Milan Prime Offices Fund goes on the market

The Milan Prime Offices (MPO) fund, owner of two landmark assets in central Milan valued at over €230 mln, is on the market, PropertyEU has learned.

Asset manager Torre Sgr is understood to be seeking a buyer for the fund to benefit from the recent surge of investor interest in Italy.

Torre Sgr, which took over the management of MPO in April 2009, has just started the marketing of the units in the vehicle, a sub-fund of the larger Unicredito Immobiliare Uno (UIU) property fund for retail investors.

MPO is the owner of the Renzo Piano-designed headquarters of financial newspaper Il Sole 24 Ore, located at 91 Viale Monte Rosa, as well as the headquarters of Pirelli & C. at 222, viale Sarca. The assets had a total market value of €237 mln at end-June 2014.

Torre, which declined to comment on the rumoured sale, is majority owned by US private equity group Fortress, with a 62.5% stake. Unicredit Group owns the remaining 37.5%.

Built in 2001-2003, the Pirelli head office provides 28,700 m2 of office space leased through the end of 2018 with an option to renew for a further nine years. The asset generates rents of €4.2 mln a year. The 86,000 m2 Monte Rosa complex is multi-let with Il Sole 24 Ore and PwC as main tenants and generates rents of €13.5 mln a year.

The sale is likely to attract a wide range of opportunistic investors looking for a bargain. Listed closed-end funds in Italy are highly illiquid and trade at an average discount of 38% to net asset value. In UIU’s case, the units were trading at a discount of roughly 43% at year-end 2013, an improvement compared to 2012 when they were trading at a discount of 54%. The fund, which counts over 25,000 unitholders, was due to liquidate its assets by the end of this year, but has recently extended its life period for a further three years to end-2017.

UIU has already been the target of a voluntary takeover offer earlier this year. In January, international investment firm GWM and Eurocastle, the listed commercial real estate group controlled by New York-based Fortress Investment, launched a €120 mln bid for 40% of the company, representing a 13.1% premium over the prior closing price.

By the end of the offer period in March, the two partners were able to take control of 18.3% of the fund’s units.

FUNDS IN LIQUIDATION
A number of investors have been circling the Italian closed-end funds approaching maturity in the recent past. Earlier this week, US real estate private equity firm Capstone Equities said it is to make an offer to acquire a stake in the Italian closed-end Europa Immobiliare 1 fund.

The vehicle owns a real estate portfolio valued at €177 mln at end-June 2014, against debt of €70 mln provided by Banca Carige and ING Real Estate Finance. Its portfolio includes barracks and logistics units in a number of Italian regions such as Piedmont, Lazio and Lombardy, as well as the Croydon Colonnades leisure park in the UK and a commercial asset in Gelsenkirchen, Germany.

US private equity group Cerberus Capital Management also made its first foray into the Italian real estate market in August with the signing of two high-profile acquisitions worth over €180 mln. New York-based Cerberus emerged as the buyer of the Calvino portfolio of six office buildings being sold by Idea Fimit's Atlantic 2-Berenice closed-end fund in liquidation.

The assets, located in the cities of Turin, Ivrea, Rome, Milan, Assago and Agrate Brianza, were sold at a 12% discount to their latest appraised value at end-June 2014.

In a second purchase, Cerberus also acquire a portfolio of seven office buildings and barracks held by the Patrimonio Uno closed-end fund managed by BNP Paribas REIM Sgr.

Patrimonio Uno, which is due to be liquidated by year-end 2017, was established in 2005 through the transfer of 75 state-owned assets in a major operation backed by the Ministry of Economy and Finance. The fund is currently entirely owned by institutional investors and owns assets fully let to the Italian state.

In July, AXA Real Estate joined forces with US private equity group Apollo Global Management to acquire the remaining portfolio of Prelios’ Olinda Fondo Shops for €303 mln. AXA Real Estate and Apollo’s European Principal Finance Fund II signed a binding agreement to buy the remaining 26 assets in the listed closed-end fund, which is in liquidation mode. The price represented a 28% discount on the fund’s open market value per year-end 2013.

Market experts estimate that there are 26 closed-end funds in Italy approaching maturity by 2021, representing in total some €6 bn of assets. Around €1.1 bn is expected to come for sale this year from three retail funds in liquidation. Another five funds are expected to offer €1.2 bn worth of properties in 2015 and six funds another €1.4 bn in 2016.