Italy’s struggle with public debt is no secret. With a debt to GDP ratio over 141%, the country has one of the worst public debt profiles in the world.
Hence reducing the public debt has been a priority for policy-makers in Rome for years. They have regularly thrown into the mix of solutions the privatisation of state-owned real estate assets, which are valued at about €300bn, but so far such attempts have proven ineffective.
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Giovanna della Posta, CEO of Invimit, a state-owned asset manager managing a portfolio of 330 public properties worth €2bn, believes she has come up with the right recipe for privatisation to finally have an impact, and foreign investment plays a big part in it.
She argues that Italy has lagged behind other countries as concerns its capacity to attract foreign direct investment (FDI). She points to Unctad data, which show that the country’s stock of accumulated FDI is half that of France and 45% that of Germany.
“If we lack FDI, while at the same time don’t deploy private savings into the real economy, debt is the only option left,” she argues. In order to turn things around, she believes that “we have to use state-owned assets as capital multiplier, where the state’s role as co-investor lights up private investment”.
We have to use state-owned assets as capital multiplier, where the state’s role as co-investor lights up private investment.
Fully owned by Italy’s economy and finance ministry, Invimit’s mission is “to create value and enhance public real estate assets by turning them into market-oriented objects and offering them to qualified private investors”, according to the company’s documents.
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Ms della Posta is now applying its co-investment model to one of Invimit’s flagship properties in Milan, with the vision of turning it into a template to scale up the firm’s operations and privatisation push.
The Virgilio project aims to redevelop an abandoned military area extending for more than 424,000 square metres, 35% of which is buildable area, just outside Milan’s city centre. The overall value of the project is estimated at €1.1bn, with investment for €650m.
While negotiating all the permits, Invimit is looking for investors for the special purpose vehicle (SPV) that will ultimately take ownership of the property to develop it. The state will continue to own 30% of its shares, set to fall to 18% over the course of the investment phase, with the remainder being currently marketed among interested investors. Some 39 European and non-European investors have expressed their interest so far.
“The state is sitting on a big portfolio of properties, but it lacks quality. By co-investing in the SPV, we can transform that participation in quality real estate at the end of the investment process,” says Ms della Posta. She argues that if it proves successful, the co-investment model can increase the quality of the state’s real estate portfolio and, in doing so, also its potential to generate revenues along the privatisation process.
“I’ve actually repeatedly asked to scale up this model,” Ms della Posta says. “There aren’t very many big-ticket projects in Italy. We can do them, we can go up to €10bn, but the commitment of all the authorities involved has to be very strong.”
This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence
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