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For Sale: Greek Islands


Shortly before Easter in 2008, Antoine Maalouf arrived at the offices of the Greek Tourism Minister with an unusual request: He wanted to buy a Greek island. The 63-year-old general director of the Monaco-based investment company MMC Group slid €15 billion, in the form of guarantees issued by some of the largest financial institutions in the U.S. and Europe, across the mahogany conference table, right under the minister's nose.

Maalouf's idea was simple. He and his investor group would pay €120 million for Patroklos Island—a barren 1,000-acre strip in the Saronic Gulf nicknamed "Donkey Island" by fisherman—and construct a Las Vegas-style theme park. It was a short boat ride from Athens, and Maalouf planned to pack it with casinos, golf courses, luxury accommodations for 50,000 people, and a marina for thousands of yachts. The project would employ 8,000 Greeks at a time when the country was hurting for jobs. Donatella Versace had signed on to build a luxury hotel.

"All I needed to start was a letter that promised government assistance in overcoming Greece's ridiculous bureaucracy," Maalouf says. "I wanted commitment, an official written commitment."

In response, Maalouf claims, Tourism Minister Fani Palli-Petralia said: "The Greek government gives you its full support," and, "you have our blessing."

"So, you will give me the letter?" Maalouf repeated.

"What?" Palli-Petralia asked him. "You don't trust the government of Greece?"

Maalouf says he never got his letter, and his Donkey Island development project died, a victim of the kind of bureaucratic paralysis and institutionalized corruption that Prime Minister George Papandreou is now struggling to bring under control. Greece is expected to owe its creditors €400 billion by 2012, following a bailout of the Greek economy by the European Union and International Monetary Fund earlier this year. Confronted with monthly debt payments of €4 billion, Papandreou, while at the January 2010 gathering of the World Economic Forum, suggested a strategy that ailing companies often pursue when fighting for survival: selling prized assets. The most valuable treasures that Greece has to offer are its 6,000 sun-soaked islands, which, along with luxury properties and other land the government controls, could fetch a healthy premium on the open market.

Most of Greece's islands are in private hands, and are valued between €3 million and €150 million. While the government doesn't own them, it benefits from the sales through tax revenue and development, which creates jobs and attracts tourists. As a result, the state is involved in every aspect of any transaction, from authorizing a deal to regulating every detail of who might buy a property and how much they will pay. This puts consenting adults at the mercy of the Greek bureaucracy. Although no sales have taken place since Papandreou first floated the idea, the possibilities are immense. The Ionian Sea boasts Skorpios, the legendary compound of Aristotle Onassis. To the east lie the islands of Spetsopoula, owned by the Niarchos family, and Koronida, the retreat of the Livanos clan. The list goes on. The trouble is that the labyrinthine federal, state, local, military, and religious regulations, decrees, laws, proclamations, and edicts have made it nearly impossible for anyone to sell anything, because no one can agree on who owns what.

Greece is not the only modern nation that has faced calamitous budget shortfalls and needed to sell state-controlled land and other assets to keep creditors away. Between 1993 and 1995, for example, 20,000 of Russia's 27,000 state enterprises were sold for about 10 percent of their value to raise capital, according to Kremlinologist Boris Kagarlitsky, director of the Institute of Globalization Studies and Social Movements in Moscow.

"Greek islands cultivate more curiosity from foreign investors than discussing our debt-to-GDP ratio with a guy who wants to build a chain of shopping malls with tax breaks on tendered government land," says Mike Vassiliou, director of the Greek real estate firm NAI Global, who serves as an adviser to the permanent IMF monitors now scrutinizing plans to sell or lease state-owned properties to service creditors. What he means is that offering islands might lure all sorts of buyers who could end up making badly needed investments in Greece. "But the government so far refuses to create boutique offerings that attract entrepreneurs and private investors. If you come in with €200 million to invest, the government claims it will help you cut through the bureaucracy. A penny less and you're on your own in the labyrinth."

Despite Papandreou's enthusiasm for the idea, actually buying a Greek island is maddeningly difficult. Prospective purchasers often spend more time and money negotiating the ultimate sale price with government bureaucrats than with the property's actual owner. And then there's the challenge of trying to figure out who really owns the land. "Right now there are court battles over land disputes that stretch back to 1838," says former Secretary General of the Greek Ministry of Economy Stratis Stratigis, who once headed the Athens Olympic Organizing Committee and served as legal counsel to Maalouf's bid for Patroklos. "We still don't have a land registry."

The EU gave Greece nearly €60 million to create a land record office in 1994. But, according to Petros Doukas, a former Deputy Finance and Deputy Foreign Minister, "the EU demanded some of its grants back. The cost of creating the registry somehow escalated from €1,300 per square kilometer to €30,000 per square kilometer." An independent study undertaken by Vassiliou earlier this year is perhaps the closest thing Greece now has to an official land registry. Scouring the country's court records, Vassiliou says he discovered that the state is currently disputing 675,000 acres of land claimed by individuals. The Greek Orthodox Church is wrangling in the courts over its ownership of a further 325,000 acres. Stratigis calls the crisis one of basic arithmetic. "Greek governments," he says, "never learned how to count."

No story better illustrates the through-the-looking-glass quality of Greek land ownership than that of Holy Ghost Island, a 12-acre, guitar-shaped slip of rocks and trees in the Gulf of Evia where the Beatles once slept. The rock group spent three years trying to buy Holy Ghost from its owner, Sophocles Papanikolaou, the chancellor to the Greek Royal Court in the 1950s and 1960s (Papanikolaou's cousin, Dr. Georgios N. Papanikolaou, was the inventor of the Pap test for women). Despite their best efforts, though, the Beatles failed. (They ended up buying another island, which they sold a few months later). The island's name in Greek is Agia Triada, or Holy Trinity. Still, some official maps identify the place, which is 50 miles by road and boat north of Athens, as Trinity Island. The island's caretakers call it St. Trinity, but the story changes if one consults with the Greek Orthodox Church. The priests say the patch of 300 olive trees and copses of almond trees is called The Island of the Father and the Son and the Holy Ghost, and they'll gladly help carve a path through the bureaucracy if you promise to erect a chapel. "If you want to construct a new house on any property, build a church and the archdiocese will issue the building permit," explains Katerina Samaropoulou, the tall, tan principal of the island real estate firm A. Samaropoulou & Associates. "The new house is now called the xenona, the parish guest house. The swimming pool becomes the kolibithra, a baptismal font. No tax."

The fishermen have their own name, Holy Ghost Island, where the phantom of a despondent lover is said to haunt a 17th-century Venetian tower. The official listed sale price is €20 million. Except at the Greek tax office.

Marielle Kzoni, the lawyer who represents the Papanikolaou family on the sale of Holy Ghost, pours coffee beneath a pomegranate tree and attempts to untangle the confusion, while petting two dogs, Mythos and Enos. "There's a 9 percent tax on the €20 million sales price," Kzoni says. "But the local tax office values Holy Ghost at around €1.5 million. So we make the sales contract that goes to the tax office read €1.5 million. You pay the seller €20 million, but only pay the government 9 percent of €1.5 million. The tax office is fine with that. Cheap, yes?"

Confusion over land value is apparently only one of the challenges buyers and sellers face when attempting an island transaction. "Eight ministries, from Culture to Defense, are involved in the initial purchase of a Greek island," Samaropoulou says as twilight settles over Holy Ghost. "Then, once you have the eight ministries signed on, and depending on where the island is and its legal status, you go back to the Finance Ministry to see if they want to buy it at the tax-office price."

All non-EU citizens must undergo a further check by the Defense Ministry to ensure they don't pose a military threat to Greece in the event of a Turkish invasion. "The most traumatic transaction in Greece is buying an island," Samaropoulou says. "You're looking at around 2,500 official licenses and permits to conclude a sale. My 60 serious foreign clients interested in buying islands find this amazing and unbelievable.

"We estimate the government will put €300 billion of state land on offer, a minimum 15 percent in luxury beachfront and island properties," Samaropoulou continues. "Can you imagine the chaos?"

In anticipation of such mayhem, the Papandreou Admin- istration hired George Papaioannou, the chief executive officer of Piraeus Real Estate, a unit of Piraeus Bank, to assess, value, and dispose of government-owned real estate by sale or lease and bring order to the Greek island transactions. His team's office is next door to the money museum in Athens, eight floors above a mostly empty shopping mall. They have 50 properties to dispose of throughout the country. "I'm one of the coaches, the man who's telling the government what they have and how to best sell it," Papaioannou says. "Don't ask me how many acres we have, because nobody really knows."

He doesn't yet know the details, for example, of the 25 acres of undeveloped beachfront property on the island of Rhodes that the government asked him to assess for the state-owned electrical power company to sell. "It might not even be 25 acres," Papaioannou says, lighting a cigarette. "It's the squatters. We don't know how many there are living on the land."

Papaioannou's calculations also indicate the government has €300 billion worth of land available for sale to investors. History's last recorded state land sale of such scope was the Louisiana Purchase in 1803, when Napoleon sold 828,000 square miles of North American land inhabited by 74,556 people to the U.S. for $15 million. Like Greece today, France was in desperate need of cash to pay its debts. President Thomas Jefferson shipped Napoleon $3 million in gold bullion and let the emperor finance the rest through bonds issued by Baring & Co. in London and English and Dutch investment houses. "If you put [€300 billion] on the creditors' table, it will cover the fiscal problem," Papaioannou says. "But it's up to the government to decide. The biggest problem I face is the bureaucracy. Maybe it's time to slap them in the face."

Renee Pappas, a former adviser to Deputy Foreign Affairs Minister Theodore Kassimis and Deputy Finance Minister Doukas, is a founding member of Foreign Investors in Greek Development, a private group whose mandate is to attract foreign capital and guide small businesses through the alien bureaucracy. Over the past eight years, she says, her organization has seen investors wielding €100 million of potential investment capital from South Africa, Switzerland, Belgium, and Australia give up and leave the negotiating table. "Greece is an immature country of bickering children and, like all children, they need a guardian," Pappas says. "Foreign investors interested in state land won't put up with the bribes and political pressures."

In 2004 former Defense Minister Spelios Spilitopoulos sensed that Greece might be heading for financial disaster, and decided to calculate the value of all the real estate his ministry held in a bewildering portfolio dating back to the late 19th century. The resulting three-year study yielded an 84-page report, Ministry of Defense Evaluation and Survey of Land, that was delivered to a parliamentary committee in 2007. It listed among its 2,500 properties 30 acres of land on the island of Mykonos with an ocean view, valued at €500 million; a few hundred acres of beachfront property south of Athens near the Temple of Poseidon, undervalued at €100 million because squatters had taken over most of the land; and a 5,000-square-foot penthouse apartment on Queen Sophia Street in Athens valued at €8 million, which was rented to a bureaucrat for €200 a month.

Much of the land that the Defense Ministry accumulated over the years was willed to the military by families who wanted to help fight the Turks. These "patriotic donations" continue to this day, and, according to Stratigis, notaries public and attorneys are legally obligated to ask their clients how much they plan on giving to the military in their final wills and testaments.

At the same time, Spilitopoulos says, various groups within the defense and other ministries attempted to thwart his investigation in the hopes of leveraging the confusion to wrest property from his oversight and control. The assets of the Greek army, for instance, are maintained by the Finance Ministry rather than Defense.

Spilitopoulos, who resigned his post under pressure in 2006, says the report has been ignored and the fight over who owns what won't end anytime soon.

Over at the offices of Capital Partners, former Deputy Finance Minister Doukas fiddles with a pencil and mulls the worst-case scenario. "They'd never do it, though what a national disgrace if the IMF and the rest of the creditors demanded to dispose of the assets themselves," Doukas frets. "We're looking at €4 billion a month in maturity payments on the loans, and this is sailing in uncharted waters."

Across the choppy sea on Holy Ghost, the chaotic process of selling the island the Persians used as a staging area for the Battle of Thermopyle continues. Kzoni and Samaropoulou say they'd found a potential buyer, a Kazakh billionaire whose name they would not give up. He was ready to move in, but was jailed in Kazakhstan before the deal went through.

Kzoni says the bureaucrats aren't likely to disappear. "Is €20 million too much?" she worries aloud. "With all the problems, maybe the price should be lowered."

Copetas is a reporter for Bloomberg News.

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