Cesare Ferrero, you are one of the most respected managers of real estate and since a few years you decided to take the plunge becoming an entrepreneur. How did you come to that decision?
The decision to become a manager - entrepreneur dates back to year 2005, after my decision to leave IPI, prestigious real estate company listed at the Milano stock exchange that belonged to group Fiat and where I had been Ceo since 2001. The financial difficulty of Fiat group during those years forced to sell IPI and many other companies not involved in the automotive business. Unfortunately, the following shareholders limited the financial strength, the investment and the existing professional team rather than improving the strong potential of growth of the company. To work in that kind of context was not stimulating but i was convinced of the great validity of the IPI strategy and the industrial plan designed and implemented during three years of hard work. I had a strategy, the business plan but not the company to proceed: I decided to built a new company thanks to some investors and partners who trusted in me , in the strategy and in the business plan.
Can you describe the business model you are pursuing and how you intend to address the market that would emerge from the crisis?
The first crisis signs, two years ago, persuaded us to focus on our core business, giving higher importance to real estate development activities, both on our own assets and on clients portfolios. At the same time we strengthened core competences on residential, offices and hotels in main Italian city centers. In the coming years we’ll carry on this approach, believing a specialized focus prevails on a generalist approach to real estate market.
The issues of urban development are increasingly linked to environmental sustainability. In what areas of real estate we could implement the related best practices and what would the additional development costs be?
Environmental sustainability is undoubtedly one of the most actual issues: the widespread public debate affects as well operators, either public or private, intervening on urban transformation. Even developers and professionals need to express their position on the issue on every new development initiative. The main doubts pervading operators are mot only related to the higher cost of construction, but also on some utter considerations:
some technological plants currently on the market still have low efficiency ratios, not showing a positive impact on holding costs of new constructions.
Some technologies are still on a development phase and real estate players need a period to get acquainted with them.
Final users demand is often not yet committed to pay the premium price related to eco-friendly buildings: this situation is still more evident in this market conjuncture.
Nonetheless, we chose to invest in the development of a low consumption office headquarter: we believe this strategy, not only will be sustainable, but also will widely repay us.
From your point of view, do international investors keep a positive perspective on Italian real estate scenario? What structures and vehicles they are more likely to adopt?
Despite the international crisis, that unavoidably affected also our country, the
Italian real estate market proved to be based on solid foundations: drastic falls in transactions volume and prices, recorded in most European markets, didn’t occur in the Italian scenario thanks to the structural wealth of domestic families and companies. The steadiness of our market together with the growth opportunities are particularly appealing for international operators. Nonetheless cross-borders investments still present a certain level of complexity: this encourage undertaking operations on a medium-large scale in order to justify initial structural costs. Moreover, international investors are often likely to seek the support of local partners to improve the catch on the market and overcome the technical and administrative issues typical of Italian procedures. As far as investment vehicles, I believe real estate funds represent a proper choice as they can offer the institutional profile of a bank player (SGR) together with a favourable law and tax framework. As an alternative, partnerships and joint ventures represent flexible vehicles, more likely to be tailor made on specific corporate requests and investment criteria of each international operator.
Italy owns a vast public real estate non operating portfolio which has been persistently object of plans and debates. Nonetheless, little has been placed on the maket. What area the chance for this asset to be part of a valorisation process in the short run?
It’s difficult to forecast the potential evolution. Beside the conversion of industrial brownfields, the real estate public portfolios represent the only chance to transform our cities in the short term. Railways stations, prisons, and exposition areas are empty holes to revitalize with a correct mix of public and private functions. Too bad such an important chance is not faced with a strategic determination by the responsible public players, making it impossible to forecast the transformation timing.
Your investments range from residential to office, from retail to hotel. Which are the asset classes and the major trends more likely to emerge in the coming years?
In the current scenario, it’s difficult to identify segment that will record a constant growth in the following years; in fact, beside standard market dynamics, other factors will affect the coming real estate trends. For example, the legal and town planning framework (e.g., the recent issues on Piano casa and Milan new zoning plan) could influence future property supply. In major Italian cities there might be a shortage of new residential and office buildings in semi-central areas, determining a raise in values for the few on the market. Moreover, also the financial conjuncture may play a determinant role, with a potential oversupply of lower level commercial buildings. Very likely, investors facing a wide range of potential asset allocation would prefer buildings with high spatial and energetic efficiency. In a word, I believe that the uncertain future scenario will indirectly promote “better location” and “higher quality”, especially for residential and office building in urban context.
Nonetheless, even more specialized asset classes could represent interesting opportunities for investors with a clear strategy and a strong equity position: for instance, I foresee a brilliant future for alternative format retail park and business hotels, asset classes characterized by a structural backwardness.
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