As Europe’s governments cut costs left, right and centre in a race to reduce national debt, they have realised that real estate represents a potential source of capital. In 2002, Argentina’s government pursued a similar strategy when its economy faced collapse, selling land and assets in order to rebalance the books.
The types of European state-held real estate on offer vary, as does the manner in which investors can expect sales to unfold. While the Greek and Italian governments consider selling off islands, historic palaces and even lagoons, other countries have less to sell.
The UK, for example, is finding it difficult to designate assets that can be offloaded. Already around £35bn (€41.6bn) of public assets are earmarked for sale over the next decade by the country’s coalition government, elected in May this year. That figure is higher than the £16bn suggested in October last year by the previous government, a figure which included some non-real estate assets, such as a student loan book.
“The UK is already quite lean. France has more to sell,” says Eric Sasson, managing director and head of European real estate at the Carlyle Group, which in 2006 paid around €85m for a former national print works in south Paris sold by the French government. The group then developed the site as office space.
“The French system is quite sophisticated in its organisation of property sales.”
In June this year, around 1,700 assets were catalogued for sale by the French state over a four-year period. But only 2% are located in Paris – castles and army barracks make up a significant part of the catalogue. The headquarters of Météo France, in Quai Branly in Paris, was sold for around €60m this year to a private buyer.
The French government’s decision to embark on a four-year sales programme is a slight change from its normal process of annual auctions of real estate. France’s asset disposal is regarded as both transparent and accessible. Catalogues are available to interested parties.
Of the €3bn of proceeds from assets sold by the French state since 2005, 85% was reinvested, meaning only €427m actually went towards clearing debt.
Last year, Germany accounted for 42% of European public sector sales, according to CB Richard Ellis. The country has accounted for an average of 30% of Europe’s public-sector property sales over the past four years. Germany’s BIMA (Bundesanstalt fur Immobilienaufgaben), the vehicle responsible for the disposal of state-owned properties, will sell off around half of a €6.8bn portfolio within the next five years. Sales of state-owned assets occur on a regional level and have included apartments, police stations and municipal buildings. France, Italy and the Netherlands each accounted for 10% or more of all European public sector sales last year (see pie chart, below).
But can buyers of former government assets that require renovation, and that were bought at a knock-down price, compete with a government bond? European government bonds are selling well; those issued by southern European countries are commanding a premium over those from northern countries. Assets may require new capital, but it is also worth remembering that properties are often sold for a token €1 gesture, as a concession to the fact that a barracks, for example, has little value outside the military world.
Protego Real Estate Investors last month announced it will launch a €1bn vehicle targeting state-owned real estate assets in Sweden and Finland. Chief executive Iain Reed said it would seek to raise €500m of equity by the end of the year. Earlier this year, Sweden’s state-owned special-purpose vehicle, Vasakronan, released 8,000 apartments, worth SKr5.4bn (€560m) in total. The flats were bought by the Fourth Swedish National Pension Fund.
Last year, sales of government-owned property in Europe reached €840m, according to CB Richard Ellis. Over the past four years, state assets have accounted for as much as 2.5% of all European public sales. Sales could, says CBRE, increase this year, but at an average deal size of €10m.
“Local and overseas pension funds, insurance companies and German open-ended funds are prospective buyers,” says Richard Holberton, CBRE research director for EMEA. Offices that governments continue to occupy will no doubt prove most popular, he says.
