7 Billion Inheritance

Real estate one-offs, divestments of state property achieved through direct sales, securitizations, real estate funds or lease-back sales, have become an all-season dress on the public finance catwalk. The real estate 'one offs' between 2001 and 2005 amounting to over 20 billion euros (of which 7 billion in 2005 have not yet been realised) served to reduce the deficit of the central administration and, albeit to a negligible extent, to finance the investments of local administrations as granted by the internal Stability Pact. From next year, according to the 2006 Budget, real estate one-off payments will be used for a completely different purpose, that is, the financing of extraordinary investments (from 3 to 6 billion euros). The last two DPEFs, however, have not excluded the possibility of including the sale of public properties worth several billion euros a year in the operations aimed at reducing the debt stock.
Whatever the more or less sophisticated technique adopted to carry out property sales (securitization, funds, sale & rent back, advances) and whatever the purpose of the sales - deficit, debt or investments - there is no doubt that property disposals have fully entered the management of public accounts in a period of little or no economic growth. Until last year, the Treasury was able to draw on the pool of properties that are easiest to dispose of: residential units that can be sold to tenants of social security institutions. This resource was almost dried up by the Scip1 and Scip2 securitisations. The third securitization is stalled. The Scip3 operation, worth around 1 billion euros concentrated on 4,500 non-instrumental residential properties 'sine titulo' of the Ministry of Defence, has been in the pipeline for years and has so far struggled to take off due to resistance from some defense sectors: the launch should materialize by the end of this year, as announced - several times - by authoritative sources from the Ministry of Economy.
It is not yet clear to what extent the Treasury intends to continue along this same path next year: securitization of easily transferable real estate properties or residential accommodation sold to tenants. A fourth Scip could concern the former IACP, the public housing: a strong point of the Undersecretary of the Treasury Maria Teresa Armosino. According to industry estimates, up to one million of these homes can be sold. The market value of these former council houses is around 72 billion euros, according to estimates revised by Federcasa. The proceeds from the ex-Iacp disposals, according to Armosino (see Il Sole 24 Ore of 29 May), should however be used for the construction of new public housing for those who need it most, such as young couples.
Another operation carried out by the Treasury on the real estate front, and which has achieved very high approval among Italian and international institutional investors, is the take-off of the first public real estate fund (FIP): a sale of offices for government use with simultaneous re-renting which ensures a certain return for the fund shares. If the Treasury were to replicate this formula by the end of this year or in 2006, the market doors would certainly open wide because this investment instrument is considered low risk but with an attractive return. There are rumors that the sale-and-rent-back could concern a package of Revenue Agency offices put up for sale by the end of this year. And that this time the private investor could also purchase the fund's shares. But the 2005 real estate transactions, for a total of 7 billion euros, are in their embryonic stage. Certainly, by the end of the year, PatrimonioUno will see the light of day, the first real estate fund of the company Patrimonio dello Stato spa. The gestation of this fund was also long and painful: the arrival of Giulio Tremonti at the helm of the Via XX Settembre department could speed up the birth of this first fund. Perhaps the first of a series.
To complete the work of real estate disposals in 2005, an improvement is also expected on the Anas front: the sale of 4,500 kilometers of state road networks should contribute to reducing the 2005 deficit by up to 3 billion euros. Despite the difficulties encountered so far by the Anas operation, other infrastructures - concessions for beaches and tourist ports - could contribute next year to raking in the 3 or 6 billion euros of 'extraordinary real estate disposals' dedicated to financing equally extraordinary investments.

source: Real Estate Observatory