GIG: What are the trends emerging in Greek real estate?
Kotzanastassis: We are seeing very strong interest in the hospitality sector and similarly strong demand for prime commercial assets, but at the same time an anti-climax in the short-let residential sector and great apprehension about the NPL property collaterals. Starting from the ‘Airbnb phenomenon’ as it’s called over here, the sector has fallen victim of the first post-crisis trough. The concept had raised parts of the residential market from the dead, fuelling considerable rental and price increases in city-centre locations. Intense competition, however, has caused daily rates to flat spin and it’s now apparent to many investors that operating costs are actually much higher than envisaged. In the prime end of the institutional space, transactions have closed at such high prices that many of the local REICs were forced to fold and not even bid. These new investors, mainly maiden funds, are driven by the yield differential between Greece and other Euro countries, potentially cheaper financing from abroad, and very bullish macro expectations.
Perhaps the hospitality sector is a harbinger of events to follow; it has been the strongest performing sector of the last two or three years, but the economic downturn in the eurozone and the currency collapse of competitors such as Turkey are already impacting revenues and occupancy rates. Athens has seen a lot of old offices being remodelled into hotels, causing concerns about a potential oversupply.
GIG: You have said that one of the biggest problems in Greece is the existence of obsolete properties in the market. Can you explain this a little bit to us?
Kotzanastassis: By and large, we haven’t had new developments for the best part of ten years. Many developers have gone bust, project finance is scarce, demand has yet to recover in earnest, and the bewildering planning system makes sure that all large, game-changing developments are usually stalled.
Meanwhile, you only need to think for yourself what an office, a hotel, or a warehouse used to look like ten years ago, and what they look like today: old-style, open-plan offices (in the best of cases) versus coworking spaces with creative chillout zones. Early 1990s buildings already look like extinct species in today’s stern requirements of sustainability, connectivity, and wellness, not to mention the modern mixed-use norms where you increasingly find work, living, and entertainment uses all situated within the same building.
Technological change in real estate is rampant, which means the existing stock will grow obsolete at an accelerating pace.
GIG: What can be done about it?
Kotzanastassis: Oh, very simple – overhaul the planning system through a change in the constitution, kick-start the banking sector by recapitalising the banks, and stimulate demand by reforming the taxation system and eliminating red-tape!
Seriously, there’s no easy solution to this, and, in my view, it will take time before we see the next generation of properties. The most obvious thing would be to facilitate foreign investment, not by granting any special privileges or by enacting yet another bout of ‘investment laws’, but simply by allowing investors to operate – within the boundary of the law of course – without the interference of small minority groups, who can hold investors hostage to their own narrow self-interests.
GIG: Banks have been collecting properties as they move to cut NPLs. Some of these properties have been sold to funds, but a large number of assets remain in the possession of banks. How do you see this developing?
Kotzanastassis: Again, it’s not easy, I’m afraid. This is an area we have considerable experience in, as we managed the first-ever portfolio of repossessed assets in Greece, while we’ve worked with funds on all secured NPL and REO transactions that have been marketed.
In their vast majority, these portfolios comprise secondary and tertiary assets, which can be notoriously illiquid, thus necessitating large discounts. Properties such as neighbourhood retail and old industrial may be impossible to sell, as there is no discernible use – think e-commerce and the decimation of industry.
The residential sector, at an aggregate level, is facing headwinds of negative household formation, sluggish disposable income, and limited mortgage lending. Banks in Greece have generally been savvier than in other countries, taking onboard assets as a last resort. In my view, even if the economy picks up, there will be a substantial tail-end in these portfolios that will take a very long time to dispose of.