PROJECT VIA VISCONTI DI MODRONE

INVESTMENT OPPORTUNITY IN MILAN

1 EXECUTIVE SUMMARY AND RECOMMENDATIONS Potential of the investment opportunity

The Report is divided into 3 parts: • a market analysis involving macroeconomic data and a specific focus on the area; • A comparable and case study analysis; • A business plan with internal assumptions.

The property under analysis, sited in Via Visconti di Modrone , in an upper floor of a fashionable eighties building. The investment purpose is to acquire the asset and convert it into residential. The exit strategy foresees a fractioned sale of the residential units, which will be split among a 44 sqm studio, a 41 sqm studio and a 54 sqm apartment.

Via Visconti di Modrone is in San Babila, one of the best district of Milan, which is in turn considered by most the economic capital of Italy, where both the employment level and the average income are both above the Italian level.

The investment opportunity results interesting, displaying an unlevered IRR of 19.85% and a net equity IRR of 24.08%. The results of a sensitivity analysis in which we varied the sale price/sqm and the average sale time show that the net equity IRR turns negative in case of low-end sale price scenarios (6,800 €/sqm). This is mainly due to the assumption of ca. 1,200 €/sqm of renovation costs. However, high renovation costs allow to obtain top-quality products, therefore diminishing the likelihood of low-range sale prices.

3 INDEX

1. Macroeconomic Outlook page 5

2. Comparables page 11

3. Investment Evaluation page 14

4 1. MACROECONOMIC OUTLOOK

5 THE MARKET

Features and amenities of Milan

• Over the years, the Italian Real Estate residential market has improved its appeal with private and corporate investors. In 2019, in the northern and the central area of the country, investments in the sector grew heavily. • Milan is the Capital of Lombardy, the most populous and most productive region of Italy. The city of Milan counts 1.4 millions inhabitants, while the metropolitan city count 3.26 millions, and it has an area of 181.76 sqkm. • The city hosts numerous cultural institutions, academies and universities, with 11% of the national total enrolled students. • Milan is the destination of 8 million overseas visitors every year, attracted by its museums and art galleries that include some of the most important collections in the world.

• San Babila district, where the estate is located, is undoubtedly one of the most fashionable and cool districts of the whole city and its filled with history. Just a 5 minutes walk from the Duomo and a 2 minutes walk from the famous Montenapoleone shopping district, San Babila is one of the many hearts of the Capital of Lombardy and is remembered as being one of the meeting point of the Milanese bourgeoisie for a long time. Both the district and the square take their name from the marvellous “Basilica Di San Babila” here shown on the right. • The MFW (Milan Fashion Week) is a clothing trade show held semi-annually, one in February/March and the other in June/September, and the hear of it all, despite the many shows organized all across town, is right in the Montenapoleone Fashion District, with its many boutique. During the MFW the whole city colours it self with some of the more important figures in the Fashion Industry with their many extravagant outfits.

6 MILAN ECONOMIC PROFILE

Macroeconomic data

Population Trend Age Distribution 1,400,000.00

1,350,000.00 12.8% 22.8% 1,300,000.00

1,250,000.00 64.4% 1,200,000.00

1,150,000.00

0-14 15-64 65+

2003 2001 2002 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Unemployment Rate (%) Taxpayers by Income Range (%) 14 30.00%

12 25.00% 10 20.00% 8

6 15.00%

4 10.00% 2 5.00% 0

0.00% 120,000> 75,000 - 55,000 - 26,000 - 15,000 - 10,000 - 0 - Milan Italy 120,000 75,000 55,000 26,000 15,000 10,000

Sources: tuttoitalia.it Sources: istat.it 7 MILAN MARKET BY DISTRICT Average sale and rental prices per each Milan district

Average Average Number District price (€/sqm) rent (€/sqm/y) 1 Center 10,280 320 Arco della Pace, Arena, 2 8,360 260 Pagano 3 Genova, Ticinese 7,680 260 Quadronno, Palestro, 4 8,460 280 Guastalla Garibaldi, Moscova, Porta 5 8,840 350 Nuova 6 Cenisio, Sarpi, Isola 5,490 270 Fiera, Sempione, City 7 5,860 230 Life, 8 Solari, Washington 6,080 260 9 Navigli 5,760 270 Porta Romana, Cadore, 10 6,150 250 Montenero Porta Venezia, 11 6,690 270 Indipendenza 12 Centrale, Repubblica 6,060 250 Viale Certosa, Cascina 13 2,980 190 Merlata 14 San Siro, Trenno 3,360 190 15 Bande Nere, Inganni 3,740 190 16 Famagosta, Barona 3,230 200 Abbiategrasso, Chiesa 17 3,160 230 Rossa 18 Porta Vittoria, Lodi 3,940 230 19 Città Studi, Susa 4,650 230 20 , Niguarda 2,940 200 21 Affori, Bovisa 2,670 200 22 Bisceglie, Baggio, Olmi 2,180 150 23 Ripamonti, Vigentino 3,570 230 24 Forlanini 2,740 190 Cimiano, Crescenzago, 25 2,710 210 Adriano 26 Maggiolina, 4,390 230 27 Precotto, Turro 3284ì0 220 28 Udine, Lambrate 3,420 200 29 Pasteur, Rovereto 3,220 250 Ponte Lambro, Santa 30 2,560 150 Giulia 31 Corvetto, Rogoredo 3,040 200 32 Napoli, Soderini 4,610 210 8 Source: immobiliare.it RESIDENTIAL AGREEMENT TRENDS Purchase and rental trends

• Over the last few months, more precisely from March 2019 to February 2020, the sale price per square meter has increase by 11.32% (from 3,329 to 3,706€). The peak of price per square meter has been reached in January 2020 with 3,706€/m^2. • Over the last few months, more precisely from March 2019 to February 2020, the price per square meter has increase by 3% (from 17.9€ to 18.42€). The peak of price per square meter has been reached in February 2020 with 18.42€/m^2.

Average Sale Price (€/m^2) Average Rent Price (€/m^2) € 19.00 € 3,800.00

€ 3,700.00 € 18.50

€ 3,600.00 € 18.00

€ 3,500.00 € 17.50 € 3,400.00 € 17.00 € 3,300.00 € 16.50 € 3,200.00 € 16.00 € 3,100.00 € 15.50 € 3,000.00 € 15.00

Sources: immobiliare.it 9 CORONAVIRUS POTENTIAL EFFECTS ON REAL ESTATE MARKET Some infos

Due to the recently conditions regarding the current health crisis affecting Italy, among many other countries, one thing that can be said with certainty is that the Italian GDP is likely to be affected by this with significance and it is known that the deficit limithas been increased accordingly. However, for now it is really challenging to make any kind of predictions on how will the Italian Real Estate Market will react to this crisis. Yet one thing we can say for sure is that Real Estate is a Long–Term investment, which offers much less volatility when compared to other investments. Now we can only wonder how will the market react following this sad chapter of our history. Will there be an economic boom or a a slow growth? According to BSRE research, we believe that the real estate market will fully recover by 2022.

So far we can say that the Real Estate Market in Milan has been negatively affected, yet it has improved as shown from the increase, even if slight , in both Average Rent and Sale Price.

Month Average Rent Price Average Sale Price

February 2020 18.42€ 3,706€

March 2020 18.60€ 3,733€

Sources: immobiliare.it 10 2. COMPARABLES

11 LOCATION AND ACCESSIBILITY Public transportations and universities

Via Visconti di Modrone is located in the east zone of Milan city centre.

Many of the most famous sights of the city as piazza Duomo or Galleria Vittorio Emanuele II and the whole central area are within 15-20 minutes on foot.

The area is well served by public transportations: • the closest metro station is San Babila (red line) at just 4 min by walk; • other lines of bus service connect the location to the rest of the city: • Line 54 • Line 61 • Line 94 • Milano Centrale and Porta Garibaldi are just 20 minutes away.

Some of the most important university campuses can be easily reached: • Università degli Studi di Milano and Istituto Marangoni, are respectively 10 and 5 minutes far on foot; • others as Bocconi University or Università Cattolica are connected in less than 30 minutes by tram or metro. COMPARABLES Properties nearby

# Address Rooms Price m² €/m² Floor

1 via Corridoni 1 265.500 € 35 7.586 € Ground via Visconti di 2 2 526.500 € 60 8.775 € Ground Modrone via Visconti di 3 2 405.000 € 48 8.438 € Ground Modrone 4 via Conservatorio 2 450.000 € 57 7.895 € Mezzanine via Pietro 5 2 445.500 € 55 8.100 € Mezzanine Mascagni 6 via Donizetti 2 450.000 € 57 7.895 € Mezzanine via Visconti di 7 4 702.000 € 86 8.163 € Ground Modrone Average 8.121 €

The comparables refer to listings of properties close to the target property, in particular: ▪ we applied a 10% discount to the ask price ▪ we considered sizes ranging from 35 to 86 sm ▪ we considered only ground-floor properties

As a sanity check, we used valuation tools provided by Immobiliare.it and Casavo.

We selected an expected sale price of 8,000 €/sm, and a variation range from 6,800 to 8,600 €/sm.

Sources: immobliare.it Sources: casavo.it Sources: idealista.it 3. INVESTMENT VALUATION

14 ASSUMPTIONS Some assumptions used in developing the model

Acquisition Renovation

▪ The building renovation is expected to start 2 months after the ▪ Due to the recent spread of the Coronavirus, the whole model is first down payment on the purchase price has been paid. built referring to generic months instead of precise ones. Renovations will last for 5 months.

Transformation costs €15,000 Property Purchase Price €650,000 Project Management €20,000 €26,000 Acquisition costs Restructuring expenses €170,000 Design Cost €15,000 Agency Fee €30,000 Buffer €30,000

Financing Disposals

▪ We assume an average sale time of 6 months, after the completion of ▪ The financing provided by the bank amounts to €390,000. the renovation. ▪ In our base case, we assumed to repay it with cash flows generated ▪ We assume a sale price of 8,000 €/sqm, based on the analysis of in the 12th and 13th month from the down payment and the comparable properties. following sale of the properties

€352,000 Studio (44sm) Month 13 (8,000 €/sqm) Interest Rate 2.5% €328,500 Studio (41sm) Month 13 (8,000 €/sqm) Administration Fee + Tax €8,190* 1-bedroom €432,000 Month 13 Target Loan to Value 60% apartment (54sm) (8,000 €/sqm)

* Computed as 2,1% of the total amount of debt FREE CASH FLOW DYNAMICS Free Cash Flow of the Project

10° 11° 12° 13° 1° month 2° month 3° month 4° month 5° month 6° month 7° month 8° month 9° month month month month month Operating Cash IN Studio 44sqm 35.200 316.800 Studio 41sqm 32.800 295.200 Two rooms 54sqm 43.200 388.800 Operating Cash OUT Property Purchase -65.000 -585.000 Acquisition Costs -26.000 Borkerage Fee (on -10.000 purchase) Design Costs -15.000 Restructuring Costs -34.000 -34.000 -34.000 -34.000 -34.000 Trasformation Costs -3.000 -3.000 -3.000 -3.000 -3.000 Project Management -4.000 -4.000 -4.000 -4.000 -4.000 Unexepcted costs -6.000 -6.000 -6.000 -6.000 -6.000 Brokerage Fee (on -20.000 sales) Operating Taxes -43.524 UFCF -65.000 -621.000 -62.000 -47.000 -47.000 -47.000 -47.000 111.200 980.800 Tax Shield 4.911 Cashflow for Debt -65.000 -621.000 -62.000 -47.000 -47.000 -47.000 -47.000 111.200 985.710 Service Principal 390.000 -111.200 -278.800 Debt (BOP) 390.000 390.000 390.000 390.000 390.000 390.000 390.000 390.000 390.000 390.000 390.000 278.800 Interests -803 -803 -803 -803 -803 -803 -803 -803 -803 -803 -803 -574 Administration fee -8.190 Gross FCFE -65.000 -239.993 -62.803 -47.803 -47.803 -47.803 -47.803 -803 -803 -803 -803 -803 706.336 Developer Fee -34.925 Net FCFE -65.000 -239.993 -62.803 -47.803 -47.803 -47.803 -47.803 -803 -803 -803 -803 -803 671.411 INCOME STATEMENT AND METRICS Financials

Free cash flow dynamics Income Statement 1,200,000 Revenues € 1.112.000 1,000,000 800,000 Studio 44 € 352.000 600,000 400,000 Studio 41 € 328.000 200,000 Two rooms 54 € 432.000 0 -200,000 1 2 3 4 5 6 7 8 9 10 11 12 13 Costs -€ 956.000 -400,000 Property Purchase -€ 650.000 -600,000 -800,000 Acquisition Costs -€ 26.000 UFCF Net FCFE Borkerage Fee (on purchase) -€ 10.000

Design Costs -€ 15.000 Metrics Restructuring Costs -€ 170.000 Equity IN 563.027 Trasformation Costs -€ 15.000 Equity OUT 671.411 Project Management -€ 20.000 Net Equity Multiple 1,19 Unexepcted costs -€ 30.000 Monthly unlevered IRR 1,52% Brokerage Fee (on sales) -€ 20.000 Monthly Net Equity IRR 1,81% EBIT € 156.000 Annualized unlevered IRR 19,85% Interests -9411 Annualized Net Equity IRR 24,08% Administration fee -8190

EBT € 138.399 Taxes Taxes -€ 38.613 Operating taxes € 43.524 Net income € 99.785 Tax shield € 4.911 SENSITIVITY ANALYSIS Further financials

We carried a sensitivity analysis by varying the following two inputs: ▪ Price €/sqm • Base case: 8,000 €/sqm • Sensitivity range: 6,800 – 8,600 €/sqm (Based on evidence from our comparables analysis, we selected an asymmetric range) ▪ Average Sale Time • Base Case: 6 months • Sensitivity range: 3 – 9 months. (We selected +/- 3 months symmetric range Notice that the most adverse scenarios are obtained with a significantly low sale price, this is due to the assumption of ca. 1.2 k €/sm of renovation costs. However, high renovation costs allow to obtain top-quality products, therefore diminishing the likelihood of low-range sale prices.

€/sqm

Net Equity 6800 7000 7200 7400 7600 7800 8000 8200 8400 8600 IRR 3 -5,85% 2,70% 11,54% 20,66% 30,06% 39,72% 49,65% 59,84% 70,29% 80,99%

4 -5,27% 1,95% 7,64% 13,42% 19,30% 25,27% 31,33% 37,48% 43,71% 50,02%

5 -4,82% 1,63% 6,65% 11,72% 16,84% 22,02% 27,25% 32,53% 37,85% 43,23%

6 -4,47% 1,38% 5,86% 10,38% 14,92% 19,49% 24,08% 28,70% 33,35% 38,02%

7 -4,17% 1,18% 5,23% 9,29% 13,37% 17,46% 21,55% 25,66% 29,78% 33,90%

8 -3,93% 1,01% 4,71% 8,40% 12,10% 15,80% 19,49% 23,18% 26,87% 30,57%

9 -3,72% 0,84% 4,27% 7,66% 11,04% 14,41% 17,77% 21,13% 24,47% 27,81% Average Sale Time (Months) Time Sale Average Bocconi Students for Real Estate

• https://www.linkedin.com/company/bocconi- students-for-real-estate/?viewAsMember=true

• https://www.facebook.com/bocconirealestate

• https://www.bsrealestate.it/

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