Editor’s choice: Greek fallout

The latest twist in the ongoing Greek debt drama has spurred a chorus of politicians, economists and innocent bystanders to wail and admonish in the tradition of the classical plays in ancient times.

Real estate commentators have also joined the act. The prospects of a Greek default - and consequently, a Grexit - look very high, Neil Blake, head of EMEA research at CBRE, wrote in PropertyEU earlier this week. ‘The talk is whether we are approaching a Lehman-type event (or even a ‘Sarajevo moment’ to quote a UK economics editor) or if it is just the latest episode in a largely domestic Greek tragedy,’ he wrote in a note.

Rather than a downwards spiral of bank credit or financing problems for Greece’s creditors, the main issue, he said, other than short-term uncertainty, is the potential Pandora’s Box effect of a country leaving what was meant to be an irrevocable monetary union. 'If a Grexit happens, the concern is that markets will turn their attention to the bond markets of some of the other weaker members of the eurozone when signs of economic or financial stress appear or that, they too, could see Greek-style runs on their banks.'

Whatever happens, the European real estate sector has already seen some fallout. Earlier this week, Berlin value-add residential landlord Ado Properties announced it has shelved its €400 mln Initial Public Offering amid the financial turmoil surrounding the Greek debt crisis. Ado, a €1.2 bn residential landlord owned by Israëli-listed Ado Group, said the IPO would be postponed until further notice due to market volatility caused by the Greek crisis.

The company owns about 13,700 homes and 700 commercial properties in the German capital. The listing was aimed at raising equity to double the company’s portfolio over the next few years.

German lender pbb Pfandbriefbank is not believed to be considering delaying its own IPO scheduled for this month – yet, according to those who track the market. A spokesman for pbb declined to comment.

Other ramifications
Italy’s real estate company Domus Italia has also scrapped its initial public offering on the Milan stock exchange due to poor market conditions, it said in a statement. Book-building for the share placement had started on 19 June and was scheduled to close on 2 July.

There will be other ramifications if Greece does exit the euro, warned Joe Valente, head of research and strategy for European real estate at JP Morgan in London. ‘Markets will be volatile, inevitably. I would expect weakening in the leasing markets in the eurozone as corporations put off leasing more space until the dust settles. Bond yields in southern Europe would also increase, putting pressure on those markets. Investors will be driven by risk aversion, so they will look more at markets like London, Germany and Scandinavia.’

The threat of Greek exit from the euro is spooking Asian investors, some of whom are focusing on the UK until the dust settles, according to Richard Divall, head of cross border capital markets for the EMEA region at Colliers in London.

However, any boycott of the eurozone on the part of Asian investors will only be temporary, Divall says. ‘European investors are still extremely active investors in the eurozone. Yes, there will be a bit of panic if Greek exits the euro but after a few months, I would expect it to be business as usual.’

In addition, non-core European markets could suffer in light of the Greek debt crisis because financing could become more expensive for them, according to Timo Tschammler, international director and member of the management board at JLL in Germany. ‘Less mature countries are more nervous about the crisis and the impact it could have. The market fundamentals have been disturbed by bouts of volatility, which has resulted in an increase in the Euro Stoxx 50 Volatility Index,’ he said. (Stocks in the index have soared by almost 120% in the past year, trading at €30.51 on 2 July.)

'Credit tourists' and other winners
While the outlook for Greece looks grim whether it exits the eurozone or not, a list of potential winners is already emerging. That list does not just include hedge funds and other ‘credit tourists’ that are now in Italy and Portugal and are no doubt keeping an eagle eye on Greece and Cyprus.

A less obvious potential winner is Chinese private conglomerate Fosun Property. The Shanghai-based company has been linked with a dozen potential European acquisitions since unveiling plans in 2013 to buy chunks of real estate in the world’s major cities. Over the past months, the company has joined the bidding for Berlin’s Potsdamer Platz, one of Europe’s most iconic ensemble of buildings, and broker C&W (eventually taken over by peer DTZ).

These moves are believed to be part of Fosun's newly launched continental European investment strategy. The group recently recruited Antoine Castro, formerly of Morgan Stanley's real estate business and until recently, Quantum Global - as head of real estate Europe to sound out investment opportunities across the Continent.

In the two direct European acquisitions inked so far, Fosun has shown a taste for assets offering (re)-development potential in crisis-hit countries such as Italy and Greece. In Italy, the group bought Unicredit´s former headquarters at Milan’s central Piazza Cordusio for €345 mln.

And in Greece, the Chinese investor is believed to have teamed up with Greek partner Lamda Development and real estate developer Al Maabar from Abu Dhabi to invest €915 mln in a 99-year lease on a 620-hectare site at Athens’ former Hellenikon airport.

According to local press reports, the three partners are planning a €6.8 bn integrated resort on the site, including luxury residences, two hotels, a casino, shopping mall, exhibition centre and concert facilities. The site already includes a 337-berth marina and has 3.5 kilometres of waterfront.

Not the sort of development that the average Greek will get much enjoyment from. But as the ancient Greek tragedian Euripides wrote in ‘Medea’, ‘Mortal fate is hard. You'd best get used to it.’

Judi Seebus
Editor in chief