The Hotel Dei Dogi, a lagoon-side palazzo in Venice, will be renovated in the autumn for the first time in 20 years after a US investment firm snapped up the debts of its family owners, confident of selling it and eight sister hotels at a profit. In the hinterland a couple of hours’ drive to the west, hotel Le Seriole, modest with a small pool and closed, is being auctioned for a fifth time this month; four previous attempts drew no bids – driving the price down by 79 percent. The two hotels hold clues to Italy’s ability to draw a final line under a banking crisis that risked undermining the euro zone at its height and boosted anti-establishment parties in this month’s election. The Dei Dogi is the exception – such high end properties account for just five percent of the problem loan market’s annual turnover, two industry sources said. Far more common are businesses like Le Seriole, for which liquidation could be the only option. But both fall into the more promising half of Europe’s biggest bad loan market because their obligations are backed by physical assets. A buyer can expect to recover at least 50-60 percent of a loan with good collateral such as an apartment in a large city, compared with just 5-6 percent in a corporate bankruptcy with no assets pledged as guarantee, several industry sources said. Italy’s banks have cut their soured debts below 300 billion euros from a peak of 360 billion in 2015-16, starting with batches of unsecured loans that were easier to price. Regulators, keen to strengthen the lenders and prevent a new financial crisis, are demanding more, and banks, having plowed through reams of messy loan records, last year began to put more valuable secured loans on the block. They are drawing healthy competition from investors seeking higher returns in a property market that has lagged behind a rebound in other developed countries. Some buyers see a virtuous circle in which an injection of funds into neglected underlying assets proves a boon to the broader Italian economy. Others fear prices are rising too fast at a time of post-election political uncertainty. All agree a sense of momentum is key. “Perceptions and the level of confidence count perhaps even more than actual numbers,” said Guido Lombardo, chief investment officer at Credito Fondiario, an Italian bank that invests in soured loans and manages them. “A prospect of stability would really help support expectations of a pick-up in property prices.” Growth Conundrum Italy’s 1.5 percent economic growth last year, the fastest since 2010, helped corporate insolvency rates return to pre-crisis levels. The upturn should also benefit creditors’ recovery rates, which generally move inversely to default rates. “How much and how fast you recover is directly correlated with GDP growth, with a lag of 6-12 months,” said Andrea Mignanelli, CEO of Italy’s second-biggest debt collector, Cerved Credit Management. “With the economy on the mend, we’re already witnessing improvements: fewer judicial auctions with no bidders, more out-of-court settlements, slightly quicker bankruptcy proceedings.” The election, however, has cast doubt over Italy’s outlook as some economists say only further reforms can lift the growth potential of the euro zone’s most sluggish economy. The reformist center-left government was punished by popular anger at bailouts that shored up the system but hurt thousands of ordinary savers. Now, the two contenders to lead the next executive are the anti-establishment 5-Star and the eurosceptic League, who both have pledged to row back on previous market-friendly measures. Hope And Despair Betting on Italy’s steady tourist flows, Minnesota-based investment firm Varde Partners bought 350 million euros of bank debt owed by hotel chain Boscolo before acquiring nine hotels, including Dei Dogi, from the controlling family last year. Varde restructured the debt and will invest 80 to 90 million euros in a revamp under new chief executive Stephen Alden, who oversaw the renovation of The Connaught hotel in London. “The management team will be focused on enhancing the quality of the hotels over the next three to four years,” said Tim Mooney, a partner and global head of real estate at Varde in London. Published in Daily Times, March 22th 2018.