The fundamentals driving real estate success in Greece

While sectors such as logistics and data centres have recently started to attract attention and capital in Greece, hotels and resorts remain the star performer, writes Tassos Kitsantas.

The Greek real estate and hospitality markets continue to enjoy a period of enhanced activity, with several international and domestic participants, ranging from Greek real estate investment companies to global real estate private equity houses, pursuing a wide range of strategies.

Although such diversification might be customary in other mature markets, the truth is that, in Greece, certain strategies and sectors such as logistics or data centres have only recently attracted attention and investment capital from investors. Undoubtedly, the hotel and resort sector is the top performer,
which might not come as a surprise for a country that has seen an ever-increasing number of tourists in recent post-pandemic years.

Several factors have contributed to these levels of activity and performance. The availability of debt capital, the growing presence of international players and the role of specific landmark projects stand out as key factors in the recent success story of the Greek real estate market.

Availability of debt finance

Given that real estate transactions are typically leveraged, the availability of debt capital in the country is key to realising successful, economically viable investment plans.

Debt capital for real estate investments in this market has historically been provided by the four Greek systemically important banks. In recent years, these banks have managed to tackle their non-performing loans (NPLs), a good portion of which has been backed by real estate collateral.

They have brought NPL levels down to manageable, low single-digit percentages to their overall loan books, in line with their European counterparts. This, in turn, has enabled them to focus on new loan origination and credit expansion in sectors such as real estate.

Moreover, in view of enhanced competition between the banks, borrowers are now benefiting not only from the availability of debt capital, but debt capital at lower margin rates compared with those offered until very recently.

Recovery and resilience finance

Bank debt for real estate transactions is further complemented by funds from the Recovery and Resilience Facility (RRF), launched in 2021. One of its key objectives is to increase private investment in the country. Under the RRF, Greece has been entitled to draw EU funds of €30.5 billion in total, €17.8 billion in the form of non-repayable grants and €12.7 billion in loans.

Funds from the RRF are provided at significantly lower interest rates, in conjunction with bank debt (effectively funds are granted as syndicated facilities by the bank(s) and the RRF). Investment plans can receive RRF funds if they fall under at least one of its five pillars. In the case of real estate, projects fall mostly under the ‘green transition’ pillar, with relevant costs towards green redevelopment works in the total project budget eligible for RRF funding.

The real estate debt offering in Greece might soon be supported by additional sources of private capital. The government is in the process of revising the legal framework governing lenders, referred
to locally as “companies for the provision of credit” (ΕΠΠs). Among other changes, the scope of these companies will be expanded so that they can grant funding. Effectively, this allows new financing, whereas only refinancing was allowed before.

At the same time, the AIFMD II regime for loan origination has set the scene for alternative investment funds with debt strategies to become more active, especially in territories such as Greece. Unlike other Western markets, the country does not have the benefit of funding from private credit/debt funds. Undoubtedly, both aforementioned sources of debt capital will provide the Greek real estate market with additional sought-after liquidity, which could unlock and accelerate real estate investment plans.

Presence of international capital

In recent years, the market has benefited from the presence of capital from reputable international names in the real estate and hospitality sectors. Most notably, the hotel and resort segment has attracted considerable investment, especially in the years after the pandemic.

Noteworthy transactions include the 2022 purchase of a majority stake in the Greek Sani/Ikos Group (SIG) by GIC, the Singaporean sovereign wealth fund, one of the world’s biggest investors. The deal valued the Mediterranean luxury resorts operator at €2.3 billion. GIC bought stakes from an investor pool which included Oaktree Capital Management, Goldman Sachs Asset Management and UK-based Hermes GPE as part of the transaction.

Goldman Sachs itself has invested more than €150 million in the redevelopment of three seaside resorts in the Halkidiki region of northern Greece. It is also seeking additional properties as part of plans to establish and expand its hotel portfolio in the country.

In addition to its sizeable investment programme in the hotel sector, HIG Capital, the US investment firm is now pursuing a groundbreaking project to establish an international logistics centre on a plot of around 300,000 sq m outside Athens. Total investment exceeds €300 million. Effectively, HIG will breathe new life into the site of a former Hellenic Steel factory and transform it into a trimodal transportation and storage hub.

Healthy divestment cycle

Other recent transactions involving international companies indicate a healthy divestment cycle for those that deployed capital in the market in the early days.

Private equity real estate manager Henderson Park and Hines recently completed the sale of the Grand Hyatt Athens hotel to funds managed by Blackstone Real Estate for €235 million. Henderson Park and Hines acquired a 300-key hotel in June 2017, marking both firms’ entry into the Greek market.

Following extensive renovation and expansion of the hotel, as well as the acquisition and development of an adjacent property as an extension to the main building, the number of keys is now more than 500. Common areas have been added, as well as amenities including a rooftop restaurant, pool and 4,400 sq m of meeting and conference space.

It is worth noting that Henderson Park and Hines have a pipeline portfolio of hotel and resort assets in Crete which has been under redevelopment. Two are now complete and operational, and likely to be tagged for divestment.

In short, international real estate players have shown they have confidence in the country and its real estate market, which continues to expand.

The Hellinikon project

Among numerous development and redevelopment projects, one project in particular has influenced the entire market. The Hellinikon, a multibillion-euro regeneration project on the site of the old Athens airport, is to be developed by AEX-listed Lamda Development and, in some cases, by its partners in certain standalone projects within the site. The project has an extensive building programme, containing components such as the tallest residential tower in the country, two large shopping centres (one with over 100,000 sq m of floor space), a casino, marinas and hotels.

The Hellinikon project will not only reinvigorate the massive void left in the urban grid after the old airport relocated. It has also ignited the redevelopment of the Athens coast and adjacent neighbourhoods, the so-called Athens Riviera. A range of investors provided capital for the various components of the Hellinikon and the Athens Riviera, from local family offices, some of shipping origin, to private equity platforms.

Two large hotels on the Hellinikon site are to be developed in cooperation with Temes, the company behind the Costa Navarino resort in the Peloponnese. Nearly €1.5 billion will be invested into the integrated resort centre, which will include a casino, hotel and other amenities. It will be developed and operated by Gek Terna, the Greek conglomerate, and Hard Rock International.

Piraeus Tower redevelopment

There have been several other projects of a smaller scale to upgrade existing building stock and/or add new spaces of modern specification to the market. These have further regenerated entire areas, primarily in Athens, but also in other cities. One example is the redevelopment of the Piraeus Tower by AEX-listed developer Dimand and regeneration projects along the streets surrounding the harbour.

The Greek real estate market continues to experience healthy levels of activity, supported by the availability of debt capital, good levels of appetite from reputable international companies and the landmark projects that act as a catalyst for further developments.

Tassos Kitsantas has 30 years of pan-European experience in real estate finance, investment and development space. He has held senior roles in the banking sector within banks such as ING Real Estate, Pbb and Piraeus Bank. He is currently leading the establishment of a real estate private credit platform and also acts as senior adviser in several sizeable real estate investment projects.