Italian real estate has begun to attract global investors again and so Prelios’ restructuring and reorganisation could be well timed. Richard Lowe speaks to CEO Sergio Iasi
The Italian real estate market is following hot on the heels of its counterpart in Ireland. Both ‘PIIGS’ markets became no-go areas in the eyes of international investors during the mire of the euro-zone crisis, but the speed with which opportunistic investors returned to Dublin was striking and a similar phenomenon looks to be taking place in cities like Milan. Italy saw a 54% increase in transaction activity in the first half of 2013, according to Cushman & Wakefield.
Part of this story owes to an improving picture in Europe. With the fog of the sovereign debt crisis beginning to lift, it has become clear that Italy is home to some high quality real estate, some of which is supported by positive fundamentals and available at higher yields to other core European markets.
According to Sergio Iasi, who took over as CEO of Prelios just under a year ago, this “reduced perceived risk of exit from the euro area from Italy” means rising property yields – from 6-6.5% to 8-8.5% for core assets – have become particularly attractive to cross-border investors, especially when accounting for a reduced country-level risk.
He cites AIG/Lincoln’s disposal of the Da Vinci Market Central shopping centre in Rome for €130m, reflecting a yield of well over 9%. Iasi says this would have been “unbelievable two years ago”.
Surely a positive time to have an Italian investment platform? Prelios, formerly Pirelli Real Estate, certainly has this. But in some ways the fortunes of the company have been moving in tandem with the ebb and flow of the underlying property market.
In November last year, Prelios signed a memorandum of understanding with a consortium headed by financier Massimo Caputi for a recapitalisation in the order of €185m. Since then, Prelios has undergone a complex restructuring which ultimately reduced its debt from €561m to €250m and made tyremaker Pirelli and Italy’s two largest banks, Unicredit and Intesa Sanpaolo, leading shareholders.
Iasi took over from outgoing CEO Paolo Bottelli in December 2012, joining from Rome-based real estate and financial group Silvano Toti Holding. He has led the transformation of Prelios from a co-investor that was overly exposed to the fortunes of the Italian property market and with financial inefficiencies to a leaner, more integrated group that focuses on services to banks and third-party institutional investors.
When Iasi joined, the holding company of Prelios accounted for 30-35% of the total costs of the group. Now, speaking at Expo Real in Munich, he says it was structured in such a way that the underlying operating subsidiaries had “low autonomy and focus on their business with low motivation”. A new business model places the three main branches – fund management, ‘integrated services’ including valuation and brokerage, and non-performing-loans management – “under the same strategic umbrella”, each with autonomy.
“Those three companies were in the past separated. Now they have one unique commercial and operating coordination, so there is one single head that coordinates the three divisions. That makes it much more effective both from an operating point of view and a commercial point of view,” Iasi says. “We reduced the burden provided by the holding, so that each company has much more autonomy, focus, elasticity and movement.”
The biggest change has been a move away from being a major co-investor in the real estate market. Prelios is disposing of investments held on its balance sheet. “Prelios was like a Centaurus,” Iasi says. “It was half horse and half human being, because it was minority co-investor and service provider. Those two pieces of the business don’t come along anymore. We announce to the market that we want to dispose over the next few years of all the portfolio investments, and we have the ability to follow this strategy because of the restructuring.”
Prelios will concentrate on offering valuations, appraisals and brokerage to banks and other third-parties, as well as the management of non-performing loan portfolios and fund management for third-party institutional investors – the latter through its SGR subsidiary.
“The recovered credibility, because of the restructuring, allows us to negotiate in a better position with institutional investors – pension funds, insurance companies, private investors,” Iasi says. But, he adds, “fundraising is always a long-term activity – it takes time.”
That Prelios is partly owned by two of Italy’s largest banks should not be overlooked. Iasi points to the commitment shown by Unicredit and Intesa Sanpaolo through placing two of their senior managers onto the Prelios board. “This is typically a sign that the banks are not simply converting their debt into equity in order to liquidate investments, but they show a strong and positive commitment,” he says. “That allows us to position ourselves as one of the major providers of services for the banking system which, in turn, is the major stakeholder in the real estate market in Italy.”
The company is also remaining committed to offer real estate services in Germany, the other market it has a major presence in. Prelios Deutschland manages the LAGO shopping centre in Konstanz on behalf of Union Investment. The mall came first for the second year in a row in the Shopping Centre Performance Report (SCPR), having the “the most satisfied tenants in the whole of Germany”, according to a Prelios statement.
“Prelios wants to stay definitely in Italy and Germany,” says Iasi. “Until now, Prelios has been perceived as a marginal operator [in Germany], financially troubled. When we had meeting at MIPIM last spring with German potential partners, they were shaking heads….
Now we are out of trouble and this is what we are communicating to the market: we are still alive, we are strong, we are financially sound and performing well.”