Milan’s $2.6 billion CityLife real estate project that includes the tallest building in Italy is struggling to attract buyers for luxury condominiums amid a slump in the country’s property market.
CityLife, billed as the biggest urban development in the country’s business capital, has sold 90 of an initial 390 upscale apartments and penthouses in the 431,000 square-meter (4.6 million square foot) site at the city’s former fairgrounds. The plan’s biggest investors are insurers Allianz SE of Germany and Assicurazioni Generali SpA in Italy.
“They’re flooding the market with such a large number of high-range properties that it can’t possibly absorb, especially in a period of economic slowdown,” said Rolando Mastrodonato, who leads the “Live and Design a New Milan” residents’ group that opposes the project.
The worst financial crisis in six decades caused Italy’s residential and commercial property market to stagnate during 2008 and 2009. Real estate prices probably will fall this year, according to research from Milan-based Tecnocasa Group.
CityLife asked Milan’s building regulators last month for permission to scale back the office and retail space for as much as 30 percent of the total because of the bearish outlook for the office market. According to the initial plan, as much as 45 percent of the area had been set aside for commercial buildings.
International architects Daniel Libeskind, Zaha Hadid, designer of London’s Aquatic Center for the 2012 Olympics, and Arata Isozaki designed the CityLife development, which features three skyscrapers. Italian Prime Minister Silvio Berlusconi has scoffed at the towers’ design, calling them “lopsided.”
At 220 meters, Isozaki’s tower would be twice as tall as Milan’s landmark Il Duomo cathedral. Part of the building designed by Libeskind may be occupied by a hotel, making it the first mixed residential and lodging structure in the country. The homes will cost 1 million euros ($1.2 million) to 8 million euros and include penthouses with floor-to-ceiling windows, solariums and fitness areas.
The condominiums will have fully-automated appliances, 24- hour security surveillance, a spa and private gardens, according to the CityLife website. As many as 1,200 units are scheduled to be built by 2015. The project, whose motto is “the new way of living in the city,” will also host Milan’s Contemporary Art Museum, which would be bigger than the Guggenheim Museum in New York, said CityLife Chief Executive Officer Claudio Artusi.
He says he’s confident the development will be a success.
“Our investors are more concerned about long-term value than short-term returns,” Artusi said in an interview at the site. The project is aimed at “the top end” of the real estate market, so “it won’t be affected by the economical cycle,” he said.
Munich-based Allianz, Europe’s largest insurer, and Milan- based Generali, No. 3 in the region, are increasing their stakes to 31.5 percent and 41.3 percent respectively after agreeing to purchase the interest held by Rome-based builder Pierluigi Toti, one of the four original investors in CityLife.
Toti announced June 14 the sale of his stake for 45 million euros because he wants to focus on projects in Rome, Italy’s capital.
“Since 2005, the economic and financial environment has radically changed,” Toti said in a statement. “Our strategy has to adapt to the different needs and opportunities for our company.”
Reducing the number of investors in CityLife will make decision-making easier, Oliver Piani, CEO of Allianz Real Estate, said in an interview. “With the new investment, we have now reached an optimal partnership structure,” he said.
Italy’s Ligresti family, owners of insurer Fondiaria-Sai SpA and one of the project’s founding investors, decided not to buy part of Toti’s holding and has an option to sell its stake to Generali by September 2011, a Fondiaria spokeswoman said. The Ligrestis still are backing the project, she added.
CityLife’s partners reached an agreement last week on 1.4 billion euros of financing from a pool of lenders led by Eurohypo AG, Commerzbank AG’s property-lending unit, and including Credit Agricole SA, Mediobanca SpA and UniCredit SpA.
“I don’t rule out further changes among the shareholders because the project is risky and a return is possible only in the long term,” said Wolfram Mrowetz, who oversees 200 million euros as chairman of investment firm Alisei SIM in Milan. “Without strong leadership, the project may go ahead very slowly.”
The development is designed to change Milan’s skyline as the city prepares to host Expo 2015, an international fair that’s being held this year in Shanghai. There currently are about 30 major residential and commercial projects in Milan, according to data from the city’s chamber of commerce.
“In the next few years, building in Milan will approach 80 million cubic meters, compared with one million a year in the last decade,” said Giuseppe Boatti, a professor of architecture at Milan’s Polytechnic University. “That means that the offer cannot be absorbed by demand.”
Milan’s Santa Giulia residential and commercial project stalled last year after Risanamento SpA restructured its debt in a court settlement, leaving luxury homes by Norman Foster, boutiques such as Dolce & Gabbana and a green area as large as London’s Hyde Park unfinished.
Daniela Percoco, an analyst at Bologna-based research firm Nomisma, said the “broad-shouldered” investors backing CityLife means the project won’t suffer the same fate as Santa Giulia.
“CityLife doesn’t present the same risks of Santa Giulia because it’s near the center of the city in a well developed area,” she said. “CityLife investors are more solid.”
Giancarlo Scotti, CEO of Generali’s real estate unit, said the sales of the luxury homes in recent months demonstrate that “there is rising demand for project, which is modern from both an energy and environmental point of view.”
Artusi said Italians who repatriated money from abroad under the government’s recent amnesty program may increase sales of luxury apartments. Italians had repatriated or declared more than 100 billion euros as of April to take advantage of an amnesty that reduced government-imposed charges to as little as 5 percent and shielded individuals and companies from prosecution.
“Our project will benefit from the tax amnesty because there is no doubt it’s a good investment for people who have money,” Artusi said. “Everybody knows how hard it is to find shelter investments.”