EUROZONE: Greek gods

It used to be a joke at conferences to ask how real estate investors felt about Greece. Timed to coincide with rioting in the streets in 2012, stock responses to how one should approach Athens and other parts of the country were usually “with back-up” or “a shield.” 

Just recently, however, private equity and higher-yield firms have begun returning to the country. These firms represent the first wave of real estate investors of scale moving into Greece since its economic bailout and form part of the great European distressed real estate story.

The most eye-catching deal involves a new company launched by Chris Papachristophorou, the former head of opportunistic investing at RREEF Real Estate. His firm, Invel, has agreed to buy a 66 percent stake in a National Bank of Greece subsidiary, NBG Pangaea Real Estate Investment, for €653 million. That deal represents the largest real estate transaction ever signed in Greece.

For a while, it didn’t look likely that Papachristophorou would be among the primary movers into Greece. After all, he left professional investing when he and RREEF parted ways late last year and, after a pause, briefly linked up with the natural resources company of investor Beny Steinmetz to launch a real estate investment platform seeded with $400 million in equity. However, things didn’t go quite according to plan.
What happened was Papachristophorou and the platform, known as BSGRE, agreed to go their separate ways. Yet, there seems to be a happy ending as BSGRE has the right – though not the obligation – to co-invest in deals with Invel if it suits them. And the Greek deal suits them, so it has become a co-investor. 

The other unlikely benefactor from the Greek turmoil is a firm that some openly assumed would fail in the wake of the Greek crisis. Dolphin Capital Investors, started by Miltos Kambourides and Pierre Charalambides in 2004, is an Athens-based private equity real estate firm with a large exposure to developable seafront land in Greece. It may be mean, but I recall many asides privately speculating that Dolphin would drown amid Greece’s financial typhoon. 

Not so. In fact, Dolphin has remained intact and, if anything, is looking strong and able to capitalize on the distressed market, as evidenced by recent backing from US groups such as Fortress Investment Group and Oak Hill Advisors, which acquired a 4.49 percent stake in the firm at the end of October via its OHA European Strategic Credit Master Fund. 

Invel’s deal is one of five transactions people are talking about. Just a few weeks ago, a sale-leaseback of 28 government buildings separated into two portfolios took place. Pangaea, the company that Invel just became majority owner of, bought one portfolio. The other was won by Eurobank Properties, which like Pangaea is a public property company akin to a REIT. 

The third real estate transaction of note to have occurred in Greece arrived in June, when Canada’s Fairfax Financial Holdings increased its stake in Eurobank, which just bought one of the aforementioned portfolios, from 19 percent to 42 percent. The statement at the time of the transaction tells you much about why real estate investors are now pushing into the country. 

“The Greek people have worked through tremendous hardship, but we think the light is now visible at the end of the tunnel,” said Fairfax chairman and chief executive officer Prem Watsa. “We believe that Greece has taken significant steps towards addressing many of the key areas of its economy, thus encouraging foreign investment and creating a positive momentum that will foster increased employment and development in the country.”
There are more transactions to come. At press time, bids were due for the Astir Palace coastal resort east of Athens, which also is being sold by the National Bank of Greece. Four or five major international investors are said to be going for it, including Dolphin. There is even a fifth transaction in the offing in the shape of the old central Athens airport – 700 hectares of city center real estate bigger than London’s Hyde Park.

The truth is that many investors feel it has taken Greece too long to get to grips with its financial problems and to start disposing of assets, but at least the time has come. There have been smaller deals, but the ones mentioned here are the major examples and everything is being driven by foreign investors now, sometimes in partnership with local players. In this regard, Greece feels a lot like Ireland and Spain – and possibly Italy as well – adding to a growing feeling in Europe that the PIIGS are back. 

In hindsight, the way Europe has played out has been mostly predictable. The deepest most transparent markets of Western Europe offered the right level of risk return for opportunity funds from 2009 onwards. UK and German assets were at the forefront, followed by smaller markets like Ireland, The Netherlands and parts of Central, Northern and Eastern Europe. France should be the next market to receive major attention but, for now, Spain, Italy and Greece are the belles of the ball.