REICs cut the middle man and seize off-market opportunities

In an effort to seize new opportunities, Greek and foreign institutional investors are turning to off-market real estate transactions, which do not involve realtors or auctions. The increasingly competitive market, the improving economy and the value of prime real estate perking up have investors battling to secure the best possible deals.

“We have decided to deliberately avoid competitive procedures, as they often lead to valuations that we consider excessive, and ultimately the properties acquired don’t fetch the rental yields anticipated,” said a real estate investment company (REIC) executive.

In a recent presentation, Prodea Investments – formerly known as NBG Pangaea – reported that 90 percent of transactions in the last three years dealt mainly with privately owned properties which did not involve real estate agencies or any other promotion channel. For its future expansion, the company plans to follow the same path for 90 percent of its new purchases.

Properties for sale are usually advertised informally to the relevant REIC directly by the seller, or through an intermediary who is in direct contact with a company executive. If the property and its valuation cover the REIC’s needs, the company enters into an exclusivity agreement for two or three months in order to proceed with the final checks before the acquisition. The exclusivity agreement allows the property to be taken off the market, ensuring a lower price and erasing the competitive aspect: It blocks any counteroffers from third parties and thus prevents a price rise.

Up until a couple of years ago, REICs were practically the only driving force in the real estate market, as no other institutional investor existed. With no competitors in the market during the crisis years, they were essentially the price makers, as owners could rarely find alternative buyers, and they spent over 1.5 billion euros during that period.

But thanks to the increase in capital inflows in Greece, times have changed, and foreign investors have now adopted a rather aggressive strategy and are in direct competition with the REICs. Tassos Kotzanastassis, founder and managing director of real-estate firm 8G Capital Partners Ltd, says “private equity funds have won many bids against REICs lately; this can be partly explained by the lower interest rate set by foreign banks that at the same time provide for the imposition of deemed capital gain.”