Editor's Choice: Avanti Italia!

The PropertyEU team had a busy schedule this last week of November with a whistle-stop tour which took in London, Paris, Milan and Frankfurt - and Amsterdam and Madrid still to come.

After an outstanding Outlook Investment Briefing at Colliers International’s office in London on Tuesday, our Events team packed their bags to get on the Eurostar to Paris for the second Outlook event in our end-of-the-year programme at the new office of law firm Taylor Wessing.

After drilling down deeper into the opportunities in the French market with another panel of first-rate speakers, the Events team and this roving reporter parted company. Frankfurt was the next port of call for Richard Betts and his faithful following while my Easyjet boarding ticket had Milan Malpensa as its destination.

The ICSC Retail Strategies & Trends conference at the Meliá Milano hotel contained another heavy dose of retail hard on the heels of Mapic in Cannes, but provided an excellent opportunity to meet with a focussed group of retail research specialists and asset managers from across Europe. While most of the panel discussions and presentations revolved around retail topics in a broader European context, there was also a focus on Italy by Massimo Moretti, president of the ICSC national council of shopping centres and head of business unit portfolio retail at Beni Stabili.

The Italian market is back on track, Moretti said, pointing to a new phase of political and economic stability and rising real estate investment including leading international players of the likes of Hines and Allianz. His views on the growing opportunities in the Italian market echoed the observations of some of the panelists on our Outlook Investment Briefing held earlier in the week in London. ‘Italy is recovering in slow motion,’ said Jonathan Lurie, managing director of Blackstone’s Real Estate Group. ‘We’re pretty active in Italy and will continue to be active there.’

While the UK has moved into what Lurie described as ‘a new normal’ in the wake of the global financial crisis with office yields for trophy assets like the Gherkin recently hitting a record low of sub-4%, that is not yet the case for Italy, he noted. 'But there are lot of opportunities and it’s possible to buy quality assets at meaningful discounts.’ The London market is already very liquid, he added. ‘It makes more sense to be active in Milan and Italy and to offer a liquidity and an access to product that would not otherwise exist.’

Italy is indeed turning the corner, agreed Riccardo Serrini, CEO of Prelios Credit Servicing. ‘We had some very tough years in 2012-13. There was a real lack of financing, virtually none at all, and a lot of uncertainty. But now the political situation is more stable and we have access again to the lending system. We now have hope for recovery although there is still a lot of pressure on rents and a big question mark with regard to secondary assets.’Italy’s notoriously complex legal system is also being shaken up, he added. ‘Legal procedures tend to take a bit too long but the new government is making a lot of improvements.’

SLOW MOTION RECOVERY
Clear signs of Italy’s slow-motion recovery already emerged this week with the report that South Korean electronics giant Samsung has inked the acquisition of an office scheme at Milan’s Porta Nuova development project from funds managed by Hines Italia, a joint venture of US developer-investor Hines and the Italian Catella family, as tipped by PropertyEU in early July.

Samsung Life Insurance and Samsung Electronics have bought one of the so-called 'Diamantini', a Kohn Pederson Fox Associates-designed office scheme offering 12,500 m2. The South Korean investor plans to relocate to the new building which will become its Italian headquarters from 2015.

The deal is Samsung’s first acquisition in mainland Europe after entering the UK last year with the acquisition of the London headquarters of law firm Pinsent Masons at 30 Crown Place, London EC2. The purchase price of £145 mln (€170 mln) reflected a net yield of 4.7%.

Europa Capital has also hit the acquisition trail in Italy. Just this week, the UK-based opportunity investor announced it has acquired the retail gallery of the Galleria Borromea shopping centre in Milan with joint venture partner Franco Gardella for €81.6 mln. Europa Capital entered the Italian market in 2006 with the purchase of the headquarters of Alcatel Italia from the Italian subsidiary of the international telecommunications conglomerate for over €128 mln. More recently, the asset manager had been looking to re-enter the market with a shopping centre acquisition. It is believed to have looked at a number of properties over the past year, including the 8Gallery shopping centre in Turin's Lingotto district in Northern Italy.

SOVEREIGN WEALTH FUNDS
In another vote of confidence for the Italian market, the country’s state-owned Fondo Strategico Italiano and its JV with Kuwaiti sovereign wealth fund KIA announced last week that they are injecting €76 mln of equity into Rocco Forte Hotels in exchange for a 23% stake in the hotel chain. FSI, which was formed in 2011, is injecting the capital together with FSI Investimenti, its 77-23% partnership with KIA (Kuwait Investment Authority). The capital will help fund the expansion of Rocco Forte Hotels’ Italian portfolio over the next five years and pay off some of the hotel company’s debt.

Rocco Forte Hotels owns a number of luxury hotel assets in Italy including properties in Rome, Florence and Sicily. Overall its portfolio includes a total of 11 hotels in Italy, the UK, Germany, Belgium and Russia.

NPL PORTFOLIOS
Commenting on the opportunities in the Italian market, Prelios’ Riccardo Serrini predicted that more international investors would move on the country in the coming 12 months as local banks start to shift their non-performing loans in the wake of the European Central Bank’s recent Asset Quality Review. Indeed, Italy is set to become one of Europe’s most dynamic investment markets in terms of NPLs, he said. ‘Italian banks hold €480 bn of NPLs on their books. Roughly 40% of those loans are for real estate.’

Cross-border moves have also been sighted in this segment of the market. Earlier this week Iberian debt servicer Finsolutia announced it has joined forces with Italy’s Credito Fondiario to launch a platform focused on the management of Italian distressed credit facilities and real estate assets held by investors and financial institutions.

The company, which is part of the Milwaukee-based American Appraisal group, has hired Unicredit Credit Management Immobiliare’s former managing director Diego Bortot to lead the new business unit, which will be based in Milan and will focus on advising clients on debt restructuring and loan servicing.

As Walter Boettcher, head of research at Colliers International, noted at our London Outlook briefing earlier this week, the current property cycle in Europe has still got a lot of life in it. ‘The capital that was raised this year was far higher than it has been for the last five years so there will be more weight coming through. There are two things driving the market: as long as interest rates stay low, there is no other place to place money. The other is the sheer weight of money.’

In this context, more international investors will no doubt be calling ‘Avanti Italia!’ in the next 12 months. Given the growing interest in the country, Milan may well become a new port of call for our serie√s of Outlook Investment Briefings in 2015 during our annual end-of-the-year romp around Europe.

Judi Seebus
Editor-in-chief

PS: PropertyEU’s Outlook Investment Briefing series continues in Amsterdam on 2 December and moves to Madrid on 4 December. If you wish to attend one of these free events, please sign up here.

The Outlook Investment Briefings will be covered in the upcoming December issue of PropertyEU Magazine and the Multimedia Global Outlook edition in January that we are producing in cooperation with ULI Europe, ICSC and EPRA.