Greek REICs operational regime from scratch
Greek REICs operational regime from scratch

Greek REICs operational regime from scratch

When will the new institutional framework be implemented.
Yiannis D. Papadomarkakis

A new institutional framework for the operations of Greek REICs aims to further attracting foreign capital. The expansion of investment real estate activities is combined with the success story of the Greek economy that seeks to be implemented in a short period of time.

Already the close financial staff of the Prime Minister (Patelis, Demitriadis, Skertsos) and the Minister of Development Adonis Georgiadis, in a recent meeting with the heads of investment institutions and the Capital Market received and studied a memorandum with amendments / remarks that extend the field of Greek REICs keeping the tax-free dividend stable, which is also a pan-European advantage. As a member of the committee characteristically noted, "there was no page of the law without red comments".

The new legal framework is currently being drafted by international law firms that have delved into the fine print of the institution and is expected to be adopted in the first quarter of the new year to attract funds from many insurance funds and insurance companies. It should be noted here that occupational insurance funds internationally, have large positions in real estate (in Northern European countries their portfolio includes more than 85% of real estate) as listed REICs provide them with much higher returns than bonds, and in addition to the fixed dividend there is the added value of the securities traded on the capital market.

Here, however, there are several risks, such as the oversupply of a new product as it is expected, if one counts the announcements (pipeline), the entry of 300,000 sqm of offices and other commercial real estate in the whole territory with the majority of them in Attica.

In terms of activities, the submitted proposals envisage REICs to be able to operate as development companies, hotel operators, red loan managers (servicers), photovoltaic and wind farm development companies, housing managers and a number of other services currently provided by different " sectoral »entities.

This concentration obscures the existing market structure, mainly because as an institution it favors the absence of tax payment, since there is a suggestion that no tax be paid on cash held as liquidity, a constant request of these companies that goes back to 2014. However, it enables projects to be implemented that are only possible in the case of the dematerialization of assets.

Double transition

The number one tool to attract FDI today is tackling the effects of the coronavirus worldwide, and in particular the changes that the pandemic has accelerated dramatically. These have to do on the one hand with the change of the energy mix in a shorter time horizon, but also with the digital transformation of the -now globalized- economy.

The real estate asset is once again at the center of developments, as buildings and transport are responsible for more than 50% of the emissions to be cut, and at the same time it produces a huge amount of data - in addition to energy consumption - that changes the context. investment decision making. And here come the ESG criteria and practices. An expensive sport, which Brussels uses as a lever of pressure on large companies and the banking system.

The so-called green deal

Adding the word Impact to the Risk - Return equation dramatically changes the way built-up space is produced, especially in cities, where the building stock is huge and the vast majority old. Developers and Private Equity Funds that have as their exit the REIC, must have an energy upgraded, "green" product, in order to be lent by the banking system, or to issue green bond loans for new developments and upgrading / restoration of existing buildings. All the actors have to "share" the cost of the transition and this is one of the reasons that the AEEAPs ask to expand the field of activity, through the possibility of:

creation of RES parks (wind / photovoltaic) and implementation of virtual net metering to reduce the energy costs of the total portfolio.

purchase loans with mortgages for faster impairment of NPEs

expansion in the housing sector, through the utilization of the asset, property and facility management mechanisms they have.

The next day for the Greek REIC, includes the creation of new ones, specialized in alternative strategies and specifically in the fields of tourism, retail and storage. It is doubtful whether there will be partnerships and acquisitions between the existing ones mainly due to the Greek temperament as the law will keep the bar very low (at € 25 million) and the 4 buildings, which may be a "broken" into four horizontal properties.

For those who want to have a pan-European impact, it is an opportunity to create a new product, which will feed their portfolios and will excite a larger number of foreign institutional funds, when our country acquires an investment grade.