11 June, Il Sole 24 Ore
A considerable budget to invest in real estate projects, but minimal chances to do it in Rome, which is potentially the most interesting city. Hines Italia, the Italian branch of the American real estate giant which entered the Italian market in 1999 with the developer Manfredi Catella, is experiencing this sort of contradiction. Since November 2015, the Italian operations are assigned to Mario Abbadessa. The manager says: “In the last 24 months, we’ve invested nearly one billion euro, mainly in Milan and in one case in Florence”. The list of the investments is available online, and the Hines model is also very well known: acquiring entire buildings in prime locations, carrying out a high-quality requalification work to create products very well placed on the market (student halls, apartments and offices), and renting them with steady and long-term returns.
The new residential division
Besides the operations in the retail and office segments, the group has created a new division for the residential market with the aim of providing tailor-made products. Abbadessa reminds: “This year, we’ve opened a second division dedicated to rentals of residential properties. So far, we’re strong in the student housing segment. For instances, we’ve just acquired a project in Milan, in front of Bocconi, for a total investment of 100 million. We’re also strong in the management of short-term rentals of apartments; we’re currently developing 250 apartments in Florence. We would like to enter the senior living and multifamily markets”.
All the operations have a long-term perspective: “Our vision is not to parcel buildings and sell apartments – stresses Abbadessa -, rather we re-design apartments from scratches for the rental”. Concerning the residential segment, Abbadessa anticipates the closing of two operations: on in Milan, in Bicocca, the other in Florence, in Tornabuoni. Both projects target students and young professionals.
1.5 billion to invest in the next two years
What about the numbers? “We have 700 million in equity to invest in our core business, namely offices and retail, thanks to the joint venture with the Dutch retirement fund Pggm. We have other 300 million to invest in residential. Hence, we have a budget of one billion euro in total which makes possible for us to buy assets for a market value of 1.5 billion euro”.
The four cities where to do business: Milan, Venice, Florence and Rome
Abbadessa explains: “we invest in four marketplaces: Milan mostly, Florence and Venice. They’re amazing markets thanks to tourism. Then there is Rome, perhaps the most interesting market in Europe, but it’s also the most complicated and least transparent one. In fact, we haven’t managed to enter it yet”.
Why is not possible to enter the Rome market? The manager replies: “The local market is not very transparent, communication is difficult”. To be on the safe side, the developer explains, it would be necessary “to find excellent international or institutional investors, such as Cdp, to buy properties from in a transparent way and risk-free. But there is a lot of competition for such properties”.
Abbadessa adds: “in Milan, where the company decided to have its headquarters, we carry out transactions with private companies, as we have a local presence and we’re advantaged compared to the international funds. Rome is riskier from many points of view. We’ve spent a lot of money in analysis without any concrete results”.
What’s the difference between Rome and Milan from this point of view?
It might take one year to find a 500 million opportunity, and perhaps you won’t get anything done at the end. Whereas in Milan, we’ve invested in two years almost the double without issues, only results.
In Milan, the management has the same mindset as in other European cities. We have projects in Dublin, London, Frankfurt, Munich, Paris and Madrid. The City of Milan is very responsive and offers maximum transparency and high expertise. Obviously, a public body has its times, that must be respected, but we’ve never had problems.
Whereas in Rome?
I think the problem is how the administration is managed. In any case, the practical consequence is that in Rome is difficult to plan long-term. In Milan, if you buy land, we’re sure that you’ll get the necessary permits within one year. In Rome, you never know. It’s tough for me that I have to report to investors, to assess the timing. The management’s little professionalism makes the work very difficult for me, that, for instance, I have to justify to the American headquarter why I need five technicians in Rome while in Milan it takes only one. It’s all too complicated.
Hence, no business in the Capital?
If you think about it, there is no other capital city in Europe with real estate assets in such poor conditions and low quality in all the segments: buildings, student halls, shops, offices, this is a unique opportunity for us. Frankfurt, Munich or Paris are almost perfect. There is no added value to offer. Whereas in Rome, all the buildings in Via del Corso need requalification. This is a fantastic opportunity for us, as our business is repositioning estates on the market. Unfortunately, the present situation doesn’t allow us to enter the market. This is the reality.
Source: Il Sole 24 Ore
Translator: Cristina Ambrosi