Country Article / Postcards

Why I Love a Good Crisis

Date: 08/28/2009 Author: Ronan McMahon

I can recall three times in my life when I wondered if I was going to make it out alive. The first time involved a woman in a bad part of Warsaw. The second was because of a drunk ship's captain. The third was down to Ronan McMahon.

The quickest (but not the easiest) way to get to a piece of real estate he had heard about was to hire a couple of off-road buggies and drive cross-country through some pretty daunting, though beautiful, terrain. At one point we were driving on a piece of sand barely wider than the vehicles. On one side, a sheer long drop to what might have been a shrimp farm (we were too high up to tell). On the other, a longer drop.

We couldn't slow down, in case the sand shifted and the wheels lost grip.

One wrong move, and we were goners.

Given what we were going through, I expected what we were searching for to have amazing potential…something special. When we eventually got there, Ronan looked around, walked the land, asked some questions, before saying something like: "Hmm…as I suspected, not a good deal…"

Yes, at the time, I was upset. But as his editor, I appreciate the lengths he goes to for his readers. More than any other investor I know, Ronan walks the walk. He goes through extraordinary lengths to chase down a good deal…or to make sure he isn't wrong about a bad one.

He's not an academic or a theorist (although he has plenty of qualifications). He's a real estate investment writer who invests in real estate himself. And he's more passionate about finding exceptional international real estate deals than anyone I know.

Right now, he's on to something big. He lets you in on the story below.

Len Galvin

P.S. To hear first about Ronan's biggest discoveries, simply join Real Estate Trend Alert. It's our most expensive service, yet still, I believe, underpriced. Take a look.

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Why I Love a Good Crisis

By Ronan McMahon

After a decade of runaway demand and floods of cheap money in Spain, the Spanish real estate developers took their eye off the ball. They took on more debt and risk than they should have. They overpaid for land. They over built.

It was quite the party on Spain’s costas. Today there is the mother of all hangovers. There are no buyers. The market has stalled. There isn’t enough space to house redundant cranes. They are being scraped or auctioned off and shipped to China. Banks control 50% of the real estate that is on the market. A sense of fear pervades….this is classic crisis investing territory. We can profit…or just buy our Spanish dream home for cents on the euro.

Crisis investing means buying when everyone else wants or needs out. At an aggregate level, markets overreact and overshoot both on the up and downside. Assets become mispriced.

In Spain banks lent to developers to build. Developers built in anticipation that there would be no problem selling their units. They thought the good days could never end. Then everything stopped. Credit and financial crises combined with major oversupply. Sales dried up.

Today, banks need to purge their loan books. Developers want to lick their wounds, move on and live to fight another day. Forced sell offs are happening...as I say banks are now the biggest realtors. There are deals to be done. We can get in for cents on the Euro. In some instances the banks who sell us discounted real estate will provide 100% financing.

Spain isn’t the only market where this situation exists. But it has my attention right now, as the reasons why Spain is desirable as a place to vacation or retire are the same as they were three years ago. Last year Spain greeted just under 60 million foreign tourists (only France fared better). Beach, golf, skiing and culture can all be on your doorstep. The only difference to three years ago is the price tag.

Exciting times. We need to keep our heads and focus on quality however. I’m looking for places that will be the first to recover—the most desirable and those with intrinsic value. Simply follow my three golden rules.

-Buy quality (location, construction, amenities and fit-out)

-Don’t take on any construction risk...buy completed units

-Don’t take on any project risk...make sure the condominium is functioning

Half-built projects dot the coast. I’m not interested. I’m looking for high quality, completed units where the condominium is functioning. I’m focused on areas like Granada and high-end destinations on the Costa del Sol. Granada has intrinsic value and hasn’t experienced over building to the same extent as some of the costas. The most desirable parts of Marbella and Malaga will be the first to recover once some demand recovers.

If you have an interest in Spain you should pay attention to the crisis opportunities in the areas I've mentioned. You can buy quality assets here for cents on the euro. Now is the time to be looking.

Members of Real Estate Trend Alert are already in the game—I shared my favorite Spanish crisis investment with them two weeks ago, and I'll be making more recommendations in this market soon.