High costs and chaotic tax system deter realty investors

Pradera is one of the few realty funds that have invested in Greece. The total asset value of the 11 shopping and entertainment complexes it currently operates in a number of countries but mostly in Spain is estimated at more than 270 million euros; total revenue in 2002 reached 23 million. Seven more centers are projected to be completed in stages by July 2005, bringing the estimated total value to 516 million euros. In Greece, Pradera has invested in the Village entertainment complex in the Athens district of Rendi. Pradera’s main shareholders are insurance funds, either private or public and based mostly in Germany, the Netherlands and France. In an interview with Kathimerini, Babis Gouziotis, Pradera’s representative in Greece, outlined the company’s plans. What problems did you face when Pradera bought Village Park in Rendi? The previous owners were taken to court by the leasees as the investment had not produced the projected returns. What corrective actions did you take? There was only one change in use; Stefanel’s store was taken over by CoffeeTime. The rest remained retail shops. We are now working on a comprehensive plan for the strategy of the leasees we shall approve. When the complex was built in 1999, expectations were completely different; all the leasees represented recognized trademarks and added to the mall’s prestige. However, they were expensive for the area. So, we are trying in a number of ways to modify the general plan, to change the philosophy of the stores so that their products are priced more attractively. The aim is to meet the tastes of our basic clientele, 80 percent of whom are between 15-25 years old. We project that the mall will have acquired its new definitive character by the the middle of 2005. The entire program will be implemented in collaboration with a large firm or realtors, which will also exclusively assume the task of placing leasees. What is the return on invested capital from Village Park? The gross return was 9.5 percent and the net 7.5 percent. This is not far off Pradera’s investments in other countries. In Spain, for instance, the rates of return fell between one and half a percentage point. The returns in other countries are slightly higher than in Greece, at about 11 percent. Given that Greece is theoretically placed among the emerging rather than the mature markets, should we not expect the returns to be higher? The fact that they are not so is due to the high costs of land and construction. This gives the project too large a value in relation to the revenue it generates, thus compressing the returns. In Spain, for instance, in malls of similar area and uses, the cost of a lease is at least half, but their rates of return are higher than Village Park’s, as our operating costs are clearly higher because of municipal taxes, waste disposal costs, security services. In general, an enterprise in Greece faces a series of adverse factors – most prominently, an unstable tax regime – compared to other countries. Why then should a foreign investor come to Greece? Under present conditions, no one is seriously thinking of investing in Greece; we know this from contacts with funds similar to ours. The response from those who have invested in Greece to date is negative; many realty fund managers researched the Greek market and left immediately. The economy does not have in-depth stability; the tax system is chaotic. What is Pradera’s investment philosophy? We are used to investing even before the construction of shopping malls is finished, on condition the building license has been obtained. In Italy, for instance, the company plans to invest a lot because, even though its situation does not significantly differ from Greece, there is a relative stability. What does a foreign investor look for when considering his next investment? Stability as regards the economy and the tax environment is the foremost consideration, so that he may project revenues for at least 10 years ahead. Also, the leasees must offer some credibility. One of the most negative factors in the Greek market is the large freedom afforded to the leasee, who can withdraw after paying just four monthly rents, while, on the other hand, the owner cannot evict a leasee, even if he is unreliable, for at least 12 years. This is a big disincentive for someone who considers investing hundreds of millions of euros. Have you differentiated your commercial policy at all? In some cases, yes, we have reduced the rent and receive a percentage on sales. We thus show our consideration for the leasee. If you were finance minister, what measures would you adopt? For a start, I would not introduce a new tax law every one or two years. Second, I would clear the situation in realty taxes by unifying most of them. We could easily be a tax haven and attract large amounts of capital.