Special feature: Greece

Interview with Mr. Aristotelis Karytinos, CEO of NBG Pangaea

March, 2018

At the launch of the Thessaloniki International Fair last month, the Greek Prime Minister stated that Greece is leaving the era of “Grexit” and moving to an era of re-investment. As the CEO of one of the most active real estate investors in Greece, with over €1.7bn in assets, what is your assessment of Greece’s appeal as an investment destination?

Mr. Aristotelis Karytinos: Things have certainly changed over the past few years and are very different from our recent past, apart from possibly 2014 which was a good year for investors. Nowadays, we have ahead of us a more stable environment after the ordeal we have come through. We are certainly hoping that this stability is the way things will continue to go in the future. This is the prerequisite for the flow of investment that this country needs. Of course, there is a lot more to be done. Internally there are structural issues which our colleagues in Europe are pushing to be overhauled and strengthened. These aren’t immediate fixes and will take time to repair misconceptions, to change perceptions. This is the most difficult part of the exercise. The fiscal re-adjustment was tough, but not as difficult as the structural reforms that are now being implemented. Everyone in Greece knows this is the most essential item on the agenda in the long run.

All the major business players in Greece know this. They are actively engaged in making it happen, but there aren’t quite enough of them to make the changes that are necessary by themselves. The private sector is not as crucial in Greece as it is in other countries. The State is the largest employer in this country by quite some way. It dominates the economic environment, arguably more than it should.. This is not sustainable and must change. This can only happen by growing the private sector – which means we need a lot more investment. What the Prime Minister said is in the right direction. We need to turn from Grexit as a nation, to focus on attracting more investment. We have to do this rapidly as investment takes time to have an impact and we Greeks are a very passionate and impatient people. We have suffered a lot over the last few years and the people want an end to this now. They expect to see immediate results when new investment is announced – new jobs the next day, more money the next day. Well it doesn’t happen that way. It takes time. The volume of investment is important, the higher the volume, the greater the effect. What we can do is speed up the delivery of the promises made when investors engage.

Unfortunately, we still face pockets of resistance to this push for private sector-led growth due to the perceptions against investors held by some sectors of society. A great example is the Hellenikon project. This project, along with other major ones and despite the strong interest from investorsfaced significant delays in the initial stages and it took a lot of coordinated effort from the investors and the Government to “set the ball rolling”. It is not easy; it is a matter of perception. It is a social issue; a labour issue; or a political issue. If it were simple, the Government would have been able to resolve it by now, but on the positive side progress is being made so maybe things are changing, even if not as fast as we would have liked.

You mentioned perception – when you attend investment roadshows in the UK and the Us, what is the perception of Greece held by foreign investors?

Mr. Aristotelis Karytinos: Perceptions have really changed since the outcome of the last EU assessment, the second review. There has been a global shift in investor sentiment with regards to the risk of doing business in Greece. This has been reflected in the assessments made by Standard & Poor’s, Fitch and Moody’s – the big rating agencies. This is the first box to tick on the investment wish-list. Does the country have acceptable risk levels? Once you have that, the investors change their views about the country and how they approach said country – something that has been readily apparent in the real estate sector. This sector has always been appealing to investors as it offers returns superior to other juristictions. .

This applies not just to real estate and hospitality but also mining. Of course, I cannot speak too much about the other sectors as I am no expert, but I know that you are speaking to my peers in those areas. In terms of real estate, investor interest has returned. There is interest in debt and equity. Returning to NBG Pangaea – we are a specialist real estate vehicle, a real estate investment company (REIC), the largest in Greece and are governed by European wide rules as we are licensed as an alternative investment fund manager. This helps because it provides a more regulated environment for REICs, something that investors like. We at NBG Pangaea have that transparency as we are amongst the most regulated financial entities operating in Greece and potentially in Europe. We are directly comparable with similar entities throughout Europe as a result.

In addition to this, we have a critical mass in terms of investment capacity, something that is crucial for a REIT. As a result of our steady cashflow, our strong tenant base and long term lease agreements, we have access to funds (being own funds or debt or equity) as well as large investment opportunities. This allows us to move forward with deals of a significant size. Being a company with €1.7bn in assets helps a lot. Most importantly, we have one of the best real estate portfolios in Greece. I want to say the best, but that’s open to debate. I know that we have some of the best commercial tenants from some of the most important sectors in this country, with great leases in good properties. Most importantly, we have by far the most seasoned real estate team in Greece. These ingredients all add up to a great recipe for investment.

There have been some headlines recently about the real estate sector in Greece, stating that the market under performing at the moment, but will recover in time. What is the current state of play?

Mr. Aristotelis Karytinos: There is something here that is very important to clarify. You see, in Greece, the statistics that are collected come from a very disjointed and un-coordinated snapshot. The statistics are totally misleading because the market is very fragmented. There are pockets in the market that are behaving very well and have been very resilient, whilst other pockets have totally collapsed and some may never recover. This means that talking about the markets in general is totally misleading. Regarding residential, for example, it is still struggling. There was a major stock build up that has not been used due to a lack of demand; a lack of available finance; and a lack of interest from both individuals and corporate investors due to tax ramifications, among other things. On the flipside, because investment grade commercial real estate is in short supply and demand cannot be met, yields are converging and rents are either stabilizing (for office) or rising to pre crisis levels (for high street retail) in most commercial, key real estate pockets. In general, the commercial market is doing better and some pockets within that are doing much, much better.

This is the slice of the market that we are targeting. We are buying investment grade properties in terms of location, tenants and quality. We try to source opportunities even when at the development stage while minimizing the risk by entering into future purchase agreements. In terms of sectors, we are currently engaged in office and retail segments, but have recently expanded into warehouses, city hotels and student housing, the three latter . being of increasing importance given the geographic location of Greece, the number of students studying out of town etc. Logistics in particular has totally changed the game. We have key ports in the Mediterranean, such as Piraeus and Thessaloniki, which are at the nexus of Eastern Europe, Southern Europe and the MENA region – so Greece is more than capable of becoming a logistics hub with major importance for the wider region. This is a sector that is going to do very well in the future. The hospitality sector is self explanatory when it comes to Greece. In fact, in recent years we are experiencing an increased demand for city accommodation, especially in Athens and Thessaliniki, in addition to the ever thriving resorts.

Then we need to look at sub-sectors such as student housing, for example. This is something that is already quite a vibrant sector in the UK, but is practically nonexistent in Greece. There are numerous universities and many students studying away from their homes. We have already started our first investment in the sector and aim to ramp up operations in this space in the future.

Are the student housing projects new developments?

Mr. Aristotelis Karytinos: Most of them are regeneration projects. The idea is to take cheap, existing buildings and convert them to student housing as there is a limit that students are able to pay and this helps us strike the right balance. We already have some good experience in this area and strategic relationships with some of the most important developers in the country enabling us to grow in this and other areas.

Speaking of investments, we believe that you have already set your sights further afield than just the Greek market. Can you discuss your international plans?

Mr. Aristotelis Karytinos: We are already invested outside of Greece, with 15% of our assets in Italy and selectively positioned in Cyprus, Bulgaria and Romania. . We know our neighbouring markets in the Balkans and Cyprus very well.. Over the last 20 years, I was head of the real estate functions of two of the largest banks in Greece, with significant presense, before the crisis, in the Balkans – Eurobank and the National Bank of Greece. This position gave my team and myselfvery good understanding of these markets. For the time being, we are focusing on the Hellenic market in this region (ie Greece and Cyprus), but we are open to a selective mid-to-long term expansion into these markets. Our overall long term aim is to be the leading REIC in this part of Europe.

Another part of the long term vision is to incorporate more and more sustainable/eco-friendly properties into your portfolio.

Mr. Aristotelis Karytinos: We were the first to invest in green buildings in Greece. We are owners of the first and largest office building to be awarded a Gold LEED certificate in Greece. It is over 60,000 sqm and is let to Greece’s leading telecommunication company, COSMOTE, part of the Deutsche Telecom Group. We are seeing a trend towards more sustainable, green buildings and we intend to focus more investment in this area in the future. As we look to buy new offices, we are working with developers to identify new green building opportunities, something that is very important for the office space segment of the portfolio.

Speaking of investing in assets, let us look at one of Greece’s most important, yet underutilised assets, the younger generation. Youth employment opportunities in particular have been severely curtailed, leading to high levels of unemployment for the youth. How is NBG Pangaea addressing this in its own way? How can you help generate opportunities for the youth?

Mr. Aristotelis Karytinos: We have two ways of doing this: one is by hiring the right people with the right specialties. But you have to bear in mind that we are a small company in terms of employment. Yes, we have grown from 8 people in 2013 to 28 people now, but there is only so much we can do in-house. Where we can and are having an impact is through our investment activities. We can enhance opportunities for young people to stay in Greece by investing in this country. By accelerating investment, we encourage companies to create more jobs, crucially in highly-skilled areas and not just low-skilled labour. We are talking about engineers, technicians, architects, lawyers, you name it. This is the best way to go ahead as there are major multiplier effects that come into play when we make an investment. Employment is one of the most important of those effects. Those effects are felt across so many sectors – construction, legal, finance, real estate, retail and logistics. This is the main way by which we make a difference.

As you are aware, this platform reaches out to the British investment community. What final message would you give to welcome them to come and engage in your country?

Mr. Aristotelis Karytinos: Britain is of the utmost importance to us as it boasts one of the largest investor pools in the world. Greece isand plans to continue to be in Europe. I hope that the UK will continue to play a key role in Europe as a member of the family, regardless of how the technical relationship changes under Brexit. We know that we share some similar characteristics and qualities in terms of risks and what we want for our people and the wider region. Sharing these common ideas makes it much easier for us to understand one another at the economic level. I believe that Greece is starting to rebound, making this the perfect time for investment. Greece has already hit the bottom and, looking forward, I only see growth. This is what most investors want. They want to follow a trend that will be there for the foreseeable future. More than that, I believe that Greece is one of the best examples out there starting that journey.

For an investor who is looking into the potential of the Greek real estate sector, the best way is to that through an indirect investment in a Greek REIC. NBG PANGAEA REIC, due to its size and sectorial diversity of its portfolio and tenant base, is currently one of the most attractive investment opportunities. Our key executives have been in the market for more than 20-25 years each and have set up the two biggest REICs in Greece, including Eurobank Properties (currently named Grivalia). Actually, we are responsible, one could say, for institutional real estate investment in Greece and we have a very experienced team. We know the market better than most which is key foreign to investors who rely on experienced, local players to extract value.

This explains why I believe we have invested more than any other company in real estate over the last four years, ca €700m during the economic crisis. This is a considerable achievement given the austere economic environment. We will continue this strategy; we aim to further expand our existing, high quality portfolio, mainly in Greece and the neighbouring geographic region, with the ultimate aim to further create value for our shareholders. We also want to enhance the dispersion of the Company's shareholder base (free float) and the shares’ trading in the large-cap category of Athens Stock Exchange in order to attract institutional investors and investment funds to Greece and boost the Greek capital market. Therefore we consider the possibility of raising funds from the equity market, as soon as the market conditions permit it, and we are also assessing our funding needs and the available funding sources in international and domestic financial markets and actively explore opportunities to raise additional debt in those markets.