The landmark Berengaria hotel located in Prodromos is going under the hammer with a reserve price of EUR2.36 mln, putting an end to hopes the historic property can be revived as a classic-style mountain resort.
It is expected that the new buyer of the Berengaria, if the Bank of Cyprus (BOC) auction goes according to plan on September 11, will probably tear down the decaying building and erect a new development in its place.
The now derelict Berengaria covers an area of 26,520 sq.m. with the building itself covering 4,980 sq.m.
The stone-built Berengaria opened in 1931 and closed down in 1984, its rooms and halls that once entertained royalty are now home to dust, graffiti and exposed to the elements.
Having withstood the passage of time, Berengaria has now become an unofficial and rather dangerous tourist attraction with its share of myths surrounding it. It is estimated that some 200 tourists a week visit the hotel.
But the defunct hotel is not the only property being auctioned on that day.
Investors seeking a good deal in the same Troodos mountain village can snap up a nearby property consisting of two fields and a house for €500,000.
While the bank’s portfolio includes a series of properties for sale – from apartments, houses, hotels to plots of land – concerns are being raised over whether these properties will end up saturating the market and push prices down.
Apart from properties going under the hummer in September, BOC’s Real Estate Management Unit (REMU) has another set of properties which are up for sale.
As at 30 June 2018, assets held by REMU had a carrying value of €1.5 billion. Just in 1H2018 the Real Estate Management Unit on-boarded €220 mln of assets (including construction cost) via the execution of debt for asset swaps.
The focus for REMU is increasingly shifting from on-boarding of assets resulting from debt for asset swaps towards the disposal of these assets. The Group completed disposals of €126 mln in 1H2018, resulting in a profit on disposal of €21 mln.
Up to 3 August 2018, BOC completed additional disposals of €13 mln. During the six months ended 30 June 2018 and up to 3 August 2018, the group executed sale-purchase agreements (SPAs) with a contract value of €171 mln (362 properties). In addition, the group signed SPAs for disposals of assets with a contract value of €36 mln.
Concerns over the volume of properties being added to the market have been expressed by various analysts and market stakeholders, as they fear that bank repossessions or properties obtained through loan restructures may saturate the market and eventually push prices down.
Bank of Cyprus sources argue that REMU is following a sound policy regarding unloading property on to the market. A source told the paper that it aims to sell the properties at their disposal at market price so as not to cause a sudden devaluation of the country’s real estate market.
“This has been our policy since January 2016 when we had first set up the company. We are not doing anything different now, to affect the market in any way,” the BOC source said.
The source argued, banks like BOC unloading their portfolios on to the market, are actually helping it to grow, as properties being reintroduced had been off the market due to financial difficulties leading the previous owners to mortgage them.
“Banks also are able to give loans to potential buyers, which helps the market to get going, and in turn helps the banks to give out loans. With the increase in their liquidity, banks are now looking to give out healthy loans.”
Also interviewed by the Financial Mirror, real estate industry stakeholders said that they are not so much worried about what banks are preparing to throw in the market as much as they are about mortgage-backed loans been packaged and sold to funds such as the recent BOC package sale to the Apollo Fund.
Empty Co-op properties
Concerns have also been expressed about what will happen once some 100 ex-Co-op branches which are to be closed find their way to the market.
BOC has sold a portfolio of 14,000 mortgage-backed loans worth €2.8 bln at half price (€1.4 bln). The loans package is linked with properties worth €5.7 bln, with the vast majority of loans (€2.7 bln) being deemed as non-performing.
The Chairman of the Cyprus Property Owners Association George Mouskides said that he is not concerned by REMU’s or Hellenic Bank’s (HB) property portfolio which are either up for sale or to be auctioned.
“Banks have been very reasonable and cautious so as not to cause damage or a crash in the market. The real concern is the sale of mortgage-backed loan packages.
“The package sold to the Apollo Fund is linked to some 9,000 properties,” said Mouskides.
He added: “As the fund is acquiring such a vast portfolio at less than 20% of market value of the linked assets, it remains to be seen how the fund will wish to cash in their investment.”
He said that if he was in the fund managers’ shoes he would ask borrowers to pay back half of the value of their loans, as unloading so many properties in the market at once would be a potential threat for the sector.
Panos Danos, CEO of Danos Real Estate agency agreed that portfolios like the one belonging to REMU are not currently a threat to the market.
“On the contrary, as banks are unloading their properties to the market gradually, they will help in regulating the market and prices of properties,” said Danos.
He did express some concerns over what the outcome will be in the long run, when eventually all repossessed properties find the way to market but he does not see any reason to be concerned in the mid-term period.
Another source of concern is commercial properties market with the eventual closure of 100 branches belonging to the Co-op, following the takeover from Hellenic Bank.
HB’s CEO Ioannis Matsis announced on Tuesday at the institution’s AGM, that 100 former Co-op branches are to be closed down as the takeover is completed. Forty-four of them are to close in September.
HB sources have told the Financial Mirror that no ex Co-op branch is to be transferred to HB rather the bank will rent the branches it wants to keep under their own brand. Branches to be closed will remain in the custody of the Co-op which will continue its operation as an NPL managing body.
However, it is believed that sooner, rather than later, the Co-op will want to sell off the branches which in many cases are composed of entire buildings. Although sources from HB said that branches closing will be mostly rural, analysts still express concern over the matter.
RICS’ chairman and Managing Partner of AXIA, Thomas Dimopoulos, said that branches not to be utilized by HB, will find their way on the market, either as properties for sale or rent.
“This in connection with the packaging and sale part of BOC’s asset-backed loans to the Apollo Fund, raises concerns as it is expected that some of the properties linked to the loans will be commercial properties,” said Dimopoulos.
He is particularly concerned as these two events are to take part simultaneously at a time when the supply is relatively satisfactory.
“We should contemplate that the unemployment rate is dropping and there is a positive GDP growth rate. These two indicators show a recovery of the economy and are also seen as an indication of the increase in demand for commercial real estate. If the growth of demand will be enough to absorb the supply, it is something that remains to be seen in the near future,” said Dimopoulos.
