Weak Euro Fueling LP Interest

Europe’s recovery has been slow but is more deeply entrenched than at any time since the crisis. However, for Tristan Capital’s CEO Ric Lewis, it’s the slower growth coupled with the divergence between European and U.S. fiscal policies that is making Europe much more interesting for LPs.

The weakening euro is making European real estate strategies a much more interesting play for international investors, helping drive down the “entry price” into deals, says Tristan Capital Partners’ CEO, Ric Lewis.

There are expectations that the euro and U.S. dollar could reach parity in 2016, and Lewis says the divergence of a tightening U.S. fiscal policy and quantitative easing in Europe, which has fueled a weakening of the euro currency, is helping push European strategies higher up the priority list for LPs.

Coupled with a recovery that is “more deeply entrenched than any time since the global financial crisis,” Lewis says Europe looks “a lot more interesting to a lot of investors” today.

“Right now, you look at where the economy is and you look at how it’s positioned…[with] the most accommodated fiscal policy in 100 years…a currency down 10 percent to 25 percent against the major currencies of the world, commodity prices and oil prices down 40 percent to 50 percent. The patient, as I like to say, isn’t prime to stay alive. It’s primed to get up, walk, and start running.

He adds that the smart investors coming to Europe at the moment are those who want to place themselves in the path of growth, in places where the economies and strategies are going to benefit from “above-trend growth in a stumbling but growing euro zone.”

Describing his firm as being in a “disciplined hurry” to invest—Tristan closed on 26 deals worth more than €3.2B in 2015—Lewis says he wants to take advantage of the current economic situation “because I don’t know whether it will be two years, three years, four years, but all good parties come to an end.”

Despite arguing there were “legs” in Europe’s recovery cycle, Lewis says it’s critical to understand where the true growth is occurring in Europe’s market. There’s a “bit of a disconnect” in some places when it comes to whether the fiscal changes in the economy are boiling down into more disposable income, wage growth, and consumer behavior, he adds.

“The places where that is happening are really interesting and we’re trying to stay in the path of some of that. Where it isn’t happening, there’s a bit of fool’s gold going on.”

Lewis highlights Italy as one market where Tristan has been able to take advantage of looser financial conditions and more accommodating fiscal policies. He adds that, with local Italian capital less competitive than ever before, “if you’re semi-local, and you know your way around, there’s an opportunity to buy very high-quality real estate that needs a bit of work.

“We’ve made a pretty good living by being there just early enough to do our work, just before the institutional capital came in and gave it a checkmark and said, ‘We need to be in Italy.’”