Speaker Spotlight: Arbitrage Real Estate 

Ioannis Orfanos, Partner at Arbitrage Real Estate, heads the company's Asset Management practice. He has more than 15 years of experience in real estate investment, management and advisory. Orfanos brings development, sustainable investing and asset management expertise to the firm. He is currently based in London, where he is working closely with international and institutional investors to originate, structure and manage large-scale value add real estate development and asset management investments in commercial and hospitality sectors in SE Europe as well as high yield opportunities in NPL and REO portfolios in Greece.

Orfanos discussed the hotel investment market in Greece, challenges to resort investment and the status of the Greek market in the MR&H panel The Lending Market at MR&H 2018.

Q: How would you describe the hotel investment market in Greece now? How do you see it evolve in the coming years? 
A: Greece has had some very good investment years in the past 3 years. Athens and Thessaloniki (2nd largest city) have attracted investment capital and operators targeting not only the upgrading, repositioning and luxury upscaling of existing hotel assets but also the creation of new boutique city hotel projects. Crete and the Dodecanese islands have also seen investment in resort developments and upgrades. Corfu has also started attracting investors and operators interest in luxury resorts and hotel operating projects. Also worth mentioning that the continued investors and major local and international operators interest in Cyclades islands, not just in Mykonos and Santorini, predominantly for new luxury boutique hotel projects. 

In general, the hospitality market in Greece has matured (in terms of business activity) and is ready to accept sophisticated international capital and noteworthy investments from important sector players and operators. There is also increased interest during the last 12 months in the local hotel NPL market as many global investors see the NPL portfolio auctions by major Greek banks also as an opportunity to enter the local hospitality real estate sector. We envisage that the demand for the Greek hospitality product will continue to rise in the foreseeable future given that the supply has not reached its peak yet. It is not by accident that Tour Operators are selecting each year new internal destinations to explore. In the coming years, we shall see completion of big mixed use hospitality resort complexes, increase of branded residences and further investment in high-end 5* and quality 4* resort hotels. Nonetheless, we also expect competition to attract tourists and also investment capital to intensify in the Mediterranean market, especially from Turkey’s 5* hotels and resorts due to local currency devaluation and from other non-European markets (like Egypt, Morocco and Tunisia) as their situation stabilizes further and new hotel projects come to the market.
Q: In what destinations within Greece are you seeing the most activity, and what types of assets are attracting investors?
A: For sure Athens has led the market not only in investments in larger hotel assets but also in upscale city hotel boutique projects and AirBnB style investments (due also to lack of available building stock with larger surfaces). It has attracted local and international interest, the latter mainly from US, Israeli, Turkish, Gulf and Chinese investors. A lot of these investors have acquired standalone commercial buildings or a portfolio of residential apartment units in the center for redevelopment and repositioning, as an example more than 20 units have started operations in the last 3-4 months. The same goes for Thessaloniki with more than 10 new small hotels expected to be launched. On the other hand, Crete, Rhodes, Kos and Corfu islands are attracting the interest of international hospitality and real estate funds. This capital is mainly targeting resorts and larger hotel assets (300+ room units). Mykonos island has welcomed also investors searching for private villa complexes for seasonal rentals. In Santorini, investors have sought for small boutique hotels with Caldera view or thematic hotels in traditional villages. There is of course notable activity in luxury villas and boutique hotels in other Aegean and Ionian islands as well as in the mainland especially in mix used resort style developments.

Q: What are the major challenges to overcome in resort investment and development in Greece?
A: The main challenges are quite common across the Mediterranean region. Most important in Greece relate to the lack of investable hotel stock, planning regime and tardiness in building permits process, hotel licensing bureaucracy, taxation (business and insurance) and broader macroeconomic and political aspects affecting the wider Mediterranean. Of course, we should not ignore the competition from neighbouring countries and other established Mediterranean markets. 

Q: How is the lending market changing in Greece, in particular when it comes to non-performing loans? How is it affecting investment and development?
A: I think the key is the fundamentals. Any good and investable hospitality project, doesn’t matter its size, would be able to attract lending at normal market rates. Peripheral and non-core projects might be finding it difficult to access finance or get competitive rates. The local financial institutions remain cautious and due to their big non-performing loan (NPL) portfolios they do not have ample lending capacity but have certain restrictions. The NPLs remain a major issue for the Greek banks. They have started actively managing these portfolios and already in the past 12-18 months, major banks have started auctioning real estate collateralised portfolios of corporate loans. Some of these loans have hotel assets as collaterals, large and smaller. Therefore, we see this process as an opportunity for change of ownership, reinvestment and repositioning. This why a lot of distress funds are looking to enter the hospitality sector through the acquisition of related NPLs.   

Q: What resort development or brand do you find the most interesting in the market right now? 
A: Difficult to choose one development project among many high end investments taking place or are scheduled to come to the market within the next 6-12 months. Perhaps a project standing out in the Athenian Riviera is the refurbishment and operation by Four Seasons of the ex Astir Palace Hotel complex in Vouliagmeni. Also, noteworthy could be the upcoming Oe & Only Kea island, a joint venture between Kerzner Group and DCI. The appetite of luxury brand operators is continuing and new projects are to be announced shortly in Athens and in resort destinations in the mainland, Crete, Aegean and Ionian islands.   

Q: If you were to give one piece of advice to an international operation or investor looking to enter the Greek market, what would it be?
A: It is important to have a trusted operating partner and also to work with a knowledgeable professional hospitality real estate advisor, who understands well the commercial, legal and technical complexities of the local market like Arbitrage Real Estate. 

Q: If you could have a second home in any Mediterranean destination, where would you choose?
A: I would go for Greece :) 
Now seriously, I would go for branded or serviced residences in Greece and more specifically in the Athens riviera, Halkidiki on the north, Crete, Corfu as well as in certain Dodecanese and Cyclades islands, in which flight and ferry connections with the mainland are frequent, all year long and fast. In general, I would chose island and mainland destinations with more developed infrastructure networks and good connectivity with the main airports in Europe, especially during the summer months.

Q: What is keeping you busy at the moment?
A: A plethora of assignments I would say. We have been working on some new exciting transactions involving major international funds looking at existing resorts and greenfield development projects in Dodecanese and Ionian islands, new hotel operating contracts of existing landmark hotels, a couple of city hotel repositioning projects in Athens as well as lot of commercial and technical due diligence work in relation to NPL portfolios of major Greek banks collateralised by operating and non-operating hospitality real estate assets.

Q: How would you define Greek hospitality to travellers who haven’t visited yet?
A: They should come and check! I think I have covered most of the points above.

Q: What are you most looking forward to at MR&H this year?
A: We are looking for a very exciting event. An opportunity to learn from leading industry players about new hotel concepts, major trends and the shifting hospitality product overall. An opportunity to network and exchange views with key market participants and decision makers. An opportunity to enjoy the Athens riviera and the Attica sun. I think it is forum not to be missed!