Italy: Distress slowly, surely moves into private hands
Italy: Distress slowly, surely moves into private hands
25 MARCH 2019 8:26 AM

Experts believe more success will arrive in Italy from the further repackaging of real estate distress opportunities in the country, attracting more international finance and having all stakeholders work together.

BERLIN—Italy is slowly sorting through real estate distress held by banks and public institutions, with sources stating there is a speeding up of offloading assets and that projects and proposals are being repackaged to make them easier and more attractive for investors to navigate.

There are pressures, notably that Italy is mired in debt. According to the European Union official statistics platform Eurostat, in the second quarter of 2018, national debt stood at €2.3 trillion ($2.6 trillion), or 133.1% of the country’s gross domestic product.

Greece carries the highest debt ratio, borrowing the equivalent of 179.1% of its GDP. France for the same period comes in at 99.1% of GDP and the United Kingdom at 86.7%.

Panelists at an International Hotel Investment Forum panel titled “Italy awakes: How the largest untapped real estate pool in Europe is coming to market” were quick to point out that this is public, not private, debt.

Marco Sangiorgio, GM, CDP Investimenti SGR, said private debt in Italy remains low.

He said distress is starting to move out of the system, but he added it remains a complicated process “turning distressed assets from public entities into something good for private investors.”

Stefano Nigro, department director, foreign investment department, Italian Trade Agency/Invest in Italy, said his department sold 70 distressed assets in 2018, with the hotel and tourism sector being the one with the most opportunities.

“We have seen an increasing flow of international equity in real estate. In 2013, its share was 40%, but now it is more than 70%,” he said.

“Public players now are more keen on dealing with foreign investors, mostly from inside Europe or from the U.S.”

There is an increase in interest from Asia, too, Nigro said, but added capital from there remains largely window shopping.

“The Chinese like to look a lot but not so much writing checks,” said moderator James Chappell, global business director at Horwath HTL.

One notable project Sangiorgio is working on is the Ex Ospedale al Mare hospital on the Lido di Venezia.

That site has been sold to CDP Investments SGR, Sangiorgio said. CDP Investments signed a nonbinding agreement in June 2018 with Club Med SAS, which would manage a 350-key resort, and TH Resorts, which would do likewise for a 200-key hotel.

For Sangiorgio the biggest nightmare is the sheer number of different organizations any proposal must satisfy and be signed off by. For the Venice project, these include the Agenzia del Demanio, Italy’s public property agency; the local board of the Azienda Unità Locale Socio Sanitaria, a health and sanitation authority; the municipality of Venice, the seller, and archaeologists, among other bodies and personnel.

“We turn nightmares into dreams, but it can be slow going,” he said.

Trains and wins
Carlo De Vito, chairman, FS Sistemi Urbani, which owns and leases buildings owned by the Italian railway network, said another huge opportunity for investors in the travel space is the opening up of the country due to improvements in fast-speed trains.

“A lot of work is being done. The geography of Italy means trains are still important,” De Vito said, referencing Italy’s lengthy north-south land mass, with formerly more impoverished areas and mostly in the south (such as Basilicata, Calabria and Puglia), becoming increasingly open to development and tourism.

One project showed that provinces such as these can realize projects that go from strength to strength.

One such case is Borgo Egnazia, a hotel in Puglia and an example that success does not require being in one of Italy’s storied cities.

Aldo Melpignano, managing director, Borgo Egnazia and San Domenico Hotels, said Borgo Egnazia, helped by German senior debt and London financing, saw a compound annual growth rate of 54% between 2012 and 2018 and has increased its average daily rate from €225 ($253.92) when it opened in 2010 to €728 ($821.56) in 2018.

“We have increased occupancy to 61% and (revenue per available room) of approximately €400 ($451.41),” Melpignano said to audible gasps from IHIF attendees.

“Once you check in, no one asks you to do anything. We are tight on cost controls, and we have created standards and procedures that are scalable,” Melpignano said, adding that he planned to open two to three properties per year, each with a different personality.

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