Real Estate and asset management together towards a new market

 

“The international scenario is full of uncertainties, but it is also true that the economic growth is stabilizing. It is necessary to find a global dimension of growth that is not ideological, but that considers the positive and negative aspects of what is happening”. This is one of the points expressed by Giulio Tremonti during his speech at the opening of Re Italy 2017- spring edition, that gathered for the first time not only the main players of the real estate market, but also those of the asset management market, to stress the more and more close relationship between the two sectors.

 The risks of financialisation

Tremonti has pointed the finger towards the financialisation of the economy, that could generate distortions if not well managed. “When I talk with the international representatives, I sense a general worry in two directions: Italy and North Korea. I try to convince them that Italy is not doing that bad as it seems and that North Korea is a paper tiger in the hands of Beijing”. The fears of Tremonti are rather towards the globalization model adopted since the fall of the Berlin Wall: “ I am not against globalization as an economic process, but against the ideology of globalization, which brings benefits to some, but creates problem to others”. For Tremonti, the entry in a historical dimension “cannot be governed by the politically correct, hiding problems under the carpet”. Neither the solution can be the excess of regulations that has characterized the last few years: “It is wrong believing that democracy is a value for everyone. It is not a product to export, but rather a process that requires different times for each Country and people”.

 The recovery of real estate

The day has continued between round-table meetings and moments of in-depth analysis about the main themes of real estate and asset management. The widespread feeling is that there are signs of recovery on the real estate side, even though not in a general way. The interest of the investors in the great requalification projects and in the trophy asset continues to grow, whereas the problems connected to the bureaucracy and the long times of the national justice are remaining. This is the picture emerging during the RE Italy 2017, spring edition, an event organized at the Italian stock exchange in Milan by Monitorimmobiliare.it and Monitorisparmio.it.

 Real estate finance between lights and shades

Luca Dondi, CEO of Nomisma, has presented the last report on the real estate finance in Italy, pointing out the signs of an ongoing recovery – thanks specially to the growing feeling of trust from the companies and families – , but also the delays in the renovation of the market offer that leaves our Country behind in the international context.

Throughout the day there has also been space for follow ups on the matters of asset management, starting from a focus on the Pirs, which are registering a great success on the market, as Marco Rosati, Zenit Sgr CEO, has stressed. He is also hoping for a greater attention by the Italian SMEs towards the capital market. An opinion also shared by Alberto Zorzi, Arca Fondi Sgr Investments Vice Director, who has stressed as nowadays there is a very rich offer on the market of products to diversify the sources to access to credit other than banks.

Roberto Reggi, Director of the State Property Agency, has presented the urban regeneration plans which – among other things – features the rationalization of the public expenditure for rentals at loss, with the collaboration of privates.

“The interest shown by the market operators, with more than 1,100 deposits, proves that the real estate market is in a phase of great evolution. There are signs of awakening that deserve to be strengthened”, this is the conclusion of Maurizio Canone, director of Monitorimmobiliare.it and Monitorisparmio.it. “Real estate and asset management are two sectors that are gradually converging, with new products and corporate strategies”.

 

The interviews

 Giulio Tremonti, lawyer and former Foreign Affairs Minister

“When I talk to investors, they tell me: the situation at international level is good, there are only two problems.

Italy and North Korea. I try to explain that Italy is not in a serious situation as they think and that Korea is a false problem, it is a paper tiger in the hands of China. While in the world there is a big disorder: the facts of these days prove it”.

Roberto Raggi, State Property Agency director

“The urban regeneration is an occasion to rationalize the spaces and to reduce the rentals at loss. We regenerate areas of the cities that today are empty. We do that in collaboration with privates that aim at profit.

A common goal and a collaboration that are giving positive results not only in big cities such as Milan and Rome but also in cities of medium dimensions”.

 Paola Ricciardi, Reag managing director

“There is a great interest by foreign investors in our  Country. It is not a recent phenomenon, but since a few years already there has been attention towards Italian assets.

Nowadays the competition has become very strong, for this reason, we look for niches in the market. It is not always easy finding products suitable to the expectations. Among the most interesting sectors, there are the residences thought in an innovative way rather than the traditional concept of residence”.

 Vincenzo Albanese, Sigest sole director

“Positive signs are coming from the market, especially for the city of Milan which has been growing for the third year in a row. But there is still space for further growth. We note a sharp recovery of the values related to new initiatives”.

Mario Abbadessa, Hines Italy CEO:

“During the convention ‘The new cities, between public and private: the Rome and Milan examples’ we discussed the urban evolution in the two main Italian cities. As a company, we aim at reproducing the 800 million investments of 2016 through permanent solutions and residences to place in the long term. With the passing of time, we will be less and less a country of property owners. The culture of real estate products is changing”.

Npl, the “U-turn” begins

The teaser rate for non performing loans towards non financial companies with more than 10 employees has significantly decreased in 2016 in terms of amounts ( from 30 to 25 billion), going from 4.3 to 3.7 per cent. In the same period the deterioration rate, which is the ratio between debts,  as well as possible defaults and expired credits in relation to the total stock of credits, has been registered, returning to pre-crisis levels. The rate has gone from 3.3% at the end of 2015 to 2.3 per cent ( against the 6% during the worst phase of the crisis), proving that the whole category of problematic credits – and not only the non performing loans category- has registered a significant improvement throughout the previous year. And it will improve further between 2017 and 2018. This is what appears from the Abi Cerved outlook about the debts of the Italian companies published yesterday. The study offers a more analytical interpretation in comparison with the information about the Npls already shared in the past months by Banca d’Italia and Abi.

“The Abi-Cerved models, in relation to a scenario expecting a growth of the Italian economy from 0.9% to 1.1% in 2018 –as written in the document – show that the teaser rate for non financial companies should decrease to 3.3% by the end of 2017 and it will decrease further to 2.7% by the end of 2018.”

In particular, the study offers an image of the wellbeing – from the perspective of the relation with the banking system – of the various enterprise categories. According to the study, throughout 2016 the teaser rate for new debts has gone down both for SMEs and for bigger companies, but it has worsened instead for microenterprises, with the lowest point of 4.1 per cent.

Looking at the industry trend,  in 2016 the teaser rate to debts has continued reducing for manufacturing, from 3.1 to 3 per cent. Whereas it has grown again in the building and service sector, with a pick of 6.1 per cent in construction. Moreover: last year the difference between North and South has continued to increase, with the growth of the teaser rate for the Centre (4.7%) and the South (5.4%). According to the outlook, however, the gap between various sectors and various geographical areas will finally tend to converge during the following two-year period, with a tangible improvement in those same areas and sectors that suffered the most last year.

Mps securitization, Fonspa and Fortress with Atlante

 

 

Will act as additional investor; other 3.3 billion senior bonds, with Gacs, will be distributed on the market. This is the general plan, which should be officialised in the upcoming days, probably next week, concerning a binding offer from the three subjects, which will buy the same type of bonds at the same prices. The offer anyway is subject to a due diligence around 2 billion gross debt accumulated during 2016, therefore not taken into consideration during the previous analysis carried by Fonspa and Italfondiario-Fortress in the second half of the last year. The offer will be crucial to close the agreement with the European Commission regarding the new plan of Mps up to 2021, still on a heated debate with Brussels regarding the costs: an overview of the situation will be given during the meeting of the board of directors called today in Siena.

Returning to the Npls, the actual promotion of Fonspa from Atlante advisor to co-financier could also happen for the dossier of the Venetian banks, which also, in this case, might involve Fortress too.

Venetian banks at bail-in risk. Crucial meeting with Padoan

 

The worries and fears for the bailout of the two Venetian banks, Popolare di Vicenza and Veneto Banca, are increasing.

Yesterday afternoon a meeting with the heads of both institutions was held at the DG Comp offices in Brussels. The negotiation concerns several aspects, from the plan for the merger of the two institutions to the redundancies, from how to reach the 6.4 billion recapitalization required by the Bce to how to get rid of 9.6 billion gross debt.

But it is on the request from the European Commission to collect an additional 1 billion euro from the privates that the negotiation got stuck, since Brussels is adamant on its position.

The no comments at the end of the meeting of the CEOs of the two banks Cristiano Carrus for Veneto Banca and Fabrizio Viola for Popolare di Vicenza do not foretell anything good, and the fears for the actual possibility of a bail in are growing. Great worry has been expressed by the Italian banking system, as also stressed by Carlo Messina, CEO of Intesa San Paolo.

“Regarding the Venetian banks and the additional billion euro requested by the European Commission we need to accelerate and stand our ground in all the concerned offices, we need to hurry, we can’t wait months for a bureaucratic loop between subjects bouncing each other (…) Privates have already lost or they’re losing money. At this stage, the possibility of bailing these banks through a public intervention, as it has been discussed since December last year, must be guaranteed. I think we must accelerate and stand our ground also in the European context”.

Meanwhile, today a meeting between the Minister of Economy  Pier Paolo Padoan and the heads of the two banks is scheduled in Rome.

Banco Bpm, offers for Rainbow Npl assessed for 250-300 million

 

 

For the transfer of Project Rainbow, a non performing loans portfolio of Banco Bpm of about 750 million euro secured,  the offers should be around 250-300 million euro, therefore up to approximately the 40% of the nominal value.

This is what three sources close to the situation are reporting.

The binding offers will come to the advisers’ table, Kpmg and Banca Akros, by the midnight of 5th June. The envelopes will be opened the following day. Hence, explains one of the sources, it will take about one week for the evaluation.

Banco Bpm has selected a short list of four subjects: Blackstone, Cerberus, Bain Capital and Algebris. Several sources report that Bain is particularly aggressive on the operation, although the game is not over yet.

The expected evaluation is high compared to the average Npl portfolios: it should reach the 40% of the nominal value, considering that the average of the most recent deals is rarely over the 20-25%.

This is the first operation for the new group, born from the merger between Bpm and Banco Popolare, which has committed with the Bce on a program to decrease the non performing loans by 8 billion by 2019.

Banks get rid of non performing loans

 

It will take years to go back to the pre-crisis levels, but in the meanwhile Italian banks are accelerating the disposal of non performing loans. Throughout 2016, the banks of the Peninsula have transferred npls for a value of 23.9 billion euro, according to what the Npl National Observatory launched by Credit Village has registered. This is the first independent observatory that has taken a census of all the operations actually executed on the market, with the aim to increase the transparency of the sector.

On the right track

The analysts have built a map of the transactions, registering a good 160 operations throughout last year. It has thus appeared that over the 10% of the approximately 200 billion non performing loans still within the banks has been disposed. Considering that 11.3 billion of the sold npls are related to re-trade operations that haven’t influenced the slimming of non performing loans within the system.

The Npls sold on the first market amount therefore to 12.6 billion euro.

The main sellers have been banks with 75% of the transactions. The 16% has come from the sector of financial companies for consumer credit and automotive, whereas the remaining 9% comes from the utility world and tlc.

More than half of the operations has been carried through the constitution of special purpose vehicles: the investor uses this vehicle for the securitisation of the purchases portfolio, according to the 130/99 Law.

 

Atlante in the game again

The operations have continued also in the last months. In chronological order the last operation dates back to few days ago when Quaestio Capital Management Sgr concluded a securitisation operation on behalf of Fondo Atlante II, which considers the purchase of about 2.2 billion non performing loans, about two-thirds of the portfolio of Nuova Banca Marche, Nuova Banca dell’Etruria and Nuova Cassa di Risparmio di Chieti, the entities created in 2015 after the “bail in” by the National Fund of Resolution.

The operation makes possible the transfer of the three banks to Ubi Banca and allows solving permanently one of the most critical situations in the Italian banking system.

This is the first operation of Atlante II, the fund created in 2016 for the exclusive purchase of non performing loans from the Italian banks and managed by Quaestio.

The selection of three special servicers is currently in progress, they will be chosen among primary operators of the credit collection sector. The partition and assignment of the roles are decided by Quaestio through competitive procedures in order to protect the interests of its investors and to contribute to creating in Italy an efficient and open to competition npl market.

 

What is left to do

Meanwhile, the meetings between institutions and market operators go on, with the aim of finding new solutions capable of accelerating the disposal of the npls. In the past few days, the Abi technical board has gathered in Milan, with the participation also of Rics and 11 other associations from the real estate industry. In this occasion an agreement has been met on the procedure for two real estate diligences, the activity is mainly finalized at finding the possible risks of the transactions in order to favour the transparency towards the potential stakeholders.

The board has also the goal to clarify the necessary requirements for the real estate evaluator role, as well as the definition of the evaluation activity on the real estate set as a guarantee to the non performing loans, through the adoption of standards developed at national and international level.

The Abi guidelines acknowledge the Bce recommendations contained in “Guidelines for the banks on the non performing loans” published last 20th March which express clearly the necessity to adopt high standards of evaluation such as those promoted by Rics in its Red Book.

The choice of professionalism

The quality of the evaluations is fundamental in the effort to eliminate the toxins accumulated in the years of the crisis.

According to the study carried by Inarcheck, more than 90% of the investigations is not correct. If we consider that every year the real estate assessments for the disbursement of the loans exceed 250 thousand, we can have an idea of the impact of these errors have on the financial statements of the banks. In this perspective, it is not surprising that over 40% of the non performing loans is connected to real estate.

The positive aspect is that the situation is improving, but there is still, however, an obstacle to overcome: the lengthiness of the credit collection times, at these days on an average of 1,120 days ( with deep differences among the regions of the Country, with the South setting on considerably higher levels), more than double the 553 days of the Ocse average.