, the badly designed or positioned and the partner fights. What always existed. It is just much harder to find good deals and they require a lot of tough work to turn around, but it is here where you know the law and who to bring in to help fix the problems.

The US has many serious issues like the coming failure of Obamacare, continuing dysfunction in Washington, a failure to deal with the deficit and tax reform, major war risk problems in the Mideast, and a failed president with three more years. All of this is serious, but these issues exist in Europe in one way or another, so better to deal with them on the home turf than in a variety of foreign countries where the culture and the laws are not familiar.

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Joel Ross

Joel Ross began his career in Wall St as an investment banker in 1965, handling corporate advisory matters for a variety of clients. During the seventies he was CEO of North American operations for a UK based conglomerate, and sat on the parent company board. In 1981, he began his own firm handling leveraged buyouts, investment banking and real estate financing. In 1984 Ross began providing investment banking services and arranging financing for real estate transactions with his own firm, Ross Properties, Inc. In 1993 Ross and a partner, Lexington Mortgage, created the first Wall St hotel CMBS program in conjunction with Nomura. They went on to develop a similar CMBS program for another major Wall St investment bank and for five leading hotel companies. Lexington, in partnership with Mr. Ross established a hotel mortgage bank table funded by an investment bank, and making all CMBS hotel loans on their behalf. In 1999 he formed Citadel Realty Advisors as a successor to Ross Properties Corp., focusing on real estate investment banking in the US, UK and Paris. He has closed over $3.0 billion of financings for office, hotel, retail, land and multifamily projects. Ross is also a founder of Market Street Investors, a brownfield land development company, and has been involved in the acquisition of notes on defaulted loans and various REO assets in conjunction with several major investors. Ross was an adjunct professor in the graduate program at the NYU Hotel School. He is a member of Urban Land Institute and was a member of the leadership of his ULI council. In 1999, he conceived and co-authored with PricewaterhouseCoopers, the Hotel Mortgage Performance Report, a major study of hotel mortgage default rates.