Deutsche Bank’s new acquisition of a 50% stake in Enel’s SE1 will see the revival of hopes for a bigger quoted property sector in the country, and more market transparency for investors
When Italian insurance giant INA spun off its real estate into Unim in 1998, many observers of the country’s property market were looking forward to the prospect of one or two big public property companies in Italy.
This scenario, which would have brought more welcome transparency to the market, was scuppered to some extent last year by Milano Centrale’s takeover of Unim, ensuring that the company was taken private again.
Furthermore, the erstwhile publicly floated Unim was a potential buyer of energy group ENI’s 70,000m2 portfolio. This real estate, worth over €1.2bn (L2.3trn) and held by the Immobiliari Metanopoli subsidiary, is now likely to be swallowed up by one of the private American vehicles that are vying for it.
But this month, a €343.1m (L665bn) joint venture bringing together Deutsche Bank and SEI, the real estate and service company arm of giant electricity utility Enel, puts those dashed hopes for the Italian market back on track (see News).
The new firm, to be called Immobiliare Rio Nouvo (IRN), will comprise the 62-property portfolio belonging to SEI. Deutsche Bank will put in cash, acquire 51% of the portfolio, and use the vehicle to build a big real estate company in Italy. IRN, which will be Venice-based, plans to increase its portfolio to €1.3bn (L2.5tr) ahead of a flotation pencilled in for 2002.
More hope springs from the formation over the last two years of the new property funds. These seven vehicles (see table) are part of a real estate revolution which is also playing a major role in bringing transparency to the market.
According to Michael Follett,a director at Jones Lang LaSalle: “The regulators require the funds to have independent valuations every year. Also there is a feeling that they want to be transparent in order to give the investors the comfort that property is an acceptable commodity.”
Previously, the sector was so opaque that investors were unsure about pricing. In addition, available investments were often very badly managed, particularly those belonging to the pension funds. And portfolios had also performed quite poorly.
“The managers of the new property funds have to overcome past perceptions and to be seen to be buying good quality investments,” says Follett.
The funds aim for a return of around 5%, with most investors looking for an internal rate of return of between 8.5% to 12%.
But it is not an easy moment for investors in Italy. Vendors are asking too much money, and few deals have closed this year. According to one fund manager who is active across Europe: “I don’t see the new funds buying much and when they do, they buy at irrational prices.”
The chief difficulty for investors is the lack of product and the obstacles involved in getting deals done. But the real estate funds will do well over their lifespan as there is good occupational demand for offices, logistics space and shopping centres, so rental growth prospects are very healthy. Office rents, for example, are rising by 10% a year because of the dearth of quality supply, says Healey & Baker.
Traditionally, deals in Italy take time to complete. The legal and financial environment is complex and decision-making processes move slowly among both buyers and sellers. Also, planning consents for new development can take up to eight years to obtain although Follett says there are signs of this improving, albeit only regionally.
Eventually, the funds could take advantage of this freeing-up. Presently, they do not develop but it is likely they will do so in time.
There is a real danger of the market overheating over the next two years, as both international funds and the new Italian funds chase a limited supply of real estate. Paul Bacon, a partner at H&B backs this view up: “The big news is that we have a domestic audience now and they are all trying to get in, and this is driving yields down,” he says.
There has been no new major office scheme in Milan for a decade, neither have any new planning consents been granted.
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Italy’s property funds |
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Fund |
Manager |
Size |
|
Valore Immobiliare Globale |
Deutsche Bank Immobiliari |
€160m |
|
Piramide Globale |
Deutsche Bank Immobiliaril |
€250m |
|
Securfondo |
Immobiliari Italia Gestioni |
€150m |
|
UniCredito Immobiliare Uno |
Gesticredit |
€400m |
|
Polis |
* |
€258m |
|
Bnl Portfolio Immobiliare |
Bnl Fondi Immobiliare |
€250m |
|
Fondo Alpha Immobiliare |
* |
* |
|
Key: * Societa di gestione del risparmio in fondi immobiliari chiusi di Banchi popolari (14 banks and Unione Fiduciaria) ** Societa di gestione del risparmio in fondi immobiliari chiusi di Banche popolari Source: Scenari Immobiliari |
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