10 May Greek real estate enters a new era of sustainability
George Kormas, CEO, Piraeus Real Estate, explains the forward-thinking approach of a company that services Greece’s largest real estate portfolio
This interview took place prior to the emergence of COVID-19 and reflects Mr. Kormas’ views at that time. He has kindly given us a more recent interview to provide his experienced insight on the changes in the Greek property ecosystem that may be seen as a result of the pandemic, which you can read here.
As a seasoned business leader, you must possess a broad and keen perspective on the evolution of the Greek economy, both from the inside, as well as from the outside, having spent periods working abroad. In the broader context, what is your current outlook for Greece, considering the strides it has made in its recovery and the recent surge in business sentiment? Also, in your dealings with foreign investors, have you noticed a substantial change in their perception of Greece as a lucrative investment destination?
We are now on the right, upward path of the economy. It all started pretty recently, since we had an extremely positive change in the sentiment of the economy after the last elections. I do not want to take any political positioning on that, but we all know that politics and the economy are so interconnected. As of that, the sentiment is absolutely positive. We are looking at a GDP growth of 2.8 percent. With the key indicators of the last quarter available, we may even exceed that projection. This is a huge change in comparison with what we had beforehand.
The best evidence for this change is the perception of foreign investors regarding Greece right now. Back then, we were not even on the radar for most investors. Let us not forget that this was the Greek situation until very recently. Now, we are definitely on their radar, with more and more investors showing interest in exploring Greece through investments. Greece belongs to the European Union (EU) and has the euro as its currency. If we were to have had a Grexit back then, the optimism we see now would never exist. On the contrary, we would have been looking at an extension of the dark years of the recent past. The one and only thing that we have now within our radar are possible investors in our small- and medium-sized enterprises, tourism sector or real estate. Being part of the EU and having them behind our back allows us to be compared to our peers, which are the other EU countries. We feel the safety that every single investor requires, in order to take the next step and engage in an investment in a country like ours. If this were not the case, then we would never be under the radar of any investor as there are many business opportunities out there in other countries as well.
Part of Piraeus Bank Group, Piraeus Real Estate services Greece’s largest real estate portfolio. Would it be safe to say that Greece today is one of the hottest real estate markets in the EU? What are the conditions that make it so and what kind of returns are investors currently making?
It is very safe to say that. The reason behind that is that ceteris paribus is offered in Greece, as we provide the best enterprises you can get when one wants to enter the real estate market. We are at the beginning of the yield curve, whereas the rest of our peers are exiting this period. For the very same asset type, here you can achieve double the yield that you would achieve in any other European country.
The debt crisis that struck the global economy back in 2009 triggered one of the worst recessions in modern European history, ripping away 25 percent of Greece’s gross domestic product. The banking sector was completely reconfigured during the last decade. In order to give some context, what was the evolution of Piraeus Bank’s real estate business during these years?
Here in Greece, it all started with a sovereign crisis that had a huge impact on the banking sector, leading it to a larger crisis as well. This crisis hit Greece with a delay around 2010. The Greek economy and banking system were not exposed to any exotic and complex structure finance schemes. All loans that had been granted, either through enterprises or individuals back then, were backed up with real estate. Real estate is the dominating collateral that had been used by all loans granted before the crisis. In the end, we ended up with a huge non-performing loan (NPL) problem in that regard.
Coming back to the banking sector of Greece, Piraeus Bank is the outcome of an amalgamation and consolidation process of other banks that do not exist anymore. Back then, in the middle of the financial crisis, you did not have the luxury to be picky and consider options that you would not have picked under different circumstances. The most important aim was to keep and safeguard the financial stability of the entire economy. As a result, all four Greek systemic banks that are now in operation contributed their utmost toward this target. Our real estate portfolio is the outcome of a non-selection process, but it is the input that we received after the absorption of all those banks by Piraeus Bank. The biggest one was the Agricultural Bank of Greece, which was heavily engaged in the agricultural sector. The real estate that is associated with those activities is dedicated to that. Overall, however, the quality of our portfolio has an interesting mixture of all asset types, well spread over the entire landscape of Greece.
The legacy of the financial crisis left the four systemic banks including Piraeus Bank with heavy NPL portfolios. In June of last year, the bank had €1 billion in real estate assets. What are your strategies for selling off some of these assets?
Back then we used to believe that there was a non-existing real estate market, meaning that there were a few buyers and millions of willing sellers, leading to a huge asymmetry within the market. As a result, there were no transactions taking place. At that time, not even foreign investors were here on the ground, apart from some very brave ones that had seen the very same game elsewhere around the globe, knowing or thinking they knew what the outcome of the Greek situation would actually be. As a result, the bank was somewhat obliged to acquire the properties that were the collaterals of the NPLs.
A key takeaway from this situation is that, if you are only transforming NPLs into assets, at the end of the day you have the same risk. You need to take a step back and consider the wellbeing of the organization. People should actually manage what they acquire through the foreclosure process, in order to be cash-liquid and also be less exposed on non-performing assets. The main and sole principal of Piraeus Real Estate’s strategy is to de-consolidate from the real estate sector. Banks, by definition, are not designed to engage in the real estate business, as there are many companies dedicated to the sector out there that can do this in a much more efficient way. We are only the transit between NPLs and companies or individuals.
Banks should abstain from real estate as, in the meantime, you need to keep a capital reserve for the real estate that you have on your balance sheet. This is not an optimal capital structure to have in your balance sheet, as a bank. As most of us expect a huge change in Greece and the real estate market, many suggest that banks should have a position in that.
Piraeus Real Estate’s leading principal is to de-consolidate the real estate in a manner that is not a fire sale. All the current systemic banks are well capitalized with high ratios, so they are not stressed to sell. They do not enter the market as distressed sellers. Our marketing motto is that we “transact at market prices.” We are there to enter a transaction with any possible market participant at market prices. What we offer as a subsidiary of Piraeus Bank Group is that we assure the counterparts that everything goes as it should be, everything is legalized and there will be no surprises for the potential buyers. We eliminate this potential risk for all our counterparties, as it is crucial to safeguard the reputation of the entire group rather than make a quick profit.
What can you tell us about some of the large-scale real estate projects that Piraeus Bank is currently involved in, such as City Link, Kosmopolis, Thessaloniki Square or the Piraeus Port Authority? What are some of the unique aspects behind these projects and are there any new big projects in the pipeline?
With the Port of Piraeus, we really try our best to make it as attractive as possible, turning into the gateway to Europe. City Link is our jewel project but it does not belong to us—we are there as the face to the market. I am, in fact, the chief executive officer of another company that actually manages City Link. This is the place to be in Athens, it is “the city’s finest destination.” This was a bet, when I assumed my position here. It was a rundown place and, back then, my first priority was to make sure that we attracted the finest brands for its retail section. We have managed to do that and it now enjoys an occupancy rate of 100 percent.
We wanted to create a destination for high-end shopping, food, beverage and art. Within City Link, we have three theaters as well, one of them being the biggest in Athens: Pallas Theater. We also house the largest retail department store with Attica. Last but not least, we have three restaurants. We create an experience for visitors and we want this to become an easy destination for cultural events as well. Our goal is to get every single tourist that comes to Athens in this place. This is a long-term lease that does not belong to the bank, as most of the buildings belong to the Military Pension Fund. Our lease is until 2050.
In terms of new projects, we have a new project in terms of the regeneration of a whole park in the city of Athens, which is called the Votanikos Project. This is the regeneration of an entire place within the perimeter of the Athenian Municipality. In its end phase, it will be housing offices, shops, a new stadium and many regeneration areas for the citizens of Athens. We have some way to go, through our cooperation with another systemic bank as well as the Mayor of Athens. This is a project with an impact but, as I said, it still has some way to go.
What are your personal views on driving innovation and sustainability in the real estate sector? Are there competitive advantages to investing in assets that embrace these concepts?
I believe that it is a one-way ticket: if you opt not to be involved in those, sooner or later you will be thrown out of the market. For example, City Link, which is nearly 60,000 square meters in size, will be the first building in Greece to be awarded with the German certification for buildings, called Deutsche Gesellschaft für Nachhaltiges Bauen (DGNB). Required actions include inspections of the existing condition of City Link on sustainability issues, the compilation of the necessary standards and the required documents, as well as the modification and optimization of operating procedures in order to harmonize them with the requirements of the standard. Those criteria take into consideration social aspects as well, apart from environmental. I believe that we need to enter this new era of digitalization and sustainability. We have to go down this path, but we need to make sure that the outcome of all those processes remains achievable and affordable for all individuals.
Our plan for Piraeus Real Estate is to undertake the responsibility for the total approach on assets and conduct technical due diligence according to international environmental standards when assets are requested to be used as collaterals for loans by Piraeus Bank. That is, we are ready to refuse to accept assets with heavy environmental footprint as collaterals for loans where, if they become distressed, they will create additional cost for us to make them environmental friendly and sell them. We are implementing the principles for responsible investment, incorporating environmental, social and corporate governance issues into investment analysis and decision-making processes.
Before we finish, I’d like to ask you something a bit more personal. Throughout your journey as a business leader, what is the most valuable lesson that you have learned?
The most imperative thing that I have learned throughout my career is to respect the people that I work with. I often stand up to support the people that really make the difference for our company. It is not about the decisions in many cases, but about the work of many people that are dedicated and who people usually do not get to see and appreciate. Trust is one of the aspects and being close to all the needs that they may have.
I see my job as a CEO to be the creation and clear expression of a vision and the provision of resources for its realization, my management team. Then I ask them to design their contribution to this vision and present it to me and the rest of the management team. Nine out of ten times I am amazed by the outcome. So, my most valuable lesson is that when you trust people to fulfill a difficult goal and provide them with the necessary means and freedom to work toward this purpose, expecting from them to deliver their 100 percent, they tend to deliver their 120 percent. I always manage people according to the old quote: “If you want to build a ship, don’t drum up the men to gather wood, divide the work and give orders. Instead, teach them to yearn for the vast and endless sea.”