A Deutsche Bank real estate professional has joined H.I.G. Capital in its Milan office to add to its opportunistic real estate investing firepower in Europe. Gabriele Magotti has joined the Miami-based firm from Deutsche Bank, where he was head of southern Europe for the alternative and real assets team.
The hire comes as H.I.G., which has around $17 billion of assets, has been investing across Europe via credit affiliate Bayside Capital in markets such as Spain, the Netherlands, Italy and Central and Eastern Europe. In July, it teamed up with AnaCap Financial Partners and Deutsche Bank to acquire a €495 million portfolio of Romanian loans. The portfolio consisted of 3,566 nonperforming and underperforming loans secured against residential and commercial real estate and development land and sold by Volksbank Romania, which like many banks in Europe is seeking to restructure and divest non-core or nonperforming assets in order to comply with the new capital adequacy regime. In June, Bayside also purchased its first Italian NPL portfolio from banking group Cassa di Risparmio di Ravenna for €40 million. That transaction was structured by Bayside’s servicing partner, Fare NPL, which is an Italian asset management company.
Italy as well as Spain in particular has been capturing the attention of opportunity fund managers in recent months. In a feature on southern Europe published in PERE's October issue, Ken Caplan, senior managing director and head of real estate in Europe at The Blackstone Group, said: “Over the last 12 months, the big shift we’ve started to see is that, not only are there more opportunities in continental Europe, but more opportunities in southern Europe.”
In the feature, Bayside managing director Ahmed Hamdani noted that one feature of the Italian market was navigating the often lengthy process of working out NPLs. “The jurisdiction in Italy is problematic – there’s no getting around that – but you need to price that accordingly and make sure you have partners who know their way around the system,” he explained. “There are many ways of recovering NPLs and going through the courts will take a long time, but the system can work more efficiently. A new owner of an NPL portfolio has a little more flexibility to cut deals with borrowers directly, which an existing bank would not have.”
David Edmonds, global head of portfolio lead advisory services at Deloitte, said that while Italy had its own issues in the commercial real estate sector, it had not experienced the same kind of significant real estate bubble as Spain. Bigger Italian banks have started to raise significant provisions in the last six months, but smaller and mid-tier banks have yet to do so. As a result, the country has been slower to emerge as a potential market for private equity real estate capital.
“In the Italian market, we’ll see a trickle of deals over the next nine to 12 months,” said Edmonds. “There are a few deals going on now, but they’re relatively small. It will become a more active market as we get into the end of 2015 and early 2016.”
Added Hamdani: “We’re targeting a slightly different universe of NPLs. We’re focused on the smaller portfolios from smaller banks that we can source directly, and that’s really the key challenge to investing in these countries: finding the right opportunity.”
Earlier this year, H.I.G. opened its Milan office, which now has a team of around 10 professionals whose activities include private equity transactions, credit investments, debt solutions, real estate and related investment opportunities.