Sale-And-Leaseback Deals
Are Growing Across Europe

Corporate and government sale-and-leasebacks are ringing in the new year across Europe. A number of sizable portfolios are up for grabs, particularly in Italy, Belgium and France, as companies and governments alike endeavor to boost their coffers.

Under a sale-and-leaseback agreement, a company -- or government -- sells the building it occupies and leases it back from the buyer, typically on a long lease. The advantage is that the sale frees up capital to reinvest elsewhere, typically in a company's core business, or to reduce debt, while allowing it to remain in the same property.

Leading the way is Comit, the former pension fund of Banca Commerciale Italiana, which is part of Italian bank Intesa Group. First-round bids for a portfolio of Comit's real-estate assets are due by the end of this month. The portfolio is expected to include trophy offices in Milan, bank branches it will lease back, and a residential component.

"It will be one of the biggest portfolio sales of the year -- with market expectation for a price in the region of €700 million [$846 million] -- so it will be very competitive," said Douglas Babington-Smith, a director of investment at advisory firm Jones Lang LaSalle in Milan. "I would expect the usual suspects such as Pirelli Real Estate SpA and Deutsche Bank AG to bid."

Pirelli Real Estate's investor-relations spokesman, Dario Fumagalli, confirmed Pirelli has bid. Deutsche Bank declined to comment.

Italy's government is disposing of real-estate assets to narrow its budget deficit. In December, the government set up a real-estate fund, Patrimonio 1, into which it has put real-estate assets such as a police barracks, with an estimated value of €800 million, Mr. Babington-Smith said.

The move is part of Italy's strategy announced in September to sell €3 billion of real estate by the end of 2007. Last month, the disposal program began, with the government selling a portfolio largely comprising offices in Rome and Milan, to Fintecna SpA -- a company controlled by the Ministry of Finance, and which has a role in managing real-estate assets -- for around €400 million.

"In addition, I expect that around €600 million of real-estate will be sold to Fintecna, probably this year, with another €1.5 billion of assets being sold to Patrimonio 1 or a new public fund of a similar nature to Patrimonio," said Paolo Bellacosa, head of investment at advisory firm CB Richard Ellis SpA in Milan.

Italian corporations are getting in on the act. Telecom Italia SpA agreed last month to sell 900 properties, mainly offices, to a joint venture between Morgan Stanley Real Estate Funds, part of U.S. investment bank Morgan Stanley, and Pirelli Real Estate for €790 million. The deal is expected to close by June. Pirelli Real Estate is 51%-owned by Italian tire maker and broadband-solutions developer Pirelli & C. SpA.

Belgium saw a slew of real-estate sales last month , with state entities selling 20 properties, with an estimated value of €250 million, according to Maxime Xantippe, a partner at advisory firm CB Richard Ellis in Brussels.

Belgium's federal government sold a 47,000-square-meter office in Brussels's city center for €37 million to real-estate company Cie. Immobiliere de Belgique SA. The building could either be refurbished as an office or converted to residential use, Mr. Xantippe said. "The sale illustrates that the state doesn't want to invest in its buildings." he said.

Also in December, the Belgian government sold the 72,000-square-meter Court of Justice in Antwerp to Belgian-listed real-estate company Cofinimmo SA for a sum that wasn't disclosed. Real-estate experts say it is likely to have sold for around €180 million. Belgium will lease the court back from Cofinimmo for 36 years, with an option to continue leasing.

It is difficult to predict what Belgium will dispose of this year, Mr. Xantippe said. Nevertheless, he expects the process to repeat itself.

In France last year, the government fell short of its target of selling as much as €850 million of real-estate assets, disposing of just €600 million.

This year, the government intends to dispose of another €600 million in real-estate assets.

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