Italy Is Said to Prep $2 Billion Property Sales to Cut Debt

(Bloomberg) -- Italy is preparing to sell as much as 1.8 billion euros ($2.1 billion) of state-owned real estate as it seeks to rein in soaring debt, people with knowledge of the plan said.

The finance ministry is identifying properties owned by the state and by regional and local administrations that could be sold off -- mainly army barracks, hospitals and office buildings that are no longer in use -- said the people, who asked to not be named because the plan isn’t public.

Prime Minister Giuseppe Conte has said his government expects measures included in its budget to fuel a recovery in the second half of 2019, even as figures released last month showed the country falling into its first recession since 2013. Most economists expect growth this year to be well below the government target of 1 percent.

The three-year budget plan approved in December included a target of 950 million euros in revenue from real estate disposals in 2019 and 150 million euros in each successive year.

The Italian state, regions and other public entities own property assets across the country that are worth a combined 283 billion euros, according to government figures from last year based on some 1 million assets for which the Treasury has drawn up an inventory. Earlier official estimates covering a larger number of properties have placed the value as high as 425 billion euros.

Italy’s public debt in November reached an all-time high of 2.35 trillion euros, over 133 percent of the nation’s estimated output last year. That’s second only to Greece among the countries that use the euro currency.

Past Attempts

The proposed real-estate sale project will be outlined in detail over the next few months and the first properties could go on the market before the end of the year, the people said.

Discussions are continuing on how to package the properties, possibly by splitting them into various portfolios based on location and intended use, the people said, adding that a final plan has not yet been defined.

This wouldn’t be Italy’s first attempt at raising cash through property sales. The government of Silvio Berlusconi failed to attract bidders for disused military barracks in the north, damping prospects for the sale of thousands of state-controlled properties. The administrations led by Matteo Renzi and Paolo Gentiloni also failed to sell non-core public real estate.

“Historically, Italian governments were able to reach just a small fraction of their planned real estate sales,” said Stefano Girola, a portfolio manager at Alicanto Capital in Milan. “I don’t think this time will be different. Italy still has an excess of real estate assets to digest and I don’t see much demand on the market for more.”

The main hurdle for buyers: Italy’s exhaustive rezoning procedures, which can take up to three years, according to the people. The Treasury is weighing giving a role to state-owned asset manager Investimenti Immobiliari Italiani Sgr SpA, allowing it to invest alongside the property buyers and help with renovations and rezoning, they said.

The government could sell properties through a securitization process, with Investimenti Immobiliari buying minority stakes in investment vehicles, the people said. State lender Cassa Depositi e Prestiti SpA could also have a role, possibly bidding for some assets, they said.

On a visit to the U.S. last month, Finance Minister Giovanni Tria told investors the government is ready to start planning for privatizations in the near future, his office said in a Feb. 1 statement.

In addition to attractive rates on government securities, Tria highlighted opportunities “in large and medium-size infrastructure to be modernized, with privatizations, both in real estate and in other assets, to begin soon.”

--With assistance from Dan Liefgreen.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, ;Fergal O'Brien at fobrien@bloomberg.net, Ross Larsen, Dan Liefgreen

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