Greece's Hellinikon project, one of Europe's biggest urban development projects, launched recently the tender for the construction of two tower buildings but drew little interest from foreign investors amidst concerns about the terms of the deal.
A few weeks ago, Lamda Development launched the first phase of the tenders for the development of the two towers - one apartment high-rise and a second mixed-use hotel and office space building - at the former international airport.
There were about 6-7 non-binding offers from domestic and foreign investors, according to market sources, while there is also some talk about bids coming in from more than ten interested investors.
The names of those that have showed an intial interest are said to be mainly Greek REICs, as well as some foreign companies, such as a US group already active in Greece. There has been no official announcement on the issue from the company.
The low number of foreign investors participating in the tender (and the project as a whole), however, is striking, say market watchers.
Despite it being an 8-billion-euro investments that will play a decisive role in the Greek economy for decades, Hellinikon isn't making much of a splash with large global real estate funds.
"At this stage, one would expect to see a lot more interest from big investors in the project, but this is not the case and is disappointing," said a senior real estate official.
Certainly, years of delays due to red tape and the country's economic crisis, have acted as a deterrent for international players, as seen with the departure of China's Fosun and Eagle Hills (based in Abu Dhabi) from the investment in 2019.
The pandemic has also increased the uncertainty surrounding the Greek project but at the same time, key deals are being conducted - or are in the pipeline- both in Europe and globally.
Buyout firms’ global real estate funds are now sitting on more than $300 billion of unspent cash, according to Preqin data.
“There is a lot of money on the sidelines looking for yield and you have a market that will rebound quite considerably,” Keith Breslauer, founder of London-based real estate private equity firm Patron Capital, told Bloomberg.
Terms of the Deal
The tender for the two towers stirred strong interest in investment offices in New York and London, but it quickly froze due to the terms of the deal.
Lamda Development wants to hold on to the majority of the company - about 75% - that will take over the residential tower and maintain a minority package - about 25% - in the office tower. (The exact percentages will be determined in negotiations to be held with investors over coming months when binding bids are submitted).
Some complaints are being heard among potential investors about the small stake offered in the apartments tower, saying that it is acting as a disincentive. Market officials point out that in these sorts of deals foreign portfolios often want to place their money in an investment which gives them control.
"What is the message that Lamda is sending with the stakes it is offering? When you keep the majority in the tower with the lowest risk, ie the residential apartments, while you give the majority on the risky part, you do not inspire much confidence in investors ," says a top market official.
For some time now, it seems that the development of the beachside complex has become a Greek affair. With the necessary funds and know-how, Lamda is doing just fine on its own… for now.
In addition to credibility and, perhaps, access to cheaper capital, however, strong foreign partners also serve strategic purposes.
Fosun's presence in the Hellinikon investment, for example, gave the project critical access to Chinese buyers. An advantage that would not only benefit the beachside development but also bring buyers to the broader Athenian Riviera, in a spill-over effect.
And this is where the project's big challenge lies: to not only get the job done, but to also provide the broader real estate market and economy a boost for years to come.