Pirelli deal confirms off-market orthodoxy

ITALY - Off-market deals will be the default for institutional investors in Italy, according to Deutsche Bank subsidiary RREEF, after it leveraged a long-standing relationship with Pirelli to secure a prime Milan office block for €100m.

RREEF acquired the trophy asset - which includes some ground-floor retail and "good rental growth" - from Patrimonio Uffici, a fund managed by Pirelli.

"The office sector is quite a mature market and quality pays off, but quality assets are always difficult to find," Gianluca Muzzi, RREEF Italy co-head, told IPE Real Estate.

"There are not many new office properties coming to market and most acquisitions will be in off-market transactions. In all real estate markets, a local presence is necessary. In Italy, that's definitely the case."

Muzzi also indicated there is potential for "substantial investment" in retail across the market. "The market isn't only Rome and Milan. We're looking at many cities, and not only in the north."

RREEF's Milan deal is the latest in a series which included the joint €305m acquisition last July of a 29-property portfolio from pension fund Enpam. That deal, a joint venture with Pirelli, was the result of Enpam seeking to accelerate the disposal of its property portfolio as part of a wider trend among Italian pension funds to offload real estate.

Last week's deal was likewise the result of a relationship with Pirelli, honed over a series of joint ventures in Italy. "It was a huge advantage in this case," said a source at the firm.

As solid market fundamentals and saturation in other Eurozone markets have boosted international investor interest in recent years, supply-side constraints have intensified demand for scarce assets.

Cordea Savills' Italian Opportunities Fund II, launched in June, it targeting a 20% return, for instance. Nick Hayward, director of institutional business, claimed lack of market transparency and the fact sellers are often public sector or corporates, rather than investors, gave the fund's opportunistic strategy credibility.