ITALY - Managers of two funds launched last week claim they can harness scarce Italian real estate assets to generate well-above-average returns for pension fund investors.
Cordea Savills’ Italian Opportunities Fund II will target returns of 20% – an achievable target, claims Nick Hayward, director of institutional business at the firm, because of a confluence of factors in the market.
He believes this is possible first because there is high deal flow through sellers who are often corporates or government, rather than investors. As a result, owners have not traditionally managed buildings as assets.
In addition, a relative lack of transparency in the market creates opportunities for under- and mis-pricing while Italy, said Hayward, has a stable economic structure with "a strong lease culture".
"All these things add up," he said.
Scarcity of prime real estate assets gives credibility to an opportunistic strategy as Hayward estimates prime real estate makes up 30% of total assets in Paris or London, compared with only 10% in Rome.
"The fund’s attractiveness for pension funds is that it’s a low-risk way of getting opportunistic returns in a Western economy with supply constraints," said Hayward.
However, he acknowledged the forecast return was well above average – even for an Italian fund.
"If this was a core fund, we wouldn’t expect a 20% return," he said. "But we can make that return in the Italian market. It isn’t like other European markets."
The fund plans to mop up deals too large for local investors – effectively those worth more than €300m – then sell them back to the institutional market.
A second fund, launched by ING Real Estate, plans to acquire shopping centres across the market because this sector offers positive rental prospects.
The target €1bn unlisted fund will invest in core and value-added retail properties with forecast returns of between 10—12%.
Fund manager Florencio Baccar, who has already raised a third of the target capital, acknowledged shopping centres across Italy were "not easy to get hold of", so most of the fund’s acquisitions would take place in off-market transactions.
"Nothing is easy to get hold of in Italy," he added, "but we have a track record of buying assets and we’ll find them."