Arbitrage RE’s Ioannis Orfanos talks European investment

Ioannis Orfanos, a partner at Arbitrage Real Estate who heads its asset-management practice, will be moderating the panel “Institutionalizing Your Asset” on October 30 during the Mediterranean Resort & Hotel Real Estate Forum, which is sponsored by Questex, parent company of Hotel Management magazine.

Orfanos has more than 15 years’ of experience in real estate investment, management and advisement. Currently based in London, he is working closely with international and institutional investors to originate, structure and manage large-scale, value-add real estate development and asset-management investments in commercial and hospitality sectors across Southeast Europe as well as high-yield opportunities in NPL and REO portfolios in Greece.

Ahead of the session, Orfanos spoke about changes in investment patterns across the Mediterranean region and why hoteliers need to be up to date on the latest trends in data and sustainability. 

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Can you give us an overview of business at Arbitrage as we approach the end of 2019? 

Arbitrage Real Estate is an Athens- and London-based real estate advisory and management firm covering a wide spectrum of services in the property sector. In the hospitality market, Arbitrage RE is focusing on detecting and unlocking transactional opportunities from the Greek hotel NPL [non-performing loan] and REO [real-estate owned] market as well as from family-owned hotels and resorts. As an example, we recently tendered a hotel operating lease and a management agreement for two important family-owned assets, one in Athens and one in Mykonos, respectively.

The firm also is focusing on creating value surplus through its advisory work. We are supporting international capital of institutional investors and family offices interested in investing in [the] SE Mediterranean market. We offer, among other things, valuation, technical due-diligence services, strategic feasibility advice, market research and analysis.

The session you are moderating at MR&H 2019 will discuss the growing trend of institutional investment into resorts. What activities are you seeing at Arbitrage that supports this trend?

Ioannis Orfanos
Photo credit: Arbitrage Real Estate

As resort operations have started to move away from traditional family-run properties toward a more-institutional offering, we will discuss in this session with our distinguished panelists (who represent major well-known investment funds) whether this evolution is a value-add strategy and whether the institutionalization of a hotel or resort operation, governance or ownership would lead effectively to a higher yield.

On our side, we have seen a lot of interest coming from institutional capital intending to invest in the Mediterranean market and in Greece in particular. Greece is dominated by family-owned and -run hotels and resorts, therefore our role is to act as a bridge between the current local owners and the institutional capital. We work to prepare family-owned assets for a successful sale or for co-investments and also to create win-win opportunities for both parties to grow the business or expand the portfolio of operating hotels.

Data is king. As data—and the intelligent analysis of it—continue to shape global business practices, what data are your clients requesting when considering investment opportunities?

One of [our] main advisory aims is to provide reliable market data to investors. Our market research team often gets requests about targeted market data per destination such as valuations, major hotels, upcoming hotel investments and new  developments and competition KPIs (ADRs, RevPAR, occupancy rates, seasonality, etc). It also provides data related to international arrivals (airports, port, road networks, etc.) and domestic tourism. Our clients also are looking for more technical and specialized information on planning, development law subsidies and other legislative incentives related to a specific submarket or assets.

Sustainability is climbing up the agenda for investors and is now a very real consideration in the investment process. What factors do you advise clients to contemplate?

I think it was about time! Sustainability is a cross-cutting theme and a very important aspect of how we develop, build, utilize and operate assets in a low-carbon way. It has become a major investment parameter in the office and residential real estate markets, and hospitality assets cannot be an exception. It is important for all hoteliers to focus on low-carbon energy consumption and localized production and also on how they manage their energy, water and waste. It also is important to acknowledge and practically address their impact on the environment.

As it has happened in other institutional real estate markets, we are not expecting green premiums but mostly gray discounts. Hoteliers who do not adapt and show genuine interest in addressing sustainability, they will effectively lose [a] competitive edge and face marketability issues. Especially since holiday-makers and business travelers are much more aware about the importance of sustainability and resilience given the now-visible consequences of climate change.

in last year’s Arbitrage Hospitality Market Report, the high ratio of NPLs that remain within the Greek hospitality sector is cited as a challenge for the future growth of the industry. Any updates and is it still seen as a barrier to funding?

The amount of non-performing loans in the hospitality sector has resulted in the lack of liquidity and consequently in under-investment in certain market segments and locations. Some local hotel groups have found themselves in a position whereby they essentially share decision-making with their lenders and are lacking the necessary capital to reinvest in their assets. The lenders, on the other hand, have found themselves in a difficult place as they are required to effectively jointly run hotel business operations and make important hotel business decisions in their effort to decrease their non-performing exposures in the industry.

Clearly, this challenge also is creating numerous opportunities for well-placed investors, who know how to manage distress situations. They get involved, either directly through the banks or by supporting local groups, to provide the much-needed capital to turnaround the situation, especially in well-sized and prime [location] hospitality assets. This route helps them also become majority shareholders in very good assets. Our expectation is that the active management of NPLs, either on a standalone basis or through structured portfolio auctions, will create a lot of transactional opportunities that will lead to further institutionalization in the hotel market.

What is the importance and relevance of attending events like MR&H?

MR&H provides the opportunity to do targeted networking and meet other important professionals in the industry, to participate in discussions with industry leaders, learn from experts and share knowledge with market participants. The case studies presented during the conference also help to think forward and understand current and future trends. MR&H is undoubtedly the most important annual event in the Mediterranean resorts market. A must-attend.

Orfanos will be moderating a conversation on Institutionalizing Your Asset on Oct. 30 from 3:45 p.m. – 4:25 p.m. To register, click MR&H 2019