A flood of soured assets will come on the market in Italy if a referendum to overhaul the political system is approved in the autumn, said Keith Breslauer, founder and managing director of Patron Capital Partners.
“The opportunity in Italy is far greater” than in the U.K. after it voted to leave the European Union, Breslauer said in an interview. There are about 350 billion euros ($388 billion) of distressed real estate assets remaining in Europe, about half of which is “real garbage,” he estimates.
Patron has raised 949 million euros for its fifth fund, which will target distressed and undervalued real estate in western Europe, it said in a statement Tuesday. The London-based private-equity company will add leverage and invest in as much as 3 billion euros of real estate-backed corporate investments and individual properties.
Italian Prime Minister Matteo Renzi is staking his career on a referendum to overhaul the political system that is expected to take place in October or November. The country’s bank support fund Atlante will likely be expanded if Renzi wins, which will help Italy’s lenders take further impairments on soured real estate loans, Breslauer said. That will make it easier for them to be sold, he said. Italian lenders hold about 66.4 billion euros of non-core real estate loans, broker Cushman & Wakefield Inc. estimated.
“What we have seen with Brexit is that anything with income is flying out the door. Anything that’s secondary or which needs fixing really has no bids,” Breslauer said by phone. The risk is that “the duration of any business plan is dramatically extended, you just don’t know how long things are going to take to fill up.”
Patron sees an opportunity to purchase prime London residential apartments if Asian investors don’t buy them to take advantage of the fall in the pound. Developers are having difficulties completing sales and are offering bulk sales of as many as 500 apartments, he said.
“In a normal stabilized market, 15 percent to 20 percent of apartments should be owned by investors,” Breslauer said. “Right now in parts of the South Bank, it’s closer to 60 percent.”
The firm’s fourth fund is expected to provide an internal rate of return of more than 25 percent, Breslauer said in the statement.