Dipartimento di Impresa e Management Cattedra di Real Estate Finance REAL ESTATE INVESTMENT IN ITALY: THE ALPHA CASE RELATORE CANDIDATO Prof. Gaetano Casertano Lorenzo Santone Matr. 676011 ANNO ACCADEMICO 2016/2017 1 SUMMARY Introduction .............................................................................................................................................................. 4 CHAPTER 1: THE REAL ESTATE MARKET ..................................................................................................... 5 Defining real estate .............................................................................................................................................. 5 Real estate market characteristics ........................................................................................................................ 6 Real estate market segmentation .......................................................................................................................... 9 Real estate market functioning: a microeconomic model .................................................................................. 11 The real estate cycle ........................................................................................................................................... 13 CHAPTER 2: ITALIAN REAL ESTATE MARKET OUTLOOK ...................................................................... 16 Macroeconomic outlook .................................................................................................................................... 16 Residential sector ............................................................................................................................................... 18 Real estate transactions .................................................................................................................................. 18 Residential mortgages .................................................................................................................................... 24 Prices in residential market ............................................................................................................................ 27 Non-residential sector ........................................................................................................................................ 29 Office market in Milan ................................................................................................................................... 32 Office market in Rome ................................................................................................................................... 35 Retail market .................................................................................................................................................. 38 Logistics market ............................................................................................................................................. 39 Hotel market ................................................................................................................................................... 41 Alternative sectors.............................................................................................................................................. 43 CHAPTER 3: REAL ESTATE INVESTMENT ................................................................................................... 44 Real estate investment characteristics ................................................................................................................ 44 Real estate investment process ........................................................................................................................... 49 Professional figures in real estate....................................................................................................................... 58 Investment styles ................................................................................................................................................ 62 Real estate investment and efficient portfolios .................................................................................................. 63 Real estate indexes ............................................................................................................................................. 68 CHAPTER 4: REIFS AND OTHER INVESTMENT VEHICLES IN THE ITALIAN MARKET ..................... 73 Normative framework ........................................................................................................................................ 73 Defining the SGR ............................................................................................................................................... 73 Italian REIF types .............................................................................................................................................. 73 Statute of the fund and other mandatory documents.......................................................................................... 76 Monitoring bodies .............................................................................................................................................. 77 Governance ........................................................................................................................................................ 78 Revenues and costs related to the fund .............................................................................................................. 78 2 Tax regime ......................................................................................................................................................... 78 Optimal structure of funds ................................................................................................................................. 79 REIFs market and recent developments ............................................................................................................. 80 SIIQ .................................................................................................................................................................... 84 SICAF ................................................................................................................................................................ 86 CHAPTER 5: THE ALPHA CASE ....................................................................................................................... 87 Deal overview .................................................................................................................................................... 87 Subjective analysis ............................................................................................................................................. 87 Objective analysis .............................................................................................................................................. 88 Location .......................................................................................................................................................... 88 Asset characteristics ....................................................................................................................................... 88 The market ...................................................................................................................................................... 89 The Alpha complex evaluation .......................................................................................................................... 90 Inputs of the model ......................................................................................................................................... 90 Revenues estimation ....................................................................................................................................... 90 Costs estimation ............................................................................................................................................. 91 WACC calculation ......................................................................................................................................... 91 Terminal value ................................................................................................................................................ 92 Final value and bid price ................................................................................................................................ 93 Final considerations ........................................................................................................................................... 93 Conclusions............................................................................................................................................................ 98 Bibliography .......................................................................................................................................................... 99 3 Introduction The following paper aims to analyze the process of investing in real estate, targeting the Italian market. Five chapters compose it. Chapter 1 is purely descriptive. Its scope is to examine the functioning of real estate market. In the first paragraph are defined real estate and its features, then we spot the market characteristics