We have welcomed the provisions issued by the Bank of Italy on 16 March. When we started our activity 10 years ago, we suggested a business model which was unusual then, since it included a special purpose vehicle (SPV) for the purchase of secured loans backed up by an active real estate company. Till then (except for some cases), most of the market players followed an unbalanced model: either real estate companies that purchased targeted mortgage loans or financial companies relying on a Reoco established for a specific purpose and managed in the spare time.
These provisions establish a model as a common practice and submit it to the originators. Then we were right, weren’t we?
Yes, we were right on the buyers’ side, while as for the originators/banks, everything is yet to be proven. The buyers’ side, in fact, offers some advantages: it is possible to focus on some asset classes, select the best, or implement the structure according to the task to be performed as well to the loan type.
The difference lies in the core business: the management of assets and loans is our core business, it does not rest with banks. Not yet, at least.
In order to meet the provisions of the Bank of Italy and seize the opportunity resulting from authorisations and derogations, the Credit Institutes will have to adapt themselves or assign this task to experts. Otherwise, it will have a boomerang effect.
After 10 years, we have realised that there are 3 main aspects governing the management of mortgage loans through a Reoco, which we constantly take into account:
– different approaches according to the asset classes: the enhancement of a villa or of an industrial complex are not the same thing. Sometimes, even within the same asset class, it is necessary to enact different approaches (for ex. apartments/villas, or hotels/tourist accommodations.) The business model varies at the business plan and design stage (software) as well as upon the following application and territorial management (hardware);
– dedicated structure: those who manage properties cannot deal with loans at the same time, and vice versa. It is necessary to create a flexible and osmotic organization, with well-defined tasks and responsibilities. Asking an asset manager expert on legal and out-of-court issues to develop the marketing plan for the sale of a property may be the simplest solution, but not the most effective;
– cash flow and tax planning: actually, they are two distinct business branches which closely cooperate with each other, each with its own liquidity and tax rules. Therefore the development of a business plan, including all the variables and ways out, is crucial.
Eventually, let us consider two examples: the planning of participations in auctions and the definition of the limit price; the calculation of the property management costs as well as of the expenses, with reference to the pro rata basis and the fiscal impact.
Emanuele Grassi
