White Paper: Strategy for Investing in Greek Real Estate
The Greek economy stands at its lowest point of the last 50 years. Tourism is probably the only sector worth considering when planning to invest in Greek Real-Estate.
The tourism sector market demand remains robust, while at the same time numerous investment opportunities exist from businesses that got sucked into the black hole of the Greek bubble economy.
Investor Beware: Any of the following can turn a solid investment opportunity into a nightmare:
a. Dependence on Government and unstable regulatory environment
b. Inadequate / bad planning
c. Working with the wrong people
Where not to invest
1. Residential and Office real estate: while prices have gone down about 20% for residences and up to 50% in office real estate,
-the underlined cashflows have gone down even more
-the logistics for such investments are not suitable for foreign investors (micromanagement, LT payout, unfavorable tax environment)
2. Pubic/Government owned real estate. These properties are much of the buzz these days – divided to 2 categories
a. Prime located tourism real estate
Note: WeCan Partners have done consulting projects for “Hellenic Touristic Properties SA” in the past.
b. Government buildings offered for sale-lease-back to investors (an effort from the Greek government to raise cash, offering competitive returns to investors.)
Although many of the Public/Government owned properties –especially the touristic ones- represent great potential, we advice to stay away: These investments are very high risk given the politics, the shady methods for acquisition and the red tape involved post-acquisition.
Overall, 2013 was a good year for Greek tourism. Compared to last year, arrivals from abroad were up about 10-15% and expected to exceed 17 million visitors (reaching the 2007 peak), compared to 15 million in 2010.
Reasons for this: the unrest in northern Africa as well as the market perception of good deals from the crisis.
Also, there are reports that estimate a 10% increase in overall spending compared to last year. As a good rule of thumb, we believe that those in the tourist business offering quality services priced competitively, did well this year.
In brief, the strategy proposed:
a.purchase of financially insolvent mid-size beachfront hotel resort*
b.renovating to green energy standards
c.management assigned to proven track-record professional firm
d.exiting in the medium term via sale
*An additional attractive option (requiring more funds) is to secure land around the hotel and build independent villas to be sold to individual investors, with the added value of being serviced and rented out by the hotel management.
As in most sectors of the Greek economy, many hotel businesses are under financial distress: the reasons are common
-subpar overall business management practices
-chronic financial mismanagement and diversion of funds to non-business activities during the boom years
-building expansions that were based on government grants that have yet to be received
-no funding available to upkeep/renovate premises.
WeCan can generate a list of 20-30 such potential properties can be compiled within a month’s time. The criteria for selecting a potential investment have to be thoroughly researched and analyzed.
The final selling price for such properties is often 35-45% off the initial listed price. A favored tactic employed in such distressed debt real estate is to research the debt obligations pending and then negotiate directly with the financial institutions (partial debt write-offs are likely).
Of the funds available for investment about 65% should go towards the acquisition itself: about 25% will be required for the renovation to the latest energy efficient standards, and 10% set aside for working capital. Renovating the hotel and making it energy efficient can reduce operating costs 25-35% and increase the property’s market attractiveness (for visitors and future buyers alike).
In WeCan Consulting you will find a trustworthy and capable partner for the above or future projects. We choose ad-hoc teams for projects from a long pool of tested and capable professionals, with whom we have worked in the past and meet the highest ethical business standards.