Morgan Stanley’s real estate fund has scored its first hit in Italy, purchasing a portfolio of distressed property loans from the country’s largest bank, Istituto Bancario San Paolo di Torino.
The American investment bank paid just over LI 200 bn for 2,000 non-performing loans with a face value of around LI 480 bn.
The deal also heralds the first securitisation of distressed debt in Italy. Morgan Stanley eventually plans to use the loans to back a bond issue to be privately placed with institutional investors abroad. The securitisation has the approval of the Bank of Italy.
Morgan Stanley’s purchase has caused considerable excitement in Italy. Says Roberto Lunghini, director property consultants Centro I in Milan, “There is now speculation that this deal will lead other foreign banks and institutions to look at the potential of the Italian market.” Many other Italian banks, particularly Banca Commerciale Italiana, are keen to sell their non-performing loan portfolios.
However, according to Morgan Stanley executive director John Carrafiell, the San Paolo deal is a one-off for his fund and does not necessarily herald further investment in Italy in the short term.
Recently, the fund’s proposed deal to buy 60% of Swedish property company Castellum has been called off. Instead, it will be advising Castellum’s parent company Securum on its flotation later this year.
The purchase would have given it a controlling stake in the company, which owns Skr 8bn of commercial and residential property belonging to state owned bank Securum. But Morgan Stanley executive director John Carrafiell says he was not downbeat about the failure to clinch an investment in Castellum.
“We have a long-standing relationship with Securum and when the equity environment changed and property stocks began to outperform the market Securum decided they wanted to float it, we were able to switch immediately into an advisory role. The bottom line is we want to monetise property assets and build up relationships with property owners across Europe,” he said.
Carrafiell is upbeat about other investment opportunities in Sweden. “The Swedish market is still underdeveloped as far as international investment is concerned but since it has joined the EU we are looking hard at the possibilities for doing deals there,” he added.
Morgan Stanley has also focused on the property markets in the UK, France and Spain and Carrafiell says it is actively looking to make investments in other smaller European markets such as Belgium and the Netherlands. He said: “We have a Europe-wide view and we are basically looking at investments in any country with a GDP larger than that of Greece.”
The bank’s real estate fund made its first investments in 1996 and with $1bn committed by pension funds, institutions and the bank itself, it has the potential to gear up to around $5bn. It plans to continue buying property until the end of 1998.
