Pension funds become active property market investors

Social security and pension funds are taking the plunge and investing in properties after decades of state-imposed constraints. One of the latest moves is by the Agricultural Cooperatives Fund, which is in the final stage of negotiations with Hermes Real Estate to buy a building from them. After several months of negotiations, the fund agreed to buy a 1,650-square-meter building for 4.38 million euros. The building is located in the corner of Soutsou and Tsocha streets, in Ambelokipi, a densely built-up area where prices have risen significantly over the past few years. It will house the fund’s main offices. The professional drivers’ pension fund (TSAY) is even more active, acquiring properties to boost its income, not just house its offices. It recently closed on two new deals, in Athens and Thessaloniki. The Athens building, on Syngrou Avenue, was acquired for 6 million euros. It currently houses a branch of Egnatia Bank. TSAY wants to keep Egnatia Bank in the building, earning a significant amount as rent each year. In Thessaloniki, TSAY chose to buy part of Porto Center, a building housing both offices and shops. It paid 4.4 million euros to buy 3,080 of the building’s 6,500 square meters. The building is located on 26 October St, one of the up-and-coming business office and retail areas in the city. On the same street, the GEK-Hermes consortium has built a mixed-use (offices and shops) building, «Limani,» while the Piraeus Bank group will develop yet another building on the street. The part of Porto Center that TSAY bought has been leased to several businesses, including an EFG Eurobank Ergasias branch. The government, anxious not to see the funds indulge in ambitious investment schemes that might drain their capital and create a potentially explosive situation, is preparing a circular advising the funds on how to invest their reserves and avoid excessive risk, which exists even in the property market. The funds will be advised to be conservative in their property investments, following the example of their German counterparts. This would entail the imposition of certain limits. The government considers limiting the funds’ investments in property, including investments on property for their own use, to 25 percent of their total investments. [Pension funds will have to be careful in their investments, since it is widely estimated that at least some sectors of the property market will experience a downturn after the 2004 Olympics or after European Union funds for infrastructure projects dry up. At this point, the property and construction sector face an uncertain future, one with considerable potential but also certain pitfalls, especially if economic growth cannot be sustained. It was not a coincidence that some of the companies whose share value jumped yesterday, after Prime Minister Costas Simitis appeared to be pushing for dramatic changes in the ruling party, included property and construction firms. Investors are betting on bolder reforms.]

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