Small buildings to be rented out

Small building, used as an office in the past, abandoned, located few steps from Università Bocconi, the most active residential rental area of the city centre


The deal did not come from the explicit request of one of our clients but from the ability of one of our colleagues to spot, within a long list of useless and worthless NPL-related properties usually spread around by NPL servicers this “gem”.

We still remember the surprise we felt when we saw this super-interesting property among the usual garbage banks are giving around with the hope of finding someone taking those real estate pieces off their hands.  

The small building was completed in the mid-90s, it had 3 floors of 200 sqm each, and it had been used as the headquarter of a publishing company for more than 15 years. When the publisher went bankrupt, the place was abandoned, still full of books and manuscripts.

The negotiation with the leasing company owning the asset took only one week, their offer price was little bit more than 1000 EUR per sqm, we suggested the client, that we thought was the best to take on this transaction, to offer the “round number” of 1000 EUR, so 600,000 for the whole building.
Once the property changed hands the renovation was made along our reading of the current market trends: no studios or one bedrooms but 6 three bedrooms apartments with a living area where to place the kitchen. We were able to have two bathrooms in a column of flats and only one in the other. The renovation, due to the very bad shape of the property, costed 1500 EUR per sqm.

Once finished the demand for the property was very strong due to the proximity of the University Campus, the single bedrooms were rented out at 550 EUR each, with contracts taking into consideration the entire flat (so the owner, as it’s usual for us, had three families guaranteeing the entire rent of the flat).

Here are the economic parameters of the deal: 
• Cost of the property: 600,000 EUR
• Renovation and furniture costs: 900,000 EUR (1500 EUR* 600mq)
• Rental Revenues: (550 EUR*3 tenants)*6 flats * 12 months = 118,800 EUR
• Rental Yield of the deal: 118,800/(600000+900000)= 8%