The hotel merchants of Venice

The city of Venice, Italy is auctioning off 13 palaces and villas in some of its most famous neighborhoods, including prime real estate overlooking the Grand Canal, as well as properties situated on the 11-mile-long sandbar Lido and on the island of Murano. The sale, which includes the Bonfadini-Vivante palace and the Foscari Contarini villa near the famous Rialto Bridge, could fetch up to €150 million for the city.

The Italian government says the sale is an attempt to turn state-owned buildings into cash in this picturesque, flood-ravaged seaport of 270,000 people, which is currently facing high unemployment and even higher property prices. The historic properties are currently being used for city functions, including municipal offices and what might be the nicest police station in Europe.

The properties could very easily be turned into luxury hotels for affluent tourists—which means that they could be targets for the private equity real estates firms that have recently been working on luxury lodging deals, including Starwood Capital and The Blackstone Group. But some locals are not happy with the auction for this very reason; many in the city are hoping Venice can develop business in sectors other than tourism—currently the canal-city's most lucrative money-maker.

Anna Somers Cocks, chairman of a group called Venice in Peril, a British charity that was formed after the infamous 1966 flood, told the London Observer that, while selling the villas is a good idea for the city, “sadly they will inevitably be turned into hotels.” She continued, seemingly stumbling onto the fund strategy employed by a number of opportunity funds: “People naturally look to make a quick return on their money through tourism.”