Papachristophorou: In the field of managing third-party capital, trust is key

Since its foundation in 2013, Invel Real Estate has emerged as one of the most successful private equity real estate firms in Southern Europe.

Here, the firm’s founder and Managing Partner, Christophoros Papachristophorou, talks about its opportunistic and “asset-agnostic” investment philosophy and examines how the hospitality and commercial office space markets are faring in the current climate.

Let's start at the beginning: You were the CEO of Deutsche Bank’s RREEF opportunistic real estate investing platform. In 2012, having worked for 15 years at the Bank, you were part of several departures of senior RREEF executives. What was behind this move?

Following the global financial crisis in 2008, most real estate investors preferred to invest in Funds managed by independent firms rather than bank-sponsored platforms. Towards the end of 2012, having spent a number of years restructuring and harvesting the investments held by RREEF Funds, I decided to move on and set up my own independent firm to operate in the opportunistic real estate space. After the announcement of my resignation, due to the loyalty and trust that we had developed over numerous years of working together, all the senior people followed my example and left the RREEF platform.

In 2013, you founded Invel Real Estate. What can you tell us about its investment philosophy and track record over these past 10 years?

Invel Real Estate was founded in 2013 as a private equity real estate firm to take advantage of opportunities, mainly in Southern Europe, which was facing a sovereign debt and banking crisis. Invel is opportunistic in nature and “asset-agnostic,” which means we will invest in any real estate asset class if we believe that there is an opportunity to deploy capital at an attractive price and at the same time, unlock and enhance value through active asset management before eventually exiting. Our primary philosophy is to always have a full alignment of interest with our investors, which is why we invest alongside them at significantly higher percentages than other general partners do. Also, we are highly selective in executing transactions, which are mostly sourced off-market, due to our well-established and dominant presence in the markets we operate. Over the last decade, we have deployed north of €1.6 billion of capital on behalf of blue-chip investors, across 20 transactions with an average gross return of circa 20%.

Invel, Prodea Investments and the Cypriot-based YODA Group of Ioannis Papalekas are strategic partners and have a joint investment vehicle called Mediterranean Hospitality Venture Ltd. Tell us more about hospitality and your plans in this field.

MHV Mediterranean Hospitality Venture Ltd was launched in 2020 to capitalise on the dislocation in the hospitality market in light of the pandemic and has a very clear strategy, targeting high-end hospitality properties. Over this short three-year period, the shareholders and the fully integrated senior management team of MHV have actively worked together to reposition the existing portfolio of five hotels in Greece and Cyprus – upscaling the offering, introducing new concepts and international branded F&B, improving the ADR and optimising the EBITDA. Over and above MHV, Invel and Prodea, jointly own another 12 properties, with more than 1,200 keys, mainly in Greece, Cyprus and Italy. Hotels can provide an inflation hedge as, in theory, the RevPAR (revenue per available room) can be adjusted upwards, assuming that demand remains high to compensate for the increased costs. Also, the hospitality industry seems to be on track for a full recovery. You may already be familiar with the concept of “revenge spending” (to which my millennial colleagues keep referring!) but, since the pandemic, people have reprioritised their lives; they are seeking a better work/life balance while spending on leisure and travel has certainly picked up and will not fade away anytime soon. Remote working also assumes that you can work from alternative accommodation, so this industry still presents an interesting opportunity for investment.

The acquisition of The Hilton Cyprus (now The Landmark) in Nicosia will give a mixed-use treatment to the hotel, with commercial office spaces. With Cyprus experiencing a contraction in the supply of commercial offices, can we expect more investments by Invel in this area?

Allow me to initially make two short comments on the office asset class, which is undergoing an extraordinary reassessment internationally in the post-pandemic era. First, we should differentiate between the remote working trend in big US cities, where a high volume of suburban commuters prefer to work from home, thus rendering the office space redundant, and that in smaller southern European cities, where going to the office is part of a person’s social life and people actively seek it. Second, even in the latter case where office space is still high in demand, the typology of the buildings in demand has dramatically evolved towards high-quality standards in energy efficiency and environmentally friendly designs. We are big believers in green offices and this is an area where we see opportunities in both Cyprus and Italy as well as in Greece, where Prodea is the largest green office investor. As you correctly point out, The Landmark Office Tower is part of a multimillion redevelopment undertaken by MHV in the grounds of The Landmark Nicosia. The tower will have LEED Gold Certification, which indicates lower energy and water consumption and reduced CO2 emissions, while offering healthy working conditions and higher productivity through improved indoor air quality, ample daylight and internal finishes, free from harmful chemicals.

Let’s focus on ESG: How has the growing importance of Environmental, Social and Governance considerations influenced the company's investment decisions and asset management practices?

Clearly, the company evolves and adapts to changing times and circumstances. Incorporating a wide set of environmental, social and corporate governance considerations into the business strategy and decision-making process was a natural evolution, not a choice. Not only do investors question and scrutinise ESG practices prior to committing any capital, but such practices also impact and improve a company’s ability to generate further value. In July 2021, Prodea Investments issued a €300m Green Common Bond, the first of its kind in the country, to fund sustainable investments in real estate. The first investment funded by green bond proceeds was a green office complex in Athens (on Syngrou Avenue), which adopted the latest international specifications for sustainability with a view to receiving LEED Gold certification. In addition, Invel currently owns a fully integrated Greek residential developer that only creates future-proof products and designs in accordance with modern principles of sustainability, resulting in decreased energy consumption. The buildings include, among others, thermal facades, LED lighting, double-glazed windows with full thermal insulation, heat pumps and smart home features, thus contributing to the protection of the planet and the wellbeing of the residents. These are just a few examples of the “E” component in ESG. In terms of the “S” and “G”, Invel is committed to strengthening local communities by supporting social, humanitarian and cultural initiatives through donations and partnerships with several civic and non-profit initiatives, while the Group also operates withing a framework of formal policies and principles to assure effective corporate governance.

You stated in a previous interview that, when it comes to building a successful career in the field of private investments, know-how and experience should count as much as someone’s personal footprint in the industry. Is that still the case?

Absolutely. In addition to a person’s reputable academic and professional background, there are certain major attributes that are equally important for a successful career in the industry. Such characteristics include integrity and credibility. In the field of managing third-party capital, trust is key. And you need to establish yourself as a respectful and trustworthy counterparty, both in the eyes of the investors who trust you with managing their funds, your competitors, the borrowers, the lenders, the sellers… The list goes on.

Looking ahead, what are your goals and aspirations for Invel Real Estate and how do you envision the company evolving in the coming years? Will we see your investment strategy expand beyond Southern Europe?

I like taking quotes from athletes, so, as they say in tennis, we work “point by point”. We will work step-by-step to unlock the value of our existing portfolio and, at the same time, selectively pursue new investments in the markets where we already have or plan to have a local presence, namely Greece, Italy, Cyprus, Spain and the UK. We expect that the current environment of rising interest rates and increased construction costs, coupled with the prevailing geopolitical risks, will enable Groups like ours to deploy capital in attractive opportunities.

This interview first appeared in the 2023 The Cyprus Journal of Wealth Management. Click here to view it.