Real Estate for a changing world
BNP PARIBAS REAL ESTATE GUIDE TO
INVESTING IN ITALY 2012 IN COLLABORATION WITH
BONELLI EREDE PAPPALARDO STUDIO LEGALE
Italy overview / INVESTING IN ITALY - 2012
1
About BNP Paribas Real Estate … BNP Paribas Real Estate is the market leader in commercial real estate services across Europe with € 658 million of gross turnover, € 156 million of gross operating and 3,400 employees.
We manage 31 million m2
€ 13 billion
in commercial real estate
of assets under management across Europe T
ES MA TME NA N G
CO
p.
2
Foreword
p.
3
Top 10 reasons to invest in Italy
p.
4
Investor case study
p.
8
Guide to Milan
p. 10
Guide to Rome
p. 12
Guide to Retail in Italy
p. 14
ITALY OVERVIEW
INVESTOR TOOLKIT 206,000 m2
Key legal and technical terms
p. 16
RO
NS
UL TI
Real Estate advisory 66 % Building consultancy 24 % Occupier services 10 %
Italy by numbers
YOU PE DE RTY VE L O P ME NT
completed across Europe in 2011
VA L U AT I O N
76,300 valuations
Y EN RT GEM PE ANA O R M
INTRODUCTION
INV
NT T ME E
P
across Europe
Contents
NG
P
IO TRAN SACT
N
in 2011
One transaction every 16 minutes 3,900 commercial real estate
FUTURE ITALY Key Transport Changes
p. 28
Our Hot Spots in Italy
p. 30
transactions completed in 2011
www.realestate.bnpparibas.com
BNP Paribas Real Estate Italia Corso Italia 15/A - 20122 - Milano www.realestate.bnpparibas.it Tel: +39 02 5833 141 BNP Paribas Real Estate is part of the BNP Paribas Banking Group
Cover photo (Fotolia.com): The Colosseum built in the centre of Rome (80 AD) is considered one of the greatest works of Roman architecture and Roman engineering.
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
NEED TO KNOW
Italy by numbers
Foreword
Where past meets present
60M
There are no megalopolis, but medium-large cities all along the boot: Rome (2.6 million persons), Milan (1.2 million persons), Naples (0.9 million persons) and Turin (0.9 million persons)
A country to discover Italian cities have a long
â‚Ź 1,560bn Milano
Trieste
Torino
Venezia Bologna
Genova Firenze
Italian GDP is the eight worldwide, making the country the fourth European economy
history where architecture goes from the classical Roman in the historical centres to modern skyscrapers. However, Italy is more known for its buildings and palaces realised in the past than for what was realised in modern times.
ROMA
Bari Napoli
Cagliari
â‚Ź 200,000 Average net private wealth of the Italian adults in 2010
Palermo
47 Italy is home to the greatest number of UNESCO World Heritage sites
The great heritage from the past is Italy’s treasure but represent also a constraint, making slow and difficult the renewal of the cities. Indeed, the real estate operators, especially from abroad, consider the Italian market not simple and not transparent. Our aim is not to demonstrate the contrary, but to give a key to understand it since there are opportunities that are unfortunately unknown, in particular for foreign investors.
Indeed, for being one of the largest economies in the world, Italy offers a variety of investment opportunities, for those seeking stable and secure income to those with higher return. This guide outlines the top ten reasons to invest in Italy alongside key statistics and investors interview. We will describe the Milan, Rome and retail markets and the major infrastructure projects realised and undergoing in Italy. Together with the law firm Bonelli Erede Pappalardo (BEP) we have collated practical information on navigating the fiscal and legal aspects of investing in Italy. We hope you find this guide a useful insight into the Italian real estate market. Cesare Ferrero Country Manager Simone Roberti Head of Research
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
TOP 10 REASONS
High private wealth
10 reasons to invest in Italy One of the largest economies in the world With a GDP of € 1,560bn, Italy represents the third economy in the Euro area and ranks eight in the world. Moreover, living standards have a considerable north-south divide: the average GDP per capita in Northern and Central Italy exceeds by far the EU average, whilst some regions and provinces in Southern Italy are almost all classified under the Convergence objective (GPD per capita less than 75% of the EU average).
Diversified economy Italy has a diversified economy, representing the second European industrial economy after Germany. The country was the world’s seventh largest exporter in 2010, mainly towards the other countries of the European Union (60%). Italy has a smaller number of global multinational corporations than other countries of comparable size, but there are a large number of small and mediumsized enterprises, in particular in the North where there is an area of intense industrial and machinery production, notably in their several specialized industrial districts. Finally, the economic heart of Italy is not concentrated in just one city (i.e. the capital) or in a few (i.e. the former industrial triangle Turin-Milan-Genoa) but in several cities. Indeed, of the twenty Italian largest companies, just half are based in Rome and Milan.
Italian families investment habits are strongly risk adverse. Indeed, compared to other large world developed economies, investments in the financial market are lower (less than 40% of their wealth) and this avoided strong wealth losses during the 2008/2009 financial crisis. Instead, Italian families prefer safer assets, such as the real estate: 80% of the Italian families own their home. They have a much lower level of debt per adult than in other advanced economies: according to the Credit Suisse Global Wealth Report, Italian families are the less indebted within the G7 countries with less than € 25,000 of debt per adult (less than 10% of wealth).
Italian property funds Italian property funds started as real estate financial vehicles for individuals in 1999 (which are listed at the Milan stock exchange) and since 2004 as institutional funds (which instead are not listed). The sector, under the surveillance and the monitoring of the Bank of Italy, grew during the last ten years from some € 4bn of assets under management to € 51bn, continuing the growth also during the crisis even if at slower pace.
Healthy banking sector The Italian banking sector is healthy allowing, during the 2008/2009 crisis, Italy to account among one of the few countries registering no banks bailout. However, some banks had to recapitalise recently, mainly to respond to the EBA change in the accounting rules for public debt. Such characteristics have a stabilisation effect on the real estate market that, according to IPD index, is one of the most stable in the world, showing a limited capital growth in positive times, but also a limited capital loss in bad times.
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
TOP 10 REASONS
Rome, the Eternal City
Long leases Italian leases for commercial premises must legally be at least 6 years in length with an option for the tenant to renew for 6 additional years. For hotels, the length is even longer (9+6 or 9+9 years). This characteristic gives more stability and security in revenues for the landlord. Moreover, rents are annually reviewed, since they are linked to the Italian inflation Index (based upon 75% of the Index, although in some cases it is 100%).
Retail remains attractive With a wealth per adult of â‚Ź 200,000, Italy belongs to the richest countries in the world. Therefore, retail sector can count on the wealth of the Italian families. As a coincidence, retail property market has experienced a period of strong growth especially in the last years when retail assets appeared more secure compared to other ones. Indeed, the largest deals concerned this kind of product and were the favourite by foreign investors.
A new era for Milan ofďŹ ce market Milan city is living a strong renewal process, both for infrastructure and real estate. The high speed trains have increased the interest for the areas around the stations and the same could happen to areas where new metro lines will be built in the next few years. New business districts are emerging around these areas, bringing new supply of high quality, in line with the international standard level. On the other side, the demand for offices is much diversified since Milan is the financial capital of Italy, it is in the middle of one of the most important industrial area in Europe and it is a global leader for fashion and design.
The Roman real estate market is strongly characterised by being the Italian Capital city. Therefore, all the ministries and the most important public authorities have their offices in Rome, as well as the political parties and companies involved in public activities. Moreover, tourists and Christians pilgrimage flows assure a constant demand in the hospitality sector. Such characteristics, together with a strong presence of private local investors, make Rome one of the most stable markets in Europe.
Il Bel Paese Italy is, with no doubt, a global leader for historical monuments and artistic works (Italy is the country with more UNESCO world heritage sites). Thanks to that there are roughly 43 millions of tourists coming each year, making Italy the fifth destination in the world. Furthermore, even if the hospitality sector is still relying a lot on family’s hotels, Italy has the highest level of room revenues among the main European countries.
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
Lana (Bolzano)
INVESTOR CASE STUDY
Pordenone
How we did it
Silea (Treviso) Cinisello Balsamo Brescia Mestre Baranzate S.Donato M.se Rubano (Padova) Torino Piacenza Ferrara Lucca Bastia Umbra San Giovanni Teatino (Chieti) Roma Laurentina
“
As long term investors, we look beyond shorter term economic cycles to the strength of the tenant’s business
Roma GRA
Bari
“
Salerno
Elmas (Cagliari)
JennIFeR LUCAS Director - W. P. Carey
Why did you decide to invest in the Italian property market, especially in this economic framework? In 2011, W. P. Carey completed a transaction with Metro Cash & Carry Italia S.p.A. As long term investors, we look beyond shorter term economic cycles to the strength of the tenant’s business and the criticality of a particular property or properties for their business. The Metro transaction involved 20 cash and carry
stores throughout Italy, leased to Metro Cash & Carry Italia S.p.A. We saw the cash and carry business in Italy as an enduring sector and the assets themselves as critical to Metro’s operations in this market. We also look carefully at the financial strength and credit quality of the tenant company. In the case of the Metro transaction, the German parent Metro AG guaranteed the obligations of the Italian subsidiary under the leases.
Consequently in spite of the current economic vagaries of the market, the investment met our key criteria of critical assets leased to a financially strong entity, in an industry with solid long term market viability. What do you consider the main weakness of the Italian property market? The weakness of the Italian property market parallels the overall economic uncertainty which the larger Eurozone is now experiencing. Although this does not necessarily impact our investing decisions, particularly if a property is leased on a long term basis to a financially solid company in what we view as an enduring business sector, it can affect the availability and pricing of debt. Whilst this must be reflected in our pricing, we use low leverage
for our investments so the impact is not as great as it might be for more highly levered investors. What do you see as the most attractive assets in the Italian market? Since our investment objective is to generate steady income and preserve capital for our investors, the assets we find most attractive are those leased on a long term basis to single tenants as opposed to multi tenanted properties with shorter term leases. We do have the flexibility to invest in almost any type of asset as long as it meets our criteria in terms of the financial strength of the corporate tenant, the criticality of the asset to their business and the long term strength of the sector or sectors in which they operate.
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
MILAN
€ 1.5bn
Guide to Milan
Transacted in
5.80% Gross Prime Office Yield
In the last quarters, investments in properties which involve higher risk are still being avoided and were increasingly more concentrated in the City Centre and the surroundings of the Central Station or the peripheral areas, only if well connected by public transportations. The number of user investment deals was particularly high. Excluding this type of purchase, investors are increasingly more focused on properties that are already fully
rented: from an average level of around 40/50% until 2009 to 65% in 2010-2011, and now at 100% in the first months of 2012. To the contrary, there were almost no investments in completely vacant properties (therefore, which need to be renovated or fully commercialized). It is probably due to this concentration of interest in fully rented properties located in the CBD that the yields for this asset type, although increasing, remained close to the Italian 10-year government bond yields. In the best parts of Milan's Semi-Central area (such as the area between the Porta Garibaldi Station and the Central station), the prime yield is estimated to be 6.2%, while in the other areas of the city, it is difficult to sell properties with a yield of less than 7%. Office space take-up levels came out at 339,000 m² in 2011, with the same volume of transactions over 3,000 m² as were carried out in 2010. On the other hand, transactions between 1,000 and 3,000 m² increased by 40%.
Therefore, companies with 60-180 employees, which occupy medium-sized areas, are the most actively seeking more efficient spaces.
337,000 m² Take-up in
In the course of 2011, industrial companies accounted for 41% of the office space take-up volume, an increase compared to 14% in 2010. In fact, the three largest transactions involved companies from this industry sector that took spaces in new projects that were just introduced into the market or which have not yet begun to be built.
€ 510/m²/year
The CBD area suffers from a lack of modern and new products. In fact, it is outside of this area where new developments are being made, and where companies can find new and modern offices.
Immediate supply
Prime rent
€ 404/m²/year CBD average rent
1.395,000 m² 11.6% Vacancy rate Occupier Breakdown since 2006
exAMpLe DeALS OffICe MilanoFiori U15 - Q1 2012 The , m² building was sold for € m, reflecting a yield below %. Via Moscova 3 - Q4 2011 The , m² building was bought by Inarcassa Re fund managed by fabrica for € . m, reflecting a yield of . %. ReTAIL Via Certosa 29 - Q4 2010 The , m² department store located to Saturn was bought by Immobiliare Dinamico fund managed by BNP Paribas ReIM for € . m, reflecting a yield above %. Rinascente piazza Duomo - Q1 2011 The , m² department store was bought by Ippocrate fund managed today by Idea fimit for € m, reflecting a yield of . %.
14% 4%
29%
7%
11% 23% 12%
Industries
Financial
ICT
Legal - Consultancy
Media - Culture
Public Sector
Other
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
ROME
€ 850m
Guide to Rome
Transacted in
6.30% Gross Prime Office Yield
In the last four years, Rome experienced a trend of continuous reduction in volumes invested (some 10% each year). While the office market is traditionally closed off from foreign investors and realised by Italian players, the Roman retail sector showed to be able to attract big foreign investors: Porta di Roma for € 440m, Roma Est for € 400m and Euroma2 for € 350m.
In a market such as the Roman one which has always been dominated by local players, the effect of uncertainty characterising global financial markets (and the increase in country risk perception in Italy) seems to have had a lower impact. Prime yields for office property investments in the city centre were stable throughout the year, after a slight decrease (-10 bps) in the first months of 2011 (an increase in the next few months should not be ruled out). In the Eur area, prime yields were even revised to 25 bps lower, with the gross prime yield estimated to be around 6.9% today.
During 2011, office take-up levels came out at 182,000 m², thanks to two large transactions. In general, medium-small transactions take place in the City Centre, given the layout of offices in this sector, while large deals take place in the Eur district since it is in this area of the city where companies can find large offices with modern and therefore more efficient energy performance. In Rome, the public sector and industry accounted for 30% and 22%, respectively, of transaction volumes in the last five years. In 2011, unlike in the past, the main market driver was industry, with 42% of the transaction volume thanks to MBDA, ENEL, Saipem and GDF-Suez, to name only a few. The public sector, understood in the strict sense, accounted for only 19% of transaction volumes, since aside the Ministry of Economy, other public bodies were not very active in the market. With 7% of the total, other non-profit bodies, including the transactions of the Italian Football Federation, the Kenyan Embassy and the Democratic Party, outperformed the longterm average of 4%.
182,000 m² Take-up in
€ 420/m²/year Prime rent
€ 344/m²/year CBD average rent
603,000 m² Immediate supply
6.2% Vacancy rate Occupier Breakdown since 2006
14% 6%
30%
9%
exAMpLe DeALS OffICe Via Cristoforo Colombo 416/420 - Q3 2011 The , m² building was bought by Amundi Re europa fund for € . m, reflecting a yield of . %. ReTAIL Casal Bertone Shopping Centre - Q1 2011 The , m² gallery of the Casal Bertone shopping centre was acquired for € m by Union Investment Real estate.
11% 22% 11%
Public Sector & No Profit Industries Financial ICT Legal - Consultancy Transport - Logistics - Distribution Other
INVESTING IN ITALY - 2012 / Italy overview
Italy overview / INVESTING IN ITALY - 2012
RETAIL
Guide to Retail in Italy Thanks to these transactions, that of la Rinascente in Milan and others of lesser value, Italian real estate investment funds were the most active investor category for retail properties in 2011, with a large growth in volumes invested compared to the recent past.
Surprisingly, 2011 was characterised by very high retail property investments: approximately € 2.3bn, while in the five previous years, the average annual volume was only € 1.8bn. As noted, the peculiar situation of the supply and demand in the Italian retail sector contributed to this result. However, besides this factor, it seems that investment in retail properties, especially in relation to shops on the main shopping streets of Italian cities, has been considered a refuge asset in a highly uncertain time such as the present.
So, on one hand Italian investors took refuge in retail property investments given this period of uncertainty, and on the other foreign investors continue to invest in Italy almost only in this type of asset. The result was a very positive year for the Italian retail sector, at least in terms of invested volumes.
In fact, on closer inspection, the volume invested in structures located outside of cities (such as shopping centres, retail parks and outlets) decreased in 2011. To the contrary, both shops and large department stores in city centres and supermarket or cash and carry portfolios recorded a strong growth in investment activities. In fact only in 2011, la Rinascente in Milan (the largest deal of 2011) and in Palermo, as well as Coin in Milan, Zara in Milan and Florence and the new Apple store in the centre of Bologna all changed hands. Overall, investments in retail properties were concentrated in Northern Italy in 2011 (particularly in Milan where almost € 900m were invested in retail properties) unlike what was recorded in the last few years. For example, in Rome there was at least one transaction recorded every year for the last few years (in 2010 Porta di Roma, in 2009 galleria Colonna, in 2008 the Roma Est shopping centre, etc.), while this year, there were no investment of over € 50m.
€ 2.4bn Transacted in
4.90% High Street Retail Yield
6.90% Shopping Centre Yield
Retail Investment Volume since 2006
exAMpLe DeALS 3%
Turin - Former palazzo del Lavoro - Q1 2011 This building, designed by famous Architect Nervi, was bought by Corio for € m and will be transformed into a , m² shopping centre.
Sale & leaseback transactions on retail properties were also quite significant in 2011. Just to name the most significant, W.P. Carey purchased the entirety of the units of a fund completely invested in Metro stores for € 274m and Banca Marche sold a portfolio of 135 branches for € 243m. In general, in all of these sale & leaseback transactions, the buyers were Italian real estate investment funds.
Bologna - Via Rizzoli 18 - Q2 2011 The , m² street retail located to Apple and MelBooks was bought by IGD Siiq for € m. Chieti - Shopping Centre Megalò - Q4 2011 The , m² shopping centre was bought by the european Prime Shopping Centre fund managed by eCe Projektmanagement for € m. Milan - Zara - Q4 2011 The , m² department store was bought by Zara itself for € m.
6% 6%
48% 14%
19%
Shopping Center
Department store
Street Retail
Outlet
Cash & Carry
Retail Park
Hypermarket
Supermarket
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
NEED TO KNOW
Key Legal and Technical terms Careful planning is required for the successful structuring of property acquisitions in the highly regulated Italian real estate market. Law firm Bonelli erede Pappalardo (BeP) partner Alessandro Balp outlines the key information and terminology you need to know.
LAnD ReGISTeR DIFFeRenT TYpeS OF ReAL eSTATe InTeReSTS In Italy real estate is usually held as freehold (“proprietà”), this grants its holder the full right to use and manage the property. Other rights in rem over real estate are limited in scope and grant only one or more of the attributions of the full property right, these include the following: • surface right: the right to build and maintain a building over the property of a third party; • right of usufruct: the right to the use and the benefits of a third party property; and • easements: which impose an obligation on a property for the benefit of another property (e.g., a right of way; water right; a limitation in the building capacity; etc.).
Properties in Italy must be registered with the Cadastral Register (Catasto) and rights over real estate must be recorded in the Land Register (Registri Immobiliari). Registration in the Cadastral Register is required for tax purposes and does not attest ownership. Property transfers, interests in real estate (e.g., easements), certain long-term leases (exceeding 9 years), and guarantees over real estate must be registered with the Land Register to be enforceable and to give the holder of the right priority against third parties. In Italy there is no state guarantee of title; however, the land registration system and the intervention of a notary public ensure that the title to real estate is properly registered.
MAIn TYpeS OF LeASeS The main types of leases in Italy are commercial leases and residential leases. Lease agreements are governed by the Civil Code and by the Italian Lease Act. The provisions of the Lease Act significantly reduce the ability of the parties to shape the terms of the lease agreements, which are substantially predefined by law in several material respects (duration, renewal, rights of withdrawal of the parties, rent indexation and common charges). Provisions limiting the contractual terms set by law or introducing terms favoring the landlord in violation of the Lease Act are null and void.
COMMeRCIAL LeASeS: LeASe TeRM The minimum term for a commercial lease is 6 years (9 years for hotels). Thereafter the lease is automatically renewed for a further 6-year term (9 years for hotels), unless terminated by either party with prior written notice. However, the landlord’s right to terminate the lease upon its first expiration is limited to very specific circumstances. The maximum lease term is 30 years. Notwithstanding the provisions of the lease, the tenant has a statutory non-waivable 6-month prior notice termination right due to “material circumstances” (“gravi motivi”).
COMMeRCIAL LeASeS: RenT AnD RenT ADJUSTMenT The initial rent may be freely determined by the parties and subsequently may be annually adjusted based on the variation of the consumer price index. Unless the lease is for a term exceeding the minimum 6-year term, the adjustment cannot exceed 75% of the annual CPI variation. Rent increase mechanisms on grounds other than inflation adjustment (e.g., step up rent, rent based on turnover) are admissible but are closely scrutinised by the Italian courts and cannot amount to a means to circumvent the statutory limitations on inflation adjustment.
COMMeRCIAL LeASeS: pROpeRTIeS Open TO THe pUBLIC If the leased premises are used for activities involving contact with the public (such as retail units, supermarket, hotels, etc.), the tenant has certain additional protections. • Right of pre-emption. The tenant has a statutory pre-emption right if the leased premises are to be sold. • Goodwill indemnity. If the lease is terminated for reasons not attributable to the tenant, the tenant is entitled to receive 18 months’ rent as “goodwill indemnity” (the indemnity is doubled if a new activity of the same kind is established in the premises after the termination of the lease). • New leases of the rented premises. The tenant has the right of first refusal for the lease of the premises at the expiration of the lease.
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
NEED TO KNOW
STRUCTURInG ReAL eSTATe InVeSTMenTS
eneRGY CeRTIFICATeS AnD GReen LeASeS Sustainability concerns and energy efficiency are an increasingly important features of the Italian real estate market, and the EU directives on the energy performance of buildings are currently being implemented in Italy. Recent developments include the following requirements: • all deeds of sale and most lease agreements must indicate that the buyer/tenant has received the information and documentation on the energy performance of the building; • new buildings and existing buildings that are subject to major renovation must satisfy a portion of their energy requirements from renewable sources; and • all for sale advertisements (and in some Regions, also rental advertisements) must indicate the energy performance grade of the building.
FInAnCe AnD SeCURITY Real estate loans are often granted as “mutuo fondiario”, a special regime applicable to medium and long-term loans (18 months or longer), granted by Italian or EU banks that are secured by first-rank mortgages and have a loan-to-value ratio not exceeding 80%. In a mutuo fondiario: (i) rent payments are not subject to claw back in the event of insolvency and the mortgage is subject to an accelerated consolidation (10 days from its registration, as opposed to 6/12 months for ordinary mortgages); and (ii) the borrower has the right to obtain partial releases of the mortgage upon each repayment of 20% of the loan, and there are restrictions to the lender’s ability to accelerate the loan if there are delays in payment. The typical forms of security include, in addition to a mortgage over the property: (i) the assignment of the lease, interest-hedging, VAT and insurance receivables; (ii) a pledge over the borrower’s bank accounts; and, possibly, (iii) a security over the share capital of the borrower or a parent company guarantee.
The main investment structures that are used to invest in Italian real estate include the following: • Ordinary corporate vehicles. Rental income and capital gains are taxed at the ordinary corporate tax rates: corporate income tax (‘IRES’) at 27.5% and regional tax (‘IRAP’) at 3.9%. Special rules apply to the deduction of interests (a 30% EBITDA limitation on interest deductions, subject to exemption for debt secured by mortgage). • Partnerships. Partnerships are transparent for tax purposes, and partners are taxed directly on income deriving from real estate investments, irrespective of its distribution. The 30% EBITDA limitation on interest deduction does not apply to Italian partnerships.
• Real estate funds. Real estate funds (‘REIFs’) are externally managed entities with the participation of a plurality of investors. REIFs are not subject to corporate income tax (IRES) or regional tax (IRAP). The tax regime applicable to investors varies depending on the nature of the fund. Investors in ‘institutional’ funds are generally subject to a 20% withholding tax on income distributed by the fund (that can be further mitigated by applicable tax treaties), while for ‘non- institutional’ funds, the fund’s income is directly attributed to the investors holding 5% or more of the fund’s units, irrespective of its distribution. • Listed real estate investment companies (SIIQ). To qualify as a SIIQ, the company must be listed on a stock exchange, no shareholder may hold more than 51% of voting and profit rights, and at least 35% of the shares must be owned by shareholders each individually holding no more than 2% of the voting and profit rights. Italian SIIQs must annually distribute at least 85% of their profits derived from leases, and benefit from a total exemption on lease income.
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
NEED TO KNOW
A comparative view of acquisition specificati ons in key European jurisdictions ITALY
GeRMANY
fRANCe
eNGLAND & WALeS
SPAIN
How can real estate be held?
• Freehold (full ownership) • Surface right (right to build and maintain a building over a third party property) • Usufruct (right to the use and the benefits over a third party property) • Leasehold
• Freehold ownership • Part- or condominium ownership • Ground lease (real estate-like right in rem entitling its holder to use the land and construct / own buildings on the land during the term of the ground lease
• Freehold ownership (which may take the form of co-ownership or volume division if the property is held by more than one owner) • Long-term leasehold agreements (bail à construction and bail emphytéotique)
• • • •
• Freehold • Leasehold (which can be registered with the property registry) • Other limited rights in rem (usufruct, surface right - derecho de superficie)
What rights over real property have to be to be registered?
Property transfers, interests in real estate (e.g. easements), long-term leases (exceeding 9 years) and guarantees over real estate must be recorded in the Land Register to be enforceable and to give the holder of the right priority against third parties.
All rights in rem over real estate require registration in the land registry (Grundbuch) to be valid, including ownership rights, encumbrances (e.g. easements, pre-emption rights, usufruct rights, priority notices, ground leases) and security rights (e.g. land charges, mortgages).
All documents transferring or encumbering real estate must be published at the land registry (conservation des hypothèques) in order to be binding upon third parties. This is also the case for security rights (e.g. land charges, mortgages).
All documents transferring or encumbering real estate or creating leaseholds of certain types of more than 7 years in length must be registered at the land registry in order to be binding upon third parties.
Some specific real estate rights need to be registered in order to be effective, such as mortgages or surface rights. Although in principle real estate rights must not be registered to be effective, in practice any transfer of real estate assets is registered in order to benefit from the publicity provided by the property registry.
Are there nationality restrictions on land ownership?
Generally, no restrictions apply to the foreign ownership of Italian real estate. Purchase of real estate by non-EU or nonEFTA nationals is subject to a principle of reciprocity.
Generally no restrictions except for certain intervention rights of public authorities based on exchange control provisions.
Generally no restrictions except under certain circumstances where exchange control provisions trigger filing obligations.
No.
Generally no restrictions except under certain circumstances (investments in ammunition production / war material, real estate to be used as embassy); obligation to notify foreign investments / disinvestments to Spanish Foreign Investment Registry (Registro de Inversiones Extranjeras).
Who usually produces the documentation in real estate transactions?
Typically, Italian public notaries when it is a direct sale of real estate properties. In the context of larger transactions, lawyers usually draft the transfer agreements. When it is an indirect sale by way of a share deal, usually, the seller’s lawyer prepares the first draft of the sale and purchase agreement which is subsequently negotiated between the parties.
Typically, seller’s legal counsel prepares first draft, which is subsequently negotiated between the parties before being notarized. In the professional real estate market, German notary has a powerful but more executive role in the implementation of agreements.
French notaries have a monopoly for the execution of property conveyance deeds. However, in large commercial transactions structured as asset deals, lawyers often participate in the drafting and negotiation of the documentation. Drafting exclusively done by legal counsel in case of a share deal.
Generally, the seller’s legal counsel prepares the documentation in relation to an asset sale and often in relation to share sales.
Generally, the parties’ lawyers prepare the draft of the purchase agreement which is subsequently notarized by a notary public through a public deed. Apart from very specific exceptions, only public deeds authorised by a notary public have access to the property registry.
What are the standard documents used in a real estate acquisition?
• • • • •
• • • •
• Offer letter • Due diligence report • Property or share sale and purchase agreement under conditions (promesse) precedent, if such conditions precedent are provided • Property deed of sale and purchase agreement (if no conditions precedent were provided or if such conditions precedent have been fulfilled)
• • • •
• Due Diligence report • Purchase agreement • Transfer deed to be executed before a Notary Public
What property documentation do you need to register?
Confidentiality agreement Offer letter / LOI Due diligence report Preliminary sale and purchase agreement Transfer deed to be executed before a Notary Public
Confidentiality agreement Heads of terms / LOI Due diligence report Sale and purchase agreement (to be notarized before a notary public)
Freehold ownership Leasehold Commonhold Licence
Heads of Terms Due diligence report Sale contract Transfer document
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
NEED TO KNOW
Leasing - what is the market standard in Italy vis-à-vis its European neighbours? ITALY What types of real • Commercial leases estate leases exist? • Residential leases • Ordinary leases (other than commercial or residential)
GeRMANY
fRANCe
eNGLAND & WALeS
SPAIN
• Commercial leases • Residential leases • Tenancy agreements (Pachtverträge), i.e. lease agreements where the tenant is entitled to reap the benefits from the intrinsic value of the real estate
• Commercial leases • Residential leases
• Building/Ground leases (whereby the tenant undertakes to construct buildings on landlord’s plot of land) • Commercial leases • Residential leases
• Residential Lease • Non-Residential Lease (e.g. all other purposes than residential, such as leases of retail premises, offices, etc.)
Are commercial lease provisions freely negotiable?
Commercial lease agreements are governed by the Lease Act and the Civil Code. The Lease Act significantly reduces the ability of the parties to shape the terms of the lease in many significant respects (term of the lease, rent increases, charges payable by the tenant, etc.).
Commercial leases are subject to certain mandatory provisions but less regulated than residential leases. Additionally, if the commercial lease qualifies as standard terms and conditions, it is subject to a specific regime and rather strict court rulings.
While certain provisions of the Yes. However some landlords commercial lease regime subscribe to a voluntary lease code. mandatorily apply under French law (e.g. minimum duration, right of renewal), commercial leases remain freely negotiable within such regime.
The non-residential lease is in principle governed by the will of the parties and only very few provisions of the 1994 Urban Leases Act (Ley de Arrendamientos Urbanos) are mandatory (such as the delivery by the tenant to the landlord of a legal deposit equivalent to two months of rent).
Is there a maximum term for commercial leases?
Commercial leases have a minimum duration of 6 years (9 years for hotels) and are automatically renewed for further 6 year (9 years for hotels) terms, unless terminated by either party upon 12 months (18 months for hotels) prior written notice. Commercial leases cannot exceed a term of 30 years.
The maximum lease term is 30 years - if a lease provides for a longer term it may be terminated after this 30-years-period by either party within the statutory termination periods.
Commercial leases have a minimum No. However leases longer than duration of 9 years. Tenants benefit seven years must be registered at from a break-option at the end of the land registry. each 3-year term. Such right may be waived in the lease. Commercial leases entered into for a duration of over 12 years must be published with the land registry.
The term is freely negotiable between the parties.
How are commercial rents reviewed?
Commercial rents may be indexed on an annual based on variations of the CPI (75% or 100% of the CPI variation, based on the duration of the lease). Commercial leases cannot generally provide for a stepped rent or a lease review clause to adjust the rent to market value.
Agreed rent indexation in accordance with changes of the consumer price index or agreed increase by stepped rent. Without having contractually agreed such rent adjustment, no party is entitled to claim for a fair market rent review in commercial leases.
Commercial rents may contain automatic indexation provisions. In addition, legal rent review can be claimed before court every three years at the request of either party if specific criteria are met.
Indexation in accordance with changes of the consumer price index (Índice de Precios al Consumo) or any other rent review regime (e.g. stepped rent or fair market rent, which is not unusual in long term leases in combination with annual indexation).
What are the standard obligations of landlords?
• Hand over the leased premises in the agreed condition • Maintenance and repair of the leased premises (generally major repairs/extraordinary maintenance)
• Hand over the leased space in the agreed condition • Maintenance and repair of the leased property (usually, the parties shift this obligation to the tenant)
• Guarantee that the tenant enjoys • To provide and allow the tenant • Hand over the leased premises in peaceful possession of the property the agreed condition to occupy the leased premises through the lease term and can • Duty to make all repairs necessary • In a multi-occupied building, to use it for the purposes established to preserve the property in good insure and maintain the structure in the lease agreement condition for leasing purposes and common parts of the building • Insure the rented premises (premiums • Where there is a superior lease, to • The landlord might be obliged to may be charged to the tenants) indemnify the tenant (who has comply with its terms to the carried out a retail activity in the extent this obligation has not premises) in case of refusal of been passed on to the tenant extension of the lease term once (principally this will refer to the the initially agreed terms expire. obligation to pay rent under the This indemnity payment is usually superior lease) specifically excluded from the lease
What are the standard obligations of tenants?
• Pay rent and service charges • Keep the leased premises in good condition • Use the leased premises for the purpose stated in the lease
• Pay rent and service charges • Providing a collateral (usually three times monthly rent) • Keep the leased property in good maintenance and repair (only if contractually agreed, structure and roof remain within responsibility of landlord) • Insure its belongings, merchandise and goods within the rented premises
• Pay rent and service charges • Operate the leased premises • Keep the leased property in good maintained and repaired status • Insure its belongings, merchandise and goods within the rented premises
Commercial rents are commonly subject to regular (often 3 or 5 years) upwards only rent review (on an ‘open market’ basis). However, parties can agree indexation or any other basis.
• Pay rent and service charges • Keep the leased property in good condition • Insure its belongings, merchandise and goods within the rented premises
• Pay rent and service charges • Keep the leased property in good condition • Use of the leased property for the activity agreed under the lease • Providing the legal deposit (fianza) equal to two months of rent
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
TAX CLINIC
Tax clinic
This overview highlights the potential tax consequences of direct or indirect investments in Italian real estate by non-resident investors. In this respect, law firm Bonelli erede Pappalardo (BeP) partner Alessandro Balp, has outlined below the principle tax issues raised by the acquisition, rental and sale of Italian real estate by foreign investors, both individual and corporate. 1. InCOMe TAx On RenTAL InCOMe As a general rule, income from the ownership of real estate assets located in Italy is subject to Italian taxation irrespective of whether the owner is tax resident in Italy or abroad. For individuals, real estate income is subject to ordinary
taxation at a progressive tax rate (ranging from 23% to 43%, plus applicable provincial and municipal surcharges). Individuals may opt for the application of a 21% substitute tax on rental income (the so-called “cedolare secca”), an optional regime replacing ordinary income tax, registration tax, stamp duty,
provincial and municipal surcharges. For corporate entities rental income is subject to corporate income tax (“IRES” at the rate of 27.5%) plus regional tax on productive activities (“IRAP” at the rate of 3.9%) for an aggregate tax rate of 31.4%. Commercial real estate may be generally amortised for tax purposes at rates ranging from 3% to 5%. Land is not depreciable. Interest expenses derived from real estate debt-financing are in principle deductible from corporate income tax, subject to certain exceptions, and in particular to a cap equal to 30% of EBITDA. Partnerships are treated as tax transparent entities. Rental income is subject to taxation in the hands of the partners depending of the status of the partner and irrespective of its distribution.
2. CApITAL GAInS/LOSSeS Capital gains from the sale of real estate, if achieved by individuals not carrying out a business activity, are subject to personal income tax, unless the seller has held the
property for more than 5 years. Capital losses are normally non-deductible. Capital gains achieved by corporate entities are subject to corporate income tax at the ordinary rates. Capital losses are generally included in the positive/negative result of the corporate entity.
3. TRAnSFeR TAxeS Transfers of real estate are usually subject to registration assessed on the purchase price (or the fair market value of the property if higher). The standard rate is 7%, but it may rise to 15% (e.g., agricultural land). However, if the sale is subject to VAT, a fixed EUR 168 registration tax is due. Transfers of real estate are also subject to mortgage and cadastral taxes normally at the rate of 3% (4% for commercial property, reduced to 2% if the buyer or the seller is a real estate fund). Real estate leases are normally subject to registration tax at rates of 1% for commercial leases and 2% for residential leases.
INVESTING IN ITALY - 2012 / Investor toolkit
Investor toolkit / INVESTING IN ITALY - 2012
TAX CLINIC
4. WITHHOLDInG TAx
6. ReAL eSTATe TAx
7. ReAL eSTATe FUnDS
Profit distributions from Italian resident companies to Italian shareholders are not generally subject to Italian withholding tax. Profit distributions to non-resident shareholders are in principle subject to Italian withholding tax that can be mitigated by the application of the EU Parent-Subsidiary Directive or double taxation treaties.
From 2012, real estate assets in Italy became subject to a municipal tax (IMU). IMU is generally levied at the rate of 0.76%. Specific reductions and exemptions are provided.
Italian real estate funds are not subject to corporate income tax (IRES) or regional tax (IRAP). Real estate properties owned by Italian REIFs are subject to IMU. In general, profit distributions made by Italian REIFs are subject to a 20% withholding tax. However, specific exceptions apply, for example, Italian REIFs are treated as tax transparent entities for “non-institutional” investors that own 5% or more of the fund’s unit. In this case, the fund’s income is directly imputed to the investors, irrespective of its distribution.
5. VAT As a rule, transfer and lease of real estate assets are exempt from the application of VAT. However, specific exceptions apply. In particular, for commercial real estate, VAT applies if the purchaser/lessee is an entity that is entitled to deduct VAT at a maximum 25% or is a non-VAT entity. VAT also applies if the seller/lessor opts for its application. VAT deduction is generally allowed. Specific rules apply to the deduction of VAT referable to exempt supplies.
7. SIIQ A specific tax regime applies to Italian listed real estate investment companies (SIIQ). If a company qualifies as a SIIQ, income derived from a real estate leasing activity and the dividends received from other SIIQs or unlisted SIIQs (to the extent these dividends comprise income derived from a leasing activity) are exempt from corporate income tax (IRES) and from regional tax (IRAP). In general, SIIQs apply a 20% withholding tax on all profit distributions made to shareholders (other than SIIQs) on profits derived from real property leasing activities or from the participation in SIIQs or unlisted SIIQs.
KeY LeGAL AnD TeCHnICAL TeRMS AUTHORS
Alessandro Balp Partner Bonelli Erede Pappalardo
Riccardo Ubaldini Partner Bonelli Erede Pappalardo
Lucia Lancellotti Associate Bonelli Erede Pappalardo
INVESTING IN ITALY - 2012 / Future Italy
Future Italy / INVESTING IN ITALY - 2012
KEY TRANSPORT CHANGES Milan stands in a central position in the Italian high speed rail network, but is also centre to the development of 3 of the 30 priority axis of the Trans European Network: • Priority Axis 1, from Berlin to Palermo. • Priority Axis 6, from Lisbon to Kiev: the Turin-Lyon section should be finished in 2020 (including a new tunnel of some 57 Km), realising the junction between the French TGV and Italian TAV networks.
Italian Railways Brenner Gotthard Simplon Ljubljana Paris Lyon
Milan
Padua
Novara
Turin
Trieste Venice
Verona
High-speed lines
Tortona
Existing Under construction Planned
Alessandria
Genoa
Bologna
Savona
Marseille
La Spezia
Normal lines
Florence
Existing Upgrading
Livorno
Nowadays, it is possible to go from Turin to Milan in 44 minutes, from Milan to Rome in 3 hours and from Milan to Naples in 4 hours 20 minutes (cutting by half the travel time). If the development of the high speed train in Italy has changed people’s habits, it is an opportunity to redesign the railway systems in the cities. Moreover, new modern stations, like in Rome and Turin, are built and lot of development space is recovered with the possibility to create new business (office and retail) districts.
Milan Underground Milan underground network is the strongest in Italy, and is continuing to grow. Two new metro lines, representing almost 17 km with 22 new metro stops, will be operating in view of the 2015 Expo. This will take place in several stages. The first part of Line 5, opened in 2012, connects the north-eastern periphery with Line 3 in Zara station. Successively, the line will arrive in 2015 to the stadium, passing through the new business district of Garibaldi-Repubblica (planned to open in 2013) and CityLife (former exhibition area). Secondly, the first part of Line 4 (three stops, representing 4 km) will open in 2015, connecting the Linate airport with the city railway network in Forlanini FS.
Foggia
ROMA Since 2009, the high-capacity/ high speed rail lines are operating from Turin to Salerno through two corridors representing a T: Milan-Salerno (north-south) and Turin-Trieste (west-east). If the first one is completed, part of the second one (from Milan to Trieste) is still under construction or under planning.
• Priority Axis 24, from Rotterdam to Genoa: the Genoa-Novara and the Genoa-Milan sections should be completed in 2020, making possible to go from Milan to Genoa in only 58 minutes. Moreover, the new Gotthard base tunnel in Switzerland should be completed in 2016 opening another precious tunnel under the Alps.
Bari
Naples Taranto
Salerno
Gioia Tauro
Palermo
Messina Reggio Calabria Catania MM1 MM2 MM3 MM4 MM5
INVESTING IN ITALY - 2012 / Future Italy
Future Italy / INVESTING IN ITALY - 2012
HOT SPOTS
Our Hot Spots in Italy Crespi 26 is a new Grade A freehold office property. This independent building enjoys a corner position that ensures excellent visibility and recognisability. The building has a surface of some 8,500 m2 of offices. The property gives an elegant, modern image with glazed, ventilated double-skin façade fronting onto Via Crespi and, at the corner with Via Pavoni, a glass “cylinder” that joins the two wings of the building. The complex, with a regular and modern design, in a “L” shape, is composed by 5 upper floors and 2 underground floors. The property also enjoys a large private garden.
Preliminary rendering
Crespi 26 Milano
CRESPI
26
Architect: Paolo Valeriani Certification: HQe (Haute Qualité environnementale) energy certification Completion: Q
ROMA
TIBURTINA
Bernina 12 Milano
BERNINA Architect: Studio fZ S.r.l. and Consorzio ReD S.r.l. Certification: Leed Gold Completion: Q
12
Bernina 12 is owned by BNL Portfolio Immobiliare fund and is located near Milan’s new business park Maciachini Center in the North-West of the city, close to the underground stations of Maciachini and Zara (MM3 line). The project is composed by two office buildings of a total surface of 10,650 m2. The building on Via Bernina, under refurbishment, is distributed on four levels; the façade has an external insulation layer with plaster coating. The building on the back is a new building of five levels (the ground level will be a parking) with a cellular façade. The façade being on Via Piazzi will use a grid technology. The internal spaces will have floating flours, false ceiling and a large flexibility that will permit to have multi-tenants.
new BnL Headquarter Roma At the end of October, BNP Paribas Real Estate Italy won the tender published by Ferrovie dello Stato (FS) - the government-owned holding which manages infrastructure and service on the Italian rail network - with a € 73.2m bid on the areas in the new Tiburtina railway station in Rome. On the 7,300 m2 space right in front of the new high speed train station that connects Milan to Rome in less than 3 hours, will be constructed the new headquarter of BNL, the retail bank acquired by BNP Paribas in 2006.
The project designed by the architectural studio 5+1aa develops 70,000 gross m2 and will host over 3.000 headcounts, drawing together BNL employees from 6 buildings throughout Rome. Beside the office spaces, the building will include the BNL campus, a gym, an auditorium, a restaurant and a company crèche. The total amount of the investment for the group BNP Paribas is estimated in around € 280m.
Architect: + aa Completion: Q
32
INVESTING IN ITALY - 2012 / Future Italy
BNP PARIBAS REAL ESTATE IN ITALY
HOT SPOTS
Dalia Milano Residenze Dalia is new residential development taking place in Milan on a former office building, in the West part of the city. Each apartment, from the little two-roomed flat to the penthouse duplex all with balconies or terraces, is already furnished with a purpose-made kitchen signed Ernestomeda. This brand, known for its design and constant stylistic RESIDENZE DALIA and technological innovation, offers a product featuring carefully Architect: Architetti Associati crafted details, quality, safety and Certification: High Energy Performance - Class A environment-friendliness. Completion: Q4 2013 All users have common places on
Our Italian team deals with investors (Investment Funds, Insurances/Pension Funds, Property Developers, Private Investors...) offering them all our competences to build/develop a new project (Property Development), advise them for asset transfer or acquisition (Advisory), optimise and maintain their assets (Property Management) and propose them investments in new funds (Investment Management).
Our consultants will make you profit from our deep knowledge of the Italian real estate market. Dynamic analysis of different actors, including their investment criteria and their acquisition or arbitrage policy, allows us to offer you a personalised view whatever your strategy.
Through our extensive geographic coverage (30 countries worldwide), we have 3,400 employees to support you as you expand your business and real estate portfolio internationally. Using our intimate knowledge of local markets, we work alongside you to assist you with all your real estate needs.
CONTACTS
the ground floor, a main hall at the entrance, bicycle parking, a private garden of 3,000 m2 and a dedicated area with children’s equipments. Residenze Dalia is a building with energy efficiency Class A thanks to its high-performance thermal and acoustic insulated partition and external walls. The air-conditioning system uses
geothermal heat pump that reduces energy consumption by some 50% because the water produced, feeds the radiating panels on the floor that heat or refresh the environment. Moreover a dehumidifying fan will be installed to increase the comfort and implement the summer conditioning.
Cesare Ferrero
Ivano Ilardo
Country Manager & Property Development cesare.ferrero@bnpparibas.com
Investment Management ivano.ilardo@bnpparibas.com
Roberto Nicosia
Simone Roberti
Advisory roberto.nicosia@bnpparibas.com
Research simone.roberti@bnpparibas.com
Vincenzo Noviello Property Management vincenzo.noviello@bnpparibas.com
www.realestate.bnpparibas.com