The recent crisis of real estate markets has led many companies of the sector to contact a law firm for assistance when dealing with the banking system for debt restructuring. To what extent can such an activity impact the turnover of a firm, compared to last years?
Your question - which I think is very appropriate -, contains the answer in itself. NCTM, like probably other ‘full-service’ firms, this year has recorded a notable and constant growth in restructuring-related activities. Our firm’s natural commitment to ‘multidisciplinarity’, implemented through 11 Departments, has certainly facilitated strong exchange particularly between three areas: real estate, corporate and banking. The interconnection between different practice areas has allowed meeting the requests for all-round assistance coming from the market in the best possible way. ‘Restructuring’ has really been a key word over the last few months, in both its meanings, which in some way are complementary each other, i.e. pure debt restructuring and advice on restructuring or company reorganisation.
Besides this matter, what other matters does the NCTM law firm handle that are connected with the Real Estate Department headed by you?
I can answer by just mentioning the key practice areas of NCTM:
* extraordinary transactions
* asset management companies (SGRs, Società di Gestione del Risparmio), real estate mutual funds and SIIQs (Società di Investimento Immobiliare Quotate)
* lease and transfer of businesses and going concerns
* advice and opinions
* lease for residential, business and hotel purposes
* service mandates (advisory, property, project, agency, etc.)
What is particularly worth mentioning though, is an area that currently shows a strong positive trend, i.e. that of energy, with a special focus on alternative energy. The so-called ‘sustainable sources’ are one of the key areas of expertise of NCTM, which has a whole department dedicated to it, headed by lawyer Mr. Federico Manili. Our team has made available to its colleagues of the Energy Department its expertise in the value-enhancement of public and private property and real estate funds. The results, in terms of both the value of the transactions dealt with and the resources employed in the year 2009, have been beyond all expectations.
You are renowned in the Italian real estate community not only for your deep knowledge of the legal system, but also for your ‘creative’ approach to problems, which allows you to give your clients a tailored problem-solving assistance. What are the greatest legal and administrative obstacles that operators who carry on business in Italy may face?
I believe in Italy there are a number of regulations that create uncertainty. While this observation may appear banal, it has in fact crucial implications for the strategic decisions that are being made now. Some restrictions have an extremely negative impact at the delicate stage of assessing the risks of a transaction, which involves an increase in the expected return that translates into stepping outside the market value and diverting the investors’ attention somewhere else.
Making a list of the above regulations would take quite a bit of time. Yet, to give a concrete example, just think of the legislation on renting, which does not allow for ‘triple net rent’, or of the legislation on foreclosure, which prevents banks from acquiring properties rapidly for remarketing, even at the cost of a strong depreciation, yet overcoming an impasse.
Thus, how can our market approach a foreign investor willing to make trading or implement develop initiatives?
You cannot say ‘a foreign investor’, because it is too generic. Each investor has his or her own risk tolerances. At a time when trading does not seem to ensure the prospects of return that are the target of many operators, the most natural choice would be that of addressing the development market. As a rule, a foreign investor will not assume town-planning risks, but only construction and renting risks. My recommendation to foreign investors is to invest in Italy “indirectly”, by reaching working arrangements with SGRs. These vehicles, controlled by both the Bank of Italy and Consob, are sure guarantees for investors. They ask for reasonable fees, if we consider also the unfortunate historical moment in which we live and their strong competition, and act in different ways. Some SGRs are indeed more inclined to invest in development, while others are more active in the trading market. Furthermore, co-management arrangements can be put in place with other European asset management entities, where allowed by the development size.
The public sector (State, Regions, Municipalities and public bodies) owns a very large property portfolio that it is not able to enhance in value. What instruments can be used to get private operators to be involved in this process?
NCTM has created an operational model that uses all the possible market instruments. This model is based on a wholly-public urban transformation company having the task of planning developments in terms of the master plan and then selecting, by means of public and open tendering procedures (‘European Tender’), an SGR, whose task is to set up a number of real estate funds for developing the project. Despite their distinct roles and powers, the public and private sector must and can partner for enhancing the value of a portfolio that represents a great opportunity. A foreign investor could be very interested in this kind of transaction, as town-planning value enhancement takes place upstream of the investment, being implemented by the urban transformation company.
How can your personal international experience coupled with that of NCTM help foreign real estate investment in Italy? Do you find that international operators are interested in our country?
The operational model I was mentioning before is the proof that the combined expertise of NCTM and my team can bring interesting results and provide creative solutions that may attract the interest of investors from all over the world. At the moment, we are focusing our attention on all those foreign firms that have a strong real estate department but do not have an office in Italy. Mr. Luigi Croce - the lawyer who is responsible with me for the coordination of the Department -, and I often travel and visit colleagues with whom we have started sharing, for example, the ‘binary-technique due diligence method’, i.e. a proprietary method that allows us to answer hundreds of questions on a yes/no basis. This helps to better define risk and increase the interest of investors in our country, which is still high.
What are, in your opinion, the difficulties the Italian real estate system will have to solve in order to overcome the crisis?
We have already talked about that. We need to reduce the areas of risk. Our tendency is to change the rules of the game while the match is still being played. This is not acceptable. Territorial marketing, at a national, regional or local level, should be done by providing certainties to the market. Several Municipalities have understood this point and are now acting accordingly. NCTM has founded with the Politecnico of Milan a ‘permanent observatory’ (OPPAL), which publishes on a yearly basis a survey on the efficiency of a random sample of at least 50 Municipalities. We have noticed that the interviewed Municipalities are increasingly sensitive to the need to give investors clear (and, note, not necessarily positive) answers within a set time. We still have to make a big joint effort to reach levels of certainty comparable to those of our competitor countries, if we want to successfully attract international investment.
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