Surprisingly enough, this comes at a time when Greece, especially Athens, is being targeted by foreign investors who see the debt-plagued country as an intriguing recovery play.
Here are a few reasons why the bad news in Greece may not scare off foreign real estate investors:
ASSETS IN PLAY
Greece’s real estate market attracted over US$1.5 billion in foreign investments from from 2013 to the second quarter of 2014. Properties that were owned by banks or have been privatized by the Hellenic Republic Asset Development Fund, a Greek agency, have been snapped up by outside companies like Fairfax Financial Holdings and Jermyn Street, a Turkish real estate fund.
Last year, the Hellenic Republic Asset Development Fund announced it was looking to raise US$508 million by securitizing real estate assets.
More money may be coming in. Despite Greece’s hairy debt situation, Athens was named one of the top five cities for investment prospects by PwC and the Urban Land Institute’s “Emerging Trends in Real Estate Europe 2015” report. Sure, the Greek economy lacks the luster of stronger European markets, but investing in the country may offer opportunities for “high-yield initiatives,” according to the report.
FIRMS ARE BUYING
In 2013, Invel Real Estate Partners, a London-based firm, paid $882 million for a 66 percent stake in Pangaea, the National Bank of Greece SA’s real estate unit. Invel said their property deal with Greece was the largest in the country’s history.
Investors are also targeting hotels and resorts.
Despite the interest in Greece’s property assets, how these investments pay off is still unclear.
Colony Capital bought a roughly $45 million stake in Amanzoe, a seafront resort. Jermyn Street paid the Hellenic Republic Asset Development Fund 400 million euros (roughly US$444 million) for a 90 percent stake in the Astir Palace hotel.
Despite the interest in Greece’s property assets, how these investments pay off is still unclear. If Greece does “Grexit” the European Union and returns to the drachma, property values, which are not high, “will fall further and will only increase the country’s allure to certain investors,” says Richard Barkham, global chief economist for CBRE
The good news, says Theodore Pelagidis, professor of economics at the University of Piraeus, Greece and a nonresident senior fellow at the Brookings Institution, is that this interest from outside investors is an encouraging signal that things for Greece and its people will improve “in the very long term.”
“Investors will come provided that wage levels are according to productivity levels, as it has been in the past couple of years,” says Pelagidis.
Colony Capital, headquartered in Los Angeles, recently bought a roughly $45 million stake in Amanzoe, a seaside resort in Greece.
In the meantime, Pelagidis believes that investors will need to see marked improvements in Greece’s justice system and tax regime as a further indication of stability and predictability.
If so, Greece’s real estate market may be as profitable as reports have indicated, “provided political risk will return to normal,” says Pelagidis.
“It’s not easy to predict when. It’s politics after all.”
Still, absent such reforms and without a more stable environment, “the long-term economics are murky,” says Barkham.
But for an investor, Barkham adds, “It’s not the size of the opportunity that matters. It’s the price you pay. But I also hope that investors, by managing the assets they acquire effectively, can play their part in rebuilding the Greek economy for the future.”
Posted by Daniel Rosen (Blueprint.com)
