Europe’s Booming Southwest: Time to Invest?

Europe’s Booming Southwest: Time to Invest?

This past week I have been travelling along the “new” Southern Coast of Europe — the Algarve in Portugal and Spain’s Costa del Sol. As I write this, I have a terrific view of the Rock of Gibraltar — symbol of one of the last vestiges of the British Empire, where it still takes Great British pounds to buy yourself a pint of beer. Although most visitors come here for the climate, which is just about identical to that of Southern California, I came here less for the sunshine than to look at opportunities in the collapsed real estate market.

Europe’s Booming Southwest: A Remarkable Transformation

This southern fringe of Europe has undergone one of the most impressive transformations in Europe, since, well… the reconstruction of Germany, France and the rest of continental Europe, after the Second World War. Much like Florida, Nevada and Arizona in the United States, this formerly undeveloped section of Europe has attracted massive amounts of investment in real estate and infrastructure during the last 30 years. While James Bond was cavorting in the South of France and Monte Carlo, a revolution was taking place down the coast.

Much like Las Vegas, Phoenix and Orlando — cities that were barely on the map in the United States in the 1970s and 1980s — cities like Faro (Portugal), Sevilla, Marbella and Mallaga have emerged as hot spots for Europe’s own version of snow birds — retiring Brits who are fed up with the high cost of living and lousy weather in Birmingham, Manchester and even London. As in, say, Boca Raton, Fla., close to one out of seven residents on Spain’s Costa Del Sol are from elsewhere — mostly Brits and Germans, with a surprising dash of Romanians and Bulgarians.

As you drive along the coast, the quality of the infrastructure  strikes you first. Unlike the crumbling roads and bridges of the D.C.-Boston corridor in the United States, highways and ports are new and shiny. Before I came, I didn’t know what to expect. But I did not have that increasingly bizarre experience of driving from JFK Airport to New York City and seeing the run-down, shabby housing and decaying bridges that have many visitors gasping: “My God, this is a third world country.” To be fair, I don’t get that feeling in the newer parts of the United States when I travel to Las Vegas, Orlando or Atlanta. But what I have seen here far exceeds what I had expected from Spain — a country that was still a dictatorship when Gerald Ford was president.

Virtually every town I saw in Portugal has its own shiny, new municipal stadium — and even skateboarding and BMX bike-riding parks. The Portuguese beach town of Albufeira has all this — and even escalators taking guests up and down from the beach. These are serious luxuries for a municipality of only 35,000. The town of Vilamoura reminds me more of Wailea, Maui’s five-star resorts and golf courses than an old Portuguese fishing village. It shocked me to able to log on to a free Wi-Fi connection at a brand new bus station in the remotest of locations. I can’t imagine that’s the case, say, in Akron, Ohio.

My hotel in Sevilla, Spain, boasted not only a free Wi-Fi connection, but a free laptop. The room was as nice as the one that I stayed in at the Las Vegas Vdara in May. And while the partying USC and UCLA grads in Newport Beach, Calif., like to boast that Orange County’s boats, women, cars, climate and shopping are the best place in the world for singles, I think the inhabitants of Puerto Banus, in Marbella, Spain, can give the Orange County crowd more than a run for its money — on all four counts.

Europe’s Booming Southwest: Illusion or Reality?

The irony, of course, is that both Portugal and Spain are charter members of Europe’s PIGS, the group of profligate countries that collectively stand on the precipice of debt-fueled economic collapse. And with Spain’s stock market among the worst performers in the world this year, something clearly does not add up.

Much like the skyscrapers that dot the cityscapes of Chinese cities that few outside of China have ever even heard of — and the six-lane highways that lead to them — new and shiny infrastructure is impressive on its face. Yet it also can blind you to the long-term consequences. As any economist from the Austrian School of Economics will tell you, much of the investment during a boom period is misguided. The least impressive things I saw in Spain were the pavilions from Seville’s 1992 World Expo. Despite providing a home to a handful of high-tech companies, the expo site has the feel of a 1960s U.S. urban renewal project on steroids — too many weeds poking out of too many graffiti-infested concrete walls. Beijing’s iconic “Bird’s Nest” Olympic stadium is already headed down that route. I wonder if the same fate awaits the site of the Expo 2010 in Shanghai.

In many ways, Europe’s Southern coast is like the successful Southern California mortgage broker with the Porsche and the McMansion. It’s all very glitzy and glam while it lasts. But once the real estate bust hit, it was a short route from the McMansion to McDonald’s. Overnight, the boring “millionaire-next-door” types in the Midwest — or in Europe’s case, the Germans — are looking a lot smarter.

Europe’s Booming Southwest: In the Long Run…?

The most street-smart entrepreneur I know dismisses real estate and debt collapses as ultimately irrelevant. After all, he reasons, it’s not like the bridges, buildings and parks are going to disappear once they’re built. True. But those who look at these projects purely as investments take a different view. Last week, I was walking along London’s toniest neighborhood with a top hedge fund manager who made his fortune from the subprime collapse. When I pointed to the apartment that an Arab sheikh had just purchased for a reported $140 million at One Hyde Park in London, his instinctive reaction was, “I wish there was a way I could short it!”

As for real estate? I’m holding off for now. Between the excess supply of housing, and prospects for a weaker euro, this is not the time to buy for a U.S.-dollar investor. That said, I am coming away with an appreciation that — debt-fueled or not — new things can happen on the Old Continent. Europe has come a long way from Chevy Chase’s 1985 movie “European Vacation.”

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