Lambis Pahiyiannakis, director of the hotel group at Barings Real Estate Advisers, will participate in a panel on foreign investment at the Mediterranean Resort & Hotel Real Estate Forum, Oct. 17-19 in Athens. The Lending Panel will touch on how lenders’ requirements have evolved in the Mediterranean, what the trends are in structuring debt and equity for resorts and the challenges and opportunities in dealing with non-performing loans.
At Barings, Pahiyiannakis is responsible for hotel acquisition deal sourcing and underwriting with a primary focus on European markets. Based in Barings’s London office, he is also responsible for supporting the Barings Structured Financing and Core Mortgage groups with underwriting of hospitality-related loans.
Ahead of the conference, Pahiyiannakis shared his insights on foreign investment in the Mediterranean region, the challenges facing foreign investors and the funding structures investors should consider for future projects.
1. How would you characterize the overall state of hotel investment and development in the Mediterranean region?
The Mediterranean region looks extremely attractive to northern European investors by way of basis (price-per-key), yield, and the macroeconomic growth potential/recovery story. The issues, however, remain political stability, deal transparency and access to deals.
2. In what markets are you seeing the most amount of investment activity and why?
Definitely Spain. [It has] relative political stability, deal availability and better infrastructure (and airlift) compared to Italy, France and Greece.
3. What is the biggest obstacle for a foreign investor searching for a project to invest in?
Deal transparency. Many opportunities are still owned by family offices [that] notoriously ask for above-market pricing and have a tendency not to transact unless they do so on their own terms.
4. What funding structures do you see as most effective for leisure hospitality projects in Mediterranean markets?
Structuring funds around specific countries is very important for international investors. The real risks across the Mediterranean countries are labor—and the risk of labor-related liabilities. Mitigating these funds and their investors through structuring is critical.
5. What is the status of Greek NPLs and how is it affecting investors getting in on the action?
The [inability] of debt holders to foreclose on assets quickly and effectively keeps investors at bay. Change in these regulations would immediately increase investor appetite in NPLs.
6. What are the types of hotels and resorts being built and what has the best ROI? Branded? Select- or Full-Service? Multi-use Developments?
Resorts are still the best ROI, given that most Mediterranean markets are still quite cyclical. Resorts also present a shallower buyer pool, allowing for above average yields and attractive prices per key. Full service and limited service hotels are still sought-after in urban locations, where yields are not much wider than the rest of Europe.
8. How do you compare hotel development in the Mediterranean versus other classes of real estate? Is it a safer or riskier bet?
Currently still riskier, but it all depends on type of product and business plan. Mediterranean countries tend to fluctuate significantly more than northern European countries, primarily because a higher percentage of household income is still allocated to disposable income vs. savings. Markets that have great airlift and rely on a balance of domestic and international tourism (mostly resorts) are in many cases safer.
9. What are you most looking forward to at MR&H this year?
Fostering and continuing to build a network of hotel investment professionals that are specialists in their respective markets across the Mediterranean.