Property as an asset class is in the dog-house. The property meltdown, for example, has produced eye-catching casualties such as the US states of California, Nevada and Florida.

The severity of the falls has prompted StratREAL, a London-based real estate investment firm, to roll out its Distressed Florida Residential CLUB, a fund aiming to acquire property in the southeastern state at what the firm sees as heavily discounted prices. StratREAL intends this fund  to reach up to $250 million in equity in its first closing; with gearing, it could attain a purchasing power of up to $600 million, Jeremy Gates, group managing director at StratREAL, told WealthBriefing in a recent interview.

US house prices fell by 1.7 per cent in the first quarter of this year from Q4 2007. And in Florida, where the house price gains had been particularly sharp until the credit crisis erupted, prices have fallen by 3.3 per cent on the quarter, by 4.4 per cent in California and down by 4.9 per cent in Nevada, according to official US data. In California, for example, prices have slumped by more than 10 per cent in Q1 from a year before. With that level of shift, Mr Gates is confident that he can pick up some real bargains amid the rubble.

He is not alone in taking this view. One recent example of a new fund playing to the theme of buying heavily discounted property is the California Distressed Land Fund, which is being launched as a tax efficient fund by Three Arch Investors, a US real estate investment business.

Distressed property investment looks to be a strategy only for long-term investors with nerves of steel. But Mr Gates argues that in many of the mature economies, paradoxically now is a good time to start thinking of moving back into parts of the market.

"I would say to investors now, for the first time in nine years in the mature markets, they have an opportunity to get into the market and make some money," he said.

Investors will take a while to convince that the market is near its bottom. But Mr Gates and his StratREAL colleagues can point to a strong track record so far to justify their confidence. Since the firm, which is based in London’s St James’s district, was founded 10 years ago, its assets under management have surged from $200 million to $6.5 billion. One cautionary point, however, is that StratREAL has yet to be tested by a global property slump.

Mr Gates has no difficulty explaining why many property markets have faltered. "Much of what has happened is connected to the credit crunch. Lending is down, the amounts that banks are lending are down, margins are a lot more expensive and banks have little additional capacity to lend. It is banking that has driven this slowdown," he said.

"The response to that has been that values have fallen and while the US has had a correction, the UK has had the swiftest and deepest response to it,” said Mr Gates.

Mr Gates is relatively sanguine about the European real estate, meanwhile. “In Europe, we think Paris is okay. While Paris is the biggest property market, it has a more broadly based occupier base. Employment does not depend on a single sector." He contrasts this situation with that of London, where the state of the market is heavily dependent on the vigour of the UK capital’s financial services industry.

"We still think Germany offers some interesting opportunities. In Spain, there are problems, especially along the coasts. It is still early days though (to exploit distressed opportunities); that would be more for 2009 than this year. Ireland is in the same category as Spain," he said.

The firm does not generally like consumer retail property in the UK, for example, because consumers are cutting back on such discretionary spending as well as spending linked to housing, such as white goods, he added.

It is going to take a while before investors will want to pile back into bricks-and-mortar investments after the recent turmoil. But as StratREAL’s activities suggest, the distressed property strategy is one approach being urged on investors This strategy will certainly require considerable patience.