Italian real estate is not only attracting more capital from abroad, but also a different type of foreign investor, as more longer-term institutional money targets the market once dominated by short-term opportunistic funds.
This is a positive trend, according to experts gathered in London for the PropertyEU Southern Europe Investment last Friday.
'Private equity funds traditionally have a short-term horizon of 3-5 years, while these longer-term players that have been coming in the last 12 to 15 months are investing for the next 10 years,' said Ivano Ilardo, CEO of BNP Paribas Real Estate Investment Management. 'This is a significant trend, which I hope will continue. It is a good development for Italy because it will give stability to the market and to yields as well.'
The hope is that the Italian banking crisis which has been making headlines, will not deter institutional investors. 'The crisis has a negative impact on companies with a long-term horizon, as it brings to the fore the uncertainty which has always been the main problem in Italy,' said Ilardo. 'On the other hand, where there is uncertainty the opportunistic investors see their chance to shine.'
Fortunately for Italy, not many investors seem to have been put off by the much-publicised troubles in the banking sector. Around 80% of foreign investors are from other EU countries, but Asian and US capital has also been flowing in. The attraction is the growth potential: Italy's economy represents 12% of the EU economy, yet the real estate sector is only 3% of the EU total.
Assets coming to market
The problems in the banking sector can also be seen as an opportunity: 'Banks are also the main holders of real estate in Italy and the crisis will lead to many assets coming to the market,' said Matteo Ravà, managing director of asset management at recently listed Coima Res.
'There is a lot of liquidity available from banks for core assets, but on development it is still hard to get financing,' said Ravà. This is undoubtedly an obstacle to development, he added, as debt financing is expensive and difficult to obtain.
'In Italy at the moment there is availability of capital only for low-risk, pre-let, well-located development,' said Bill Hancock, managing partner at Resolute Asset Management. 'There is space for people to enter the alternative lending market and make financing available.'
Another obstacle to development is heavy regulation and a slow approval process, but there has been progress, especially in Milan, the first port of call for most foreign investors.
'There is an ongoing massive transformation and urban regeneration process which is due to international players moving in,' said Ilardo. 'Milan has shown it is possible for foreign investors to navigate the system, because it is a very open city with a pragmatic administration.'
Rome is a very different story, because development constraints have led to lack of product in all asset classes, including offices and much-needed hotels. 'If you are lucky enough to find, develop or upgrade a property it is very easy to find a tenant, because demand is high,' said Ilardo.
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