On a mountain named for the Prophet Elijah on the Greek island of Rhodes, one of Benito Mussolini’s most trusted aides built a villa to provide the Italian dictator with a home in his old age.
That was the plan in 1936 when Italy ruled the Dodecanese islands. Mussolini didn’t make it to old age -- being shot, hung upside down and stoned by Italians in a Milanese plaza in 1945. More than half a century later, Greece is selling a 50-year lease on the Villa de Vecchi.
The Hellenic Republic Asset Development Fund, charged with raising money from state sales to reduce debt, is pitching the abandoned villa and 13 other long-disused properties as prospective small luxury hotels, selling three while offering leases of between 50 and 99 years for the rest, hoping to build on appetite for real estate and Greek tourism.
“There’s been a significant shift in investor sentiment on real estate assets in the past 12 months, both globally and locally,” Andreas Taprantzis, executive director for real estate at the Athens-based fund, said in an interview. “The only criterion is the highest bid per asset.”
Once touted as the largest-ever state asset-disposal plan, Greece’s 50 billion-euro ($67 billion) yard-sale of assets ranging from stakes in airports to a gas company has been hamstrung by frequent delays and management changes, weakened demand and political resistance to selling sovereign land.
With 80,000 properties on its books -- from a castle in Corfu and a former U.S. army base in Crete to a historic building in Washington’s Embassy Row -- real estate sales had been expected to rake in half the original target of 50 billion euros by end 2015 to repay loans from the euro area and International Monetary Fund.
Projections for asset disposals now stand at 22.4 billion euros through 2022. So far, the fund has signed 4.9 billion euros in deals, receiving 2.9 billion euros of that amount. Real estate deals have brought in a paltry 1.8 billion euros.
That’s even as improving economies and cheap funding that ushered Greece back to bond markets this year after a four-year hiatus are underpinning Europe’s real estate deals, which reached their highest in six years in the second quarter.
With Greece’s debt set to peak at 177 percent of gross domestic product this year, according to the European Commission, asset sales still matter as Prime Minister Antonis Samaras prepares to lobby for debt relief from euro-area partners. Greece may need a third bailout even after 240 billion euros in loans since 2010 and the biggest debt restructuring in history.
Lower privatization proceeds raised the projected 2020 debt ratio by about 0.4 percent of GDP and by about 1.5 percent in 2022, according to the IMF in June. The IMF forecasts Greece will have a 12.6 billion-euro financing gap next year.
That’s made the sale of assets like the Mussolini villa an important part of Greece’s recovery plan. Built by the Italian governor of the time, Cesare Maria De Vecchi, the villa is nestled among Rhodes’s pine trees with panoramic views of the Aegean Sea from the rotting wooden floorboards of the patio.
Abandoned for years since the Dodecanese islands were ceded to Greece in 1947, graffiti is scrawled over the walls and fireplaces of the two-story stone and wooden structure. The villa faces the Elafos and Elaphina Hotel, built in the Alpine style, another example of the fascist dictator’s plans for Rhodes to be an outpost of an Italian empire.
In the years since the end of Italian rule, Rhodes, which boasts a medieval city, has become a low-cost mass tourist destination, making it vulnerable to challenges from non-euro countries like neighboring Turkey.
“Greece cannot compete on low prices,” said Vanguelis Panayotis, director of development at Paris-based industry group MKG Hospitality. “Turkey or maybe in the near future, Egypt, those countries will be a lot more aggressive on price. That’s why they have to be focused on quality.”
Taprantzis is banking on investments pouring into small, luxury hotels or high-end villas.
“The pitch is in the bundling of these properties,” he said. “Greece is a five-star destination, while its tourism infrastructure is still lacking.”
Among the potential boutique lodgings are eight “Xenia” hotels, the remnants of an ambitious building program to provide modern accommodation for a growing tourism industry. Many hotels in the Xenia program fell into disuse under state management and are now on the sale list. Some, like those on the islands of Thasos and Andros, may be appealing. Others like the one in the northern town of Kozani, best known for producing the coal that powers Greece’s electricity supply, may not be.
“In terms of return on investment, it probably only pays off in the most attractive or unique locations,” said Jacoline Vinke, author of three books on Greece’s small hotels and guesthouses. “A revamped Xenia on a beautiful island or close to the sea is likely to work, but I would not bet my money on any Xenia that does not have a great location.”
An estimated record 20 million visitors are heading to Greece this year, fueling hopes of a return to growth after a six-year recession. Even with a bumper tourism year, Greece is struggling to draw the foreign investment imperative to create jobs in a nation with the highest unemployment rate in Europe.
The fund’s biggest deal was the sale of Hellenikon, the old Athens airport site that is Europe’s largest unused tract of urban real estate, twice the size of New York’s Central Park.
Hellenikon had been unused since being corralled for the Athens 2004 Olympics amid political opposition and legal fights.
Lamda Development SA, backed by China’s Fosun Group and Al Maabar, a unit of Abu Dhabi sovereign fund Mubadala Development, bought it for 915 million euros after a more than two-year bidding process. GSO Capital Partners, a unit of private-equity firm Blackstone Group LP, now owns 10 percent of Lamda.
Meanwhile, Taprantzis counters arguments Greece is selling its heritage. Properties like the Villa de Vecchi have been “hidden, buried,” he said.
“Now there’s a perfect opportunity to showcase them, not just for Greeks but to foreign visitors,” he said. “No one is going to pick up the building and take it with them. The investment will contribute to the upgrade of our tourism product and will create new jobs.”