ULI panel: ‘Something has to jumpstart Italy’

Senior executives at private real estate big-hitters Blackstone, Lone Star and Goldman Sachs said they view Italy’s banking system as the next potential source of distressed real estate credit deals. But they expressed concerns about obstacles to deal-flow.

Heavyweight investment managers in the private equity real estate sector are running the rule over the Italian distressed credit market, delegates at the Urban Land Institute conference in London heard yesterday. However, those participating in a panel session at the conference dedicated to real estate capital markets, expressed concerns about Italian bankers’ willingness to do business.

“It feels like Italy will be the last big NPL cycle to unwind,” said Jim Garman, managing director and global co-head, European Real Estate Investments, in the Merchant Banking Division of investment bank Goldman Sachs. “But the big question is: will there be enough deals?”

Anthony Myers, senior managing director and head of real estate for Europe at private equity real estate giant The Blackstone Group said there was between €60 billion and €80 billion of loans classified today as non-performing residing within the Italian banks. “Tomorrow there could be more,” he said. “But, as we saw in Spain, there is reluctance. [However, like in Spain], there really needs to be pressure from the central bank. Something has to jumpstart the market in Italy.”

“We’re evaluating the landscape currently. Today, it looks like there is a challenging structural and judicial system; there is a reluctance to trade and one must also be careful about the underlying collateral.”

As things stand, Italy has no bad bank to compare with those in countries like Spain – SAREB – or Ireland – NAMA. However, the Italian government did agree with EU legislators earlier this year steps to deal with the hundreds of billions of euros of bad debt in the country which will see it offer guarantees for a special purpose vehicle to buy some of it.

James McCaffrey, senior managing director at Eastdil Secured, the real estate investment bank, said: “It will take a lot of time, culturally, for the commercial juice to leak into the market. I think we’re looking at deals of €100 million here, €200 million there. A €5 billion loan book coming out? I don’t think you’ll see that anytime soon.”

Nevertheless, Angus Dodd, senior managing director and co-head European Real Estate investments at Lone Star Funds, the Texas-based private equity real estate firm, said that after the UK, Ireland and Spain, which he felt were each between 50 percent and 75 percent through selling their impaired real estate loans, Italy has “barely started.”

Dodd said Lone Star had recently purchased a “small platform” in Italy to be well positioned when a meaningful NPL opportunity arises, but also that, currently, investment activity was minimal as it conducted its research. “We’re looking for the predictability of creditor processes,” he said.