Tag Archives: reoco

Real estate securitization: here to stay

  • Real estate securitization: here to stay 1

After a slight initial mistrust and an incubation period, we can say that real estate securitization is gaining momentum in Italy. Until a few months ago, in sector conferences the completed issues were accounted for, now no more and this means that the market in question is maturing.

Real estate securitization was introduced and governed by the amendment of Law 130/99, in particular with the introduction of article 7.2 of Law Decree no. 34. The same provision introduced article 7.1, which regulated the so-called “Reoco” or Support Vehicle Companies (SVA).

The latter was quickly acknowledged by the reference market, because in fact the presence of a real estate company supporting a securitization vehicle is to be considered an ex post regulated practice. The first operations of enhancement / redevelopment of collateral properties of GMA date back to 2011, with all the operational difficulties deriving from the absence of regulation but also with the undoubted beneficial impacts of this activity on the recovery of mortgage loans.
For real estate securitization, on the other hand, this is an absolute novelty, which logically could not have developed ex ante. In fact, a new hybrid market is being created between structured finance and real estate, which will involve new investors accustomed to other forms of investment for the same asset class in the world of securitization and debt securities.
I was asked what are the differences between the two tools; thinking about it coldly, having acknowledged that in fact the only substantial difference concerns the presence or absence of a connected mortgage credit, it is easier to trace the related sides to each real estate sale that potentially extend the mechanisms of securitization:

  • financial procurement derives from the issue of ABS securities. The novelty obviously does not lie in the possibility of issuing debt securities but in the type of securities themselves, potentially of interest to the whole private debt / family office world; this opens the door to new possibilities of intersection between the world of structured finance and real estate, which in the future will sublimate into joint ventures and partnerships with high added value in terms of skills;
  • the flows deriving from the properties benefit from the asset segregation in favor of the bondholders;
  • the profits deriving from real estate transactions are distributed as part of the securitization with all the relevant benefits, first of all the fiscal neutrality on direct taxes; they are therefore subjected to financial income profits obtained through the enhancement of real estate, net of the expenses necessary for the enhancement itself.

As in all the activities resulting from the new legislation, with the implementation doubts arose in terms of interpretation and aspects to be reviewed related to ordinary operations:
– the fiscal aspects related to instruments 7.1 and 7.2 are not yet fully understood; a definitive clarification on the part of the legislator would be desirable which takes into account primarily the ratio legis and which enables operators to have equal conditions of use in order not to create competitive advantages / disadvantages within the reference market;
– the intersection with the real estate context has led to the emergence of some operating practices that are not very compatible, repetitive or commercially poorly perceived; I am referring, for example, to the coexistence between publication in the Italian Official Gazette and the transcription to the Conservatory of Real Estate Registers (which perform the same function), or to the inclusion in notarial deeds of typical conditions of securitization such as limited recourse or non-petition agreement that in a recent case we have created some commercial problems with the counterpart, which, not knowing the subject, initially experienced the matter with suspicion. Even the majority of Notaries are not yet prepared on the subject, they need to be involved in order to create culture in this sense and arrive in a short time at accepted operational practices;
– even among insiders it is still not perfectly clear whether all types of real estate / land can coexist within real estate securitization. For the latter, for example, there is much discussion on the applicability of the concept of segregation of flows, even if in fact they are able to generate it in the same way as buildings; in other fora it was discussed how the Ex-Chapters (e.g., restructuring / construction costs) cannot be prevalent. In any case, these are subjective interpretations, which it is hoped can be aligned by the univocal interpretation of the Legislator.

To conclude, I would like to share with the reader the concept that the real estate securitization tool may in the future definitively supplant the obsolete scheme for disbursing real estate credit, which is still too anchored to the static valuation of the collateral. If it is true that traditional banks are evaluating more carefully the forecast of flows and the stability of the cash flow, it is also true that the difficulty in channeling them makes the perception of risk too high.
The use of an SPV, managed and monitored by a qualified financial intermediary and with a predefined and regulated waterfall, creates the conditions for greater serenity in the disbursement of loans, making the mortgage guarantee almost superfluous.

It is a truly innovative concept of project financing, applied to the real estate context, and perhaps in the future also to other business areas.
I would like to think that credit institutions, including the potential of the tool, are asking their customers to use it as a sine qua non for granting credit.

Emanuele Grassi

R as Resolute

R as Resolute 2

Published on 08/10/2021 on Creditvillage.news

Before delivering this editorial to the Credit Village editorial staff, I asked to be able to participate and attend the “A tutta R” event on July 15th focused on Real Estate; I thought that, after months of isolation, it would have been more correct to absorb and in some way become a spokesperson also for the thoughts of colleagues, professionals and, why not, even competitors. Only the good ones of course 😊

I think I did well. In this particular historical moment, participating in these events is already a success in itself, all the more so I was convinced that it would still be satisfying to meet people live and exchange opinions with them in the “old way”. The round table in which I participated was well moderated and attended by very competent and polite colleagues who I take this opportunity to greet and thank.

In addition to this, I was able to listen to interesting ideas, explained with competence and above all… new! I had the impression that after the initial hangover that lasted a few years of technology applied to the material, after a series of important regulatory innovations (perhaps too close to each other), a natural skimming occurred and that at first sight only those useful things and whose usefulness could be easily explained even to non-experts. It is as if, in some way, the pandemic has extended its effects on all of this as well.

Some practical examples:

–Reoco: during the discussion with other colleagues, it became clear about the possibilities of using this tool and how it is now used by the market with extreme awareness. However, some issues remain open, one above all the supposed limitation on the use of the instrument to SPVs that buy directly from other SPVs. In this way, all those mortgage loans securitized with GACS or securitized for different reasons would be excluded, generating a disparity and a prejudice that appears outside the ratio legis. It would be interesting to hear what the legislator thinks of it because after all many other privileges, see for example those of 41 TUB, are transmitted to the SPV without any limitations;

– Real estate securitisations: Compared to a year ago, the perception and awareness of the potential of this tool has completely changed. The audience of first movers, initially restricted to subjects already accustomed to securitization and ABS securities, is also expanding to the “pure” real estate world, involving new points of view and new themes (one above all, the possibility of securitizing building land and build using funds from the issue);

–Big Data: is the theme of the new decade, it involves all areas of our life and could not fail to enter the NPL and Real Estate market as well. In recent years there has been a proliferation of software, open data, spiders applied to all possible and imaginable databases, automatic evaluators, etc. For the first time I was able to hear (and share) that paradoxically an excess of data can generate the opposite effect to the one desired at the outset. Taleb readers will recognize the assumption finally made explicit in public. The ability to recover data with ease has gone far beyond what is necessary and what is due; this is true both for our business and probably for many other contexts. We have to start working on the interpretation of the data, machine learning is the right way and compulsive accumulation certainly cannot be.

–Crowdfunding: the regulatory process of this activity is at an advanced stage; there was talk of an upcoming European regulation that will allow cross-border activity, making the sector more attractive. If at an early stage the topic seemed unsuitable for overly regulated and compliant processes, step by step it has adapted and is gaining significant market shares. It will be interesting to understand if in the near future this type of capital will also be able to enter a system until now dedicated to professional clients or even on request.

I could present other examples, following the same fil rouge. These collateral but complementary initiatives to the core business will mean new capital, enlarged supply chains and greater induced activities.

I The process of transformation, at least from an economic / financial point of view, of a real estate into a movable asset really seems to be in the process of maturing.

We operators just have to take advantage of the lesson by drastically reducing the frills and focusing on effective solutions, here and now. We are facing uncertain times and we must stock up on as many certainties as possible.

Emanuele Grassi 

Real estate and debt collection: two different worlds, a possible partnership

Real estate and debt collection: two different worlds, a possible partnership 3

Published on 11/12/2020 on Creditvillage.news

The world of debt collection and the world of real estate have always been very connected to each other, in Italy in particular. In our banking history, the real estate guarantee is considered the most traditional and comfortable guarantee for the lender. The provision of mortgage credit is directly functional to our entire economy: buying a property is the easiest way to obtain a loan. Sometimes even in a pretext way: often the notary bank does not take into account some side effects such as the precariousness of income (private), the instrumentality of the asset (companies) and the fluctuation of the real estate market (all); in this way, the risk of default goes beyond the certainty with which the credit was granted, in the name of a guarantee that often betrays expectations.

It goes without saying that in cases of default of positions, the enforcement of the real estate guarantee becomes the first thing to do, and it is therefore clear that although the NPL issue is relatively young, the management of mortgaged properties should be consolidated practice for credit institutions.
Yet this is not the case. Up until 10-15 years ago, the requalification of real estate collateral was an almost unknown subject within the credit recovery/bad loans departments and left to the initiative of the most enterprising operators. With the current vision it seems obvious, but until then there was no widespread awareness of the enhancement of properties in order to optimize recoveries.


The current scenario of credit recovery has changed and evolved to such an extent that the previous one is unrecognizable. Today the actors are highly specialized, often saying “mortgage” or “unsecured” is not enough to describe the activity of a servicer. There are a number of clusters such as asset class, borrower category, size and business model that make the activity of a specialized operator highly recognizable (sometimes unique) and determine its recognition on the market.If before the NPL market was similar to a wholesale market, now it looks more like an agglomeration of craft shops where different approaches to work can be seen inside. In short, a mature market.
A market so mature that it can open itself with awareness to the outside, to investors and operators of the same asset class. In the case of Real Estate, this is a great opportunity. There are many traditional operators looking for opportunities that the NPL/UTP world can convey. The servicer therefore acts as a business originator towards the market and through its specific skills is able to support the partner if necessary in all those activities that for the traditional real estate developer are not considered central: the combination is often a winner for both.

The traditional case is that of real estate development from scratch: the involvement of a specialized actor can optimize internal resources and outsource most of the risks associated with a non-central activity. There is a big difference between saying and doing: everyone talks about bad loans, even outside our market, but few are able to handle them and understand the dynamics of these positions.
For example, many real estate developers, even experienced ones, confuse ownership of a mortgage loan with ownership of a property. How important is the expertise of a specialized servicer? Conversely, how many opportunities can a mortgage servicer lose just because they lack the time, structure and funds to value a collateral?
It should always be remembered, in spite of a common belief, that the activity of debt collection and the requalification of the underlying guarantees are by no means counter-cyclical activities; they simply place themselves immediately after the traditional economic cycle, with the same aims and the same actors. To understand this, the main objective of a property developer is the realization of their activities by selling them to the end user (the best possible payer); this goal is perfectly aligned with that of the NPL/UTP market, in which the operator finds his economic satisfaction. In this context of aligned objectives, players in the real estate and debt collection markets can forge profitable alliances.

Finally, it must be emphasized that in a cyclical context of profitable activities, a positive economic flywheel is created for many other subjects: suppliers, technicians, agencies, operators in the real estate sector generally find the possibility of producing work and income generating induced activities for community of reference. There is also an indirect beneficial effect typical of the enhancement of NPL/UTP guarantees:
often the stalemate resulting from the failure of the debtors involved creates a situation of degradation which in some striking cases has an impact on entire areas, neighborhoods, cities. Consequently, the restoration of these situations produces indirect effects that are often not calculable a priori but no less important.
As an example, let’s think what the restoration of a decaying building could mean for a residential area, perhaps in the meantime also occupied or become a center of opaque activities, or even simply for a condominium, the arrival of a good payer who goes to restore a situation of arrears typically borne jointly by all condominiums.

The indispensable condition for forming alliances and collaborations between the real estate world and the debt collection world is that both actors work in watertight compartments and that their activities do not interfere. Respect for reciprocal roles will prevent overlaps in the distribution of tasks and profits, resulting in greater efficiency in the work performed and a better result for the benefit of all.

Emanuele Grassi

Earthquake – Eco – Super Bonus: a new opportunity for the NPL world

Earthquake - Eco - Super Bonus: a new opportunity for the NPL world 4

Here, I think it is superfluous to an introductory talk about the restructuring bonuses also because in this particular historical period it is probably the most talked-ever issue among insiders and outsiders.

The restructuring bonus in its earthquake / eco declinations has existed for some time, what today makes it so attractive and “sensational” are probably two of the new features introduced, the most significant:

1.   the so-called super bonus and the associated rate, which reaches 110% (effectively generating a credit higher than the value of the restructuring);
2. the possibility of more easily transferring the tax credit to third parties, with banks that are well equipped to seize this opportunity.

Obviously, we operators of the secured NPL / UTP market have listened to our ears. In GMA in particular, we spent a lot of time and resources during the spring lockdown to study the matter and analyse practical cases; today we can say that we are able to tackle the topic with greater awareness and we have the ability to identify potentially attractive and eligible situations in advance for the application of bonuses.
We have summarized in points what we consider our most important considerations:

– bonuses also apply to Reoco and repossessed NPLs. Those (like us) who had some initial doubts, deepened the matter: there are no limitations whatsoever for Reoco and repossessed assets more generally, in recent months there has been a debate on the applicability of bonuses to legal persons and more than one ruling by Cassation and the Tax Commission have expressed themselves favourably on the matter;

–  there are prerequisites for the applicability of bonuses. This is not the place to list them all, it is sufficient to say that there are some prerequisites that unequivocally determine the possibility of accessing the bonuses and the maximum quantification of the bonus payable; for operators this aspect is of particular importance, because it allows them to concentrate on the operations with the greatest probability of success. Obviously by addressing specific cases, the particularities of each position and the applicable rates are discovered;

–  starting a restructuring only for the benefits provided by the bonus is potentially a mistake. The practice is long and complex and the variables are many. Often, extra bonus costs, often not foreseen, are added to the costs subject to bonuses, which inevitably dilute the percentages and generate cash outflows not considered ab origine. Probably this consideration applies to this bonus and to all state subsidies in general. The question that needs to be addressed is: if there was no possibility of having the benefits, would we still do a requalification? If the answer is yes, the operation is a great opportunity and is faced with serenity;

– the bonuses expire at the end of 2021. We are well aware that more than one rumour has recently been raised about an extension, in particular for the earthquake-bonus and the eco-bonus; as of today, what is certain is that the concessions will be in force until December 2021. It is therefore necessary to plan the works considering the technical times and putting in the budget the possibility that if these should continue beyond, they could not take advantage of the concessions.

Emanuele Grassi

New tools available: 130 SPV Real Estate

New tools available: 130 SPV Real Estate 5

The changes introduced by Italian Law Decree 34/2019, subsequently converted into Italian Law No. 58/2019, have introduced and institutionalized two new methods of approach to property management, understood as property management and as the requalification of assets used to guarantee credit. We are talking about the support vehicle companies (SVA, better known by insiders as “Reoco”) and the Real Estate SPVs, an absolute novelty for the Italian context.

The first mentioned were used almost immediately for at least two reasons:

1. in fact they already existed, the Italian Law Decree simply institutionalized and regulated a consolidated practice;

2. the concessions introduced by the legislator have made the use of SVA extremely convenient even in cases where previously it would not have been (on the subject, consult the link “How not to use a Reoco“).

The context changes for SPV 130 Real Estate. The lack of knowledge of this tool by professionals and the particular area of application have made the reception of this novelty more cautious. I am referring in particular to the fact that in Italy, those who work in the world of debt collection have over time become familiar with the concept of securitization, while those who work in the real estate field many times do not know this topic.

Recently, some of our investors and customers learned about the SPV 130 Real Estate and asked us for technical and practical support to better understand how the two legal entities in question differ substantially. In addition to the obvious differences in application profile, there are at least 3 operational arguments on which to pay particular attention:

– while SVAs enjoy tax breaks for the payment of registration tax during the purchase phase and future buyers can also benefit from these facilities, SPV 130 Real Estate does not have this facility; probably because in the first case it is deemed necessary to facilitate preparatory activities for credit recovery, but infact non-core for some market players;

– for both, the management model applied to the segregation of assets must currently and in the future consider the different types of obligations that the vehicle companies will have to contract. For example: ownership of a property generates implicit obligations such as the payment of taxes (IMU, Tari etc) and condominium expenses; these subjects are potential creditors to whom the segregation of assets and the non-petition clause can hardly be accepted ex post;

– the accounting approach is similar, although it is an SPV and a limited company. On the other hand, there are substantial differences with the SPV for credit securitization: above all the deductibility of VAT, which in the Real Estate SPV130 becomes possible, pro-rata permitting.

More generally, the topic can generate various food for thought especially with reference to the SPV 130 Real Estate for which at the moment it is more about theory than practice; during 2021 the legislator will most likely clarify the remaining shadow points and the first operating practices will arise.

Emanuele Grassi

Coronavirus and NPL: 3 certainties to start from

Coronavirus and NPL: 3 certainties to start from 6

We are experiencing a completely new historical moment.

Any comparison on other experiences of the past does not fit: it is not a war, otherwise we would not be at home in the heat with all the comforts it is not even a normal influence, otherwise we would not have hospitals to the limit of their intervention skills.
We do not know exactly when all this will end, when we will be able to leave the house and how different our daily lives will be in the near future.

Therefore, every forecast reasoning made today has no certain foundation.

Often people are led to think that NPLs are an anti-cyclical economic area; in reality they are only a part of it, because each NPL at the end of its path returns to being a real economy and responding to all the logics connected to it.

Let me explain better: if, for example, we bought a NPL guaranteed by a hotel at a good price and then to recover the investment we had to sell the hotel at auction or on a free market, we would be faced with a zero-sum game.
We believe that at this point it is appropriate to start from the certainties, we have identified three:

  1. The NPL market is a mature market:
    in 2009 following the financial crisis, the banks were overwhelmed by a wave of NPL and were absolutely unprepared to face it. Today the situation is completely different: the NPL market is mature, many players with different specializations and sizes have been born over the years. We are certainly more ready to face the situation and the restart will be faster.
  2. The Legislator understood the centrality of the NPL theme:
    in the last 2/3 years the legislator has made important steps forward by institutionalizing and facilitating some virtuous practices of specialists, such as corporate restructuring and repossess of real estate guarantees (SVA – Reoco). Sometimes it has been argued that there have been many interventions that are close together and not always consistent with each other, but there is the fact that the topic has been fully addressed. In the coming months it will be particularly important to revive this dialogue; It is also important that the servicers represent their experiences and that they consolidate the virtuous practices already adopted, respecting debtors in difficulty and creditors entitled to recover their money.
  3. The specialized servicers are more performing:
    the NPL market has now reached full maturity and as in any mature market, the winning card for performance is specialization. Over the years it has become clear that focusing on specific asset classes has brought positive results both in terms of assessment capacity in purchasing and in terms of maximizing recovery in the sales phase. The difference between the results of the specialists and that of the generalists will be increasingly evident; in two different phases we will need both results to move the market and bring NPLs back to the real economy, that of families and entrepreneurs, as soon as possible.

I wish you to spend these days with serenity and health.

Emanuele Grassi

How not to use a Reoco

  • How not to use a Reoco 7

Every operator operating in the field of mortgage loan management knows what a Reoco is and what its main use is.
The NPL market is now mature and, over the years, the specialization and competence of the actors are increasingly growing. The experts on this segment are aware of the importance of Reocos.

Considering the latest regulatory changes (read https://www.gma.it/reoco-instructions-for-use/) all or almost all the operators have acquired a suitable legal entity to take part in auctions and, generally, to assign the properties used as guarantees of their loans to themselves. The advantages offered by this instrument are clear.

However, are the DISADVANTAGES as clear as the benefits?

Probably not, or maybe not yet. Those who have been operating in this field for many years have gained enough experience to identify some critical issues; sometimes a Reoco offers only apparent and short-term advantages, but, in the long run, it may result in greater costs and management difficulties.

The cases when, in our opinion, a Reoco should not be used are listed below:

  • when the asset is NOT liquid.
    The value of the survey is not the only parameter to be considered to establish the price of an asset; in fact, it is also important to define the asset liquidity degree in the current market. A clear example is represented by the villas built in poorly liquid areas, where the experts can assess the property based on their value per square meter but then, at market level, the demand is completely different. The situation gets even worse when the asset is properly assessed but the demand is low;
  • when the auction price has NOT decreased at least by 30% compared to the realizable value on a free market.
    The percentage of the difference is intentionally significant, especially for small assets where fixed costs play a key role. Sometimes even good software models cannot predict the unexpected events connected to repossess, therefore it is better to adopt a conservative approach;
  • when the way-out is NOT perfectly clear. This is true especially for buildings to be completed and/or to be used for accommodation/commercial purposes. Different scenarios may emerge during the work; the user should be able to predict them and have the liquidity and means necessary for any intervention; furthermore, the taxation of each transaction must be taken into account; in our Country, many cases of application lead to completely different scenarios (for example, pro-rata);
  • when there is NOT any dedicated structure within the company. Loan management and property management are two different activities and must be managed by two departments with different skills. Once an asset is acquired through a Reoco, this activity shall fall within the property management sector.
  • when the management costs are NOT clear.
  • The property ownership generates some costs – such as the IMU property tax, condominium fees, maintenance costs, internal management costs, depreciation due to use or deterioration as a result of inactivity. To this end, it is important to develop a model that takes into account a wide range of variables and unexpected events.

In this regard, GMA will hold a workshop on this subject on 9 October in Milan; further information will be given soon. Contact info@gma.it to keep updated.

Emanuele Grassi