1. Public Real Estate Enhancement: Lost in Translation?
The management and enhancement of public real estate is a relevant issue of collective importance that requires policy makers, representatives of public administrations (PAs), and private stakeholders to provide effective answers and models for interpretation, design and management, especially at a local level [1
]. This research starts from the assumption—still ongoing among few scholars, e.g., [3
]—that the publicness of public real estate depends more on its public utility than on its State ownership. That is to say, the main objective of managing public real estate is to effectively and efficiently use the assets, allowing the process of performing public tasks [2
], and thus meeting the collective needs of the community by providing local public goods.
This assumption deals with the conviction that public real estate assets are enclosed in the ‘Public Goods system’. A public good is an asset that belongs to the State or to other public bodies and to the community [4
] and is intended as an instrument by which the PA achieves its purposes. The concept of public good has deep roots in the scientific literature: Paul Samuelson’s research entitled “The Pure Theory of Public Expenditure” [5
] expressed the concept of “pure” public goods according to three funding principles. Firstly, these goods are the expression of the highest degree of “publicness”; secondly maximum accessibility and inclusion in the use and consumption of public goods should be ensured; finally, the consumption of the good by an individual is supposed to not limit its consumption by others (non-rivalry principle). These concepts are reported also among the UN sustainability goals [6
] and contribute radically to the concept of sustainability. However, public real estate management is a complex system of procedures that evolved over time and involves a plurality of subjects, approaches and interpretations that must leverage the above-mentioned principles. The first sources of complexity come not only from its country-specificities, but also from the diversified stakeholders involved [3
]. Indeed, the approach towards public real estate management varies based on context, political sensitivity, and the managerial and technical skills of the subjects—public or private—involved. Over the past forty years, several strategies and tools have been applied to optimize the management of public real estate with the purpose of increasing capital, saving costs and providing better services. The topic is still timely and relevant both at a national and at an international level. In Italy, the need to reduce and reallocate public spending [7
] and to reprogram economic policies according to the European Fiscal Compact increased the relevance of public assets in Public Administrations’ agendas [8
]. More than a source of debt, public real estate started to be considered a source of revenue also at a local level [9
], and the issue of its efficient and effective use became paramount. According to this approach, and in order to achieve these needs, many PAs—especially local ones—take advantage of their real estate portfolio to address the challenges of modern service delivery, applying new technologies and exploiting the opportunity to engage with the private sector [10
According to these premises, public real estate enhancement requires the combination of public interest principles (intergenerational equity, social sustainability, effectiveness, accountability, etc.), key procedures of real estate management (public–private partnership, leasing, etc.) and other operational aspects (evaluation, performance evaluation, inventory, property maintenance, etc.), thus entailing a combination of the requirements of the managerial and of the political sphere. These requirements are often opposite (e.g., on one hand, the managerial processes require a long period of implementation to obtain results while, on the other hand, the political sphere requires results to be achieved in the short term).
Generally, the complexity of public real estate enhancement procedures derives from the need to balance the diversified interests involved, including the ones of the state, stakeholders, and final users [3
], and from the need to combine procedural characteristics of the political/public and managerial spheres [11
]. It is specifically in this “translation” that public real estate enhancement procedures have multiple issues, and this is the reason why benefits from public real estate enhancement occur extensively only in the short term, while a long-term view is desirable [13
Researchers and practitioners provided a rhapsodic view on public real estate enhancement and lack deep systematization of the methods and tools available for public property enhancement [13
]. Namely, scientific contributions provided the cultural basis, the vision and the peculiarities of the management of public real estate, and highlighted the differences in objectives with CREM but, to date, there are still few contributions that support PAs in the decision-making process of enhancement, integrating economic, ethical and sustainable criteria [17
]. There are, in fact, three main problems that PAs sill have to face: first, the complex system of financial and contractual tools for public real estate enhancement usually make the processes long and negotiation among actors difficult, given the lack of a mid/long-term strategic vision. Second, there is an overall lack of technical and managerial skills among PA staff for recognizing, distinguishing, deciding, and implementing these strategies. Third, there is a general poor knowledge of the existing portfolio, Gibson, 1994 [19
The Italian context represents a privileged scenario for discussion, given the relevance of its public real estate both in terms of general quality and of consistency [20
]. According to the latest report from the Italian national institute of statistics on non-financial wealth in Italy [23
], the value of PAs’ properties amounts to a total of about 346 billion euros (2017 data), of which 250 billion are related to non-residential properties, 86 billion to housing and 10 billion to cultivated land. As other research confirms, these data make the Italian State the most important operator in the real estate market in Italy (at least potentially [8
]), so present and future research is required to provide definitive support to this real estate operator.
In Italy, the “enhancement” concept includes the functional use of the property according to the “direct or indirect benefit of the represented community” (article 2, legislative decree no. 85/2010), the ability of the property to generate income, and the possibility of being the object of investment policies at a territorial level [24
]. According to the article 3 of the legislative decree no. 351/2001 [25
], the Italian State Property Agency (Agenzia del Demanio
) should promote processes of public real estate enhancement “consistent with the guidelines for territorial development” and should represent—within the economic and social context of reference—“an element of stimulus and attraction of local development interventions”. Furthermore, “each public body shall ensure that the community is informed about the enhancement process” [26
]. Thus, the reference law framework recognizes public buildings as assets that can positively contribute to the financial and social development of PAs and territories [8
]. However, how can public administrations truly take advantage of this definition? What balance exists between the diversified requirements, needs, and expectations of the multiple actors involved?
This paper aims to critically systematize the methods and tools of public property enhancement that are currently available in Italy, suggesting a framework of criteria to support the decision-making process of Pas when enhancing their properties. The results of this paper derive from a path of research and dialogue on public real estate management, enhancement and regeneration between universities, and both public and private institutions in the Italian and international scenario involved in public real estate management, enhancement and regeneration.
2. Approach and Methods
The paper critically reflects on consolidated and innovative public real estate enhancement processes, applying an inductive approach. This paper uses the authors’ experiences as researchers and practitioners engaged in public real estate enhancement and management in the Italian context, and an overview of the literature and of reference laws on public real estate enhancement processes constitutes the research framework. Namely, this research is built upon round tables, focus groups and fieldworks within the NAZCA group (composed of Politecnico di Milano
, AUDIS - association of abandoned urban areas, and several Italian municipalities) [27
], results of the ten-year research activity within OPPAL observatory on the local public administration’s assets [28
], and collaborative activities with the Italian State Property Agency (Agenzia del Demanio
This viewpoint is the result of an articulated and cross-disciplinary research path assuming that the process of public real estate enhancement must be oriented towards public utility. Roundtables and meetings with PAs and real estate developers confirmed that, for years, enhancement strategies have been focused on the supply side (i.e., the amount of assets to enhance and their material/technical knowledge), while the demand side (i.e., expectations and needs of the different communities) was under-considered. This, instead, should play a pivotal role in the definition of the strategy, although a general difficulty emerges in the selection of the best enhancement strategy to apply. A critical approach towards public real estate enhancement is needed, since strategies are often selected by convenience, while a coherent approach towards strategy selection is desirable, considering that public real estate should maintain its public nature and must be oriented towards public utility. Therefore, is it possible to identify a system of criteria to support the decision-making process of the public entity in the selection of enhancement strategies that can pursue public utility? Which are the strategies that can build a balance between economic, technical and community requirements? The aim of this research is to build a practical approach for public real estate enhancement, according to a set of common criteria. This research is presented as a harshly focused rather than comprehensive viewpoint. This viewpoint does not have the ambition to holistically grasp public real estate enhancement processes and strategies in Italy but wants to practically address the issues that PAs are likely to have in selecting the best approach to public real estate enhancement and to provide them with support.
This research builds, according to the sources analyzed and the practical experience of the authors (especially of the author involved in the Italian State Property Agency), a taxonomy of criteria for the qualitative assessment of the public real estate enhancement strategies available in Italy and applies these criteria to the financial and contractual strategies for public real estate enhancement (both traditional and innovative).
This qualitative approach lacks robustness but attempts to be practically relevant. The qualitative assessment proposed in the following paragraphs is far from proposing a “one-size fits all” approach because the variety of strategies and of real estate portfolios does not allow unification. Instead, each PA—affecting different territorial level—is likely to operate in a different way and the criteria proposed do not allow comparability between enhancement strategies because each one has different procedures, objectives, timing, and partners involved.
This viewpoint has three sections. The first presents, and fully describes, the taxonomy of criteria designed, how criteria have been categorized according to the Italian regulatory framework and what their relevance is. As will be explained in the following paragraphs, given the strongly regulated Italian approach towards public real estate enhancement and the complexity of applying each strategy, the reference criteria mainly derive from laws because the literature often suffers from country specificities or subjective perspectives. The second section qualitatively proposes a critical assessment of the whole set of methods and tools for public real estate enhancement according to the taxonomy of criteria, by proposing synthetic tables of analysis for each tool. The last section discusses and concludes the viewpoint, suggesting future research developments.
3. Definition of a Taxonomy of Criteria
The taxonomy of criteria serves as a support for the decision-making process of PAs. Authors built the taxonomy according to the literature and Italian regulations on public real estate enhancement. According to a simplification and systematization procedure, two macro-categories of criteria make up the taxonomy: (i) “endogenous criteria” and (ii) “criteria of purpose”.
Among the “endogenous criteria”, this research recognizes all the rigid features of the public real estate enhancement tools that derive from the strict normative functioning of each method (i.e., type of property; time required; number of actors required; sharing the risk of the operation). These criteria must be deeply considered by PAs because they can immediately provide in/out evidence. Indeed, sources for each criterion generally derive from laws because the Italian context is highly regulated; the boundaries of the decision-making “power” of the PA cannot, in any case, be outside the prescriptive context, and PA is supposed to act transparently and to publicly account its procedure according to the law.
Among the “criteria of purpose” of the process, this research considers the variables of economy, efficiency, and effectiveness according to the seminal 3E model [29
]. These are critical variables of a result-oriented system [31
] and are likely to influence citizens’ satisfaction [34
]. These criteria derived from the discipline of New Public Governance (NPG) that gave birth to the concept of a horizontal relationship of participatory nodes and encouraged the emergence of new subjects alongside the classical decision-making process [35
summarizes the taxonomy of the proposed criteria. Each criterion has sub-criteria when necessary, qualitative metrics of evaluation derived from the literature and normative reference sources, and—for clarity—each criterion refers to a related question.
3.1. Endogenous Criteria
3.1.1. Type of Property
The criterion of “type of property” considers the following sub-criteria, strongly connected to the material features of the real estate—minimum dimensional scale; use and profitability of assets; presence of planning and urban constraints:
Minimum dimensional scale: some strategies, such as the real estate fund, require a minimum dimensional scale (expressed as the value in euros) for their activation. Other enhancement tools entail structural costs that make the operation convenient only when the assets exceed a certain size threshold [37
]. In this research, this benchmark value corresponds to 20 million euros that derive from the minimum endowment of a local fund (the critical mass consistent with the complexity/costs of the fund);
Use and profitability of the asset: some enhancement tools work on the transformation of the value of properties (e.g., through maintenance activities) and others work on the ability of properties to generate profit (e.g., through rent fees). According to these diversifications, the “type of property” criterion considers two different sub-criteria: asset’s use (used, unused or under-used); asset’s profitability (ability to generate profit). Tools such as securitization or urban transformation companies (STU) work primarily on transforming the value of real estate. Project finance and real estate funds are solutions suitable for profitable properties as derived from their structuring laws [38
]. Asset management companies can adapt well to both types of assets [38
Presence of planning constraints: Pas cannot dispose assets constrained by a cultural or an identity value (see articles 53-57-bis, legislative decree no. 42/2004 “Alienation and other modes of transmission”), while in some cases, the restriction on the destination of use is likely to advise the most favorable strategy [38
3.1.2. Time Required for the Enhancement Process
The time needed both to obtain the necessary resources and to activate and implement the enhancement strategy represents a critical variable (i.e., impacts time availability of PAs). This criterion considers the procedural time necessary for placing the asset on the market in compliance with the principles of non-discrimination, mutual recognition, transparency and cost-effectiveness (i.e., procedures of public evidence) or aimed at finalizing administrative actions prodromal to the enhancement (e.g., changes of use, checks of the cultural interest of the asset). Each solution has its specific time requirements according to law, e.g., [40
]. It should be noted, however, that for some solutions, such as securitization and real estate funds, which take a long time to complete, it is possible to combine bridge loans that anticipate the results [38
3.1.3. Number of Actors Required for the Enhancement Process
The number of actors—public or private—involved in the enhancement process drastically increases the procedural complexity. Moreover, the involvement of private partners with qualified specialist resources can facilitate strategies’ implementation, but also hamper it due to negotiation difficulties. The number of actors depends on the strict functioning of the procedure.
3.1.4. Sharing of the Risk of the Enhancement Process
The risk variable can be charged to one or more of the actors involved in the process. The risk influences the attractiveness of private investments in the construction and management of works or in the supply of services, and it depends on the type of contract that the administration intends to develop. The risk, therefore, can be either equally distributed between the parties or fall on only one [42
], articles 3 and 180. For example, a Public-Private Partnership (PPP) contract allocates to the private operator: (a) the operational risk (i.e., the risk associated with the management of works or services and related to the demand side, or the supply side, or both); (b) the construction risk (i.e., the risk linked to the delay in delivery times, non-compliance with project standards, increased costs, technical inconveniences or failure to complete the work); (c) the availability risk (i.e., the risk linked to the ability to provide the agreed contractual services, both in terms of volume and quality standards); (d) in cases of profitable activity, also the demand risk (i.e., the risk related to different volumes of demand for the work/service.
3.2. Criteria of Purpose
When an enhancement process or a disposal operation is carried out, the PA usually has the objective of maximizing the sale price (or concession fee). Therefore, the economy variable is intended as the impact on the economic balance sheet of the PA [29
This research considers a strategy efficient when the economic well-being (alignment with the economy criterion) is maximized with respect to the use of input resources [29
]. Input resources consider both the time necessary for the operation and the costs for the enhancement procedure (consultancy, administrative management, etc.).
The effectiveness variable depends on the economic, social and environmental additionality intended as a benefit–cost ratio: the degree to which the benefits (tangible and intangible values) outweigh the costs and whether this is in line with PA’s strategic objectives [29
As can be seen from the analysis, the process of enhancing the value of assets is a complex and articulated process that requires, on the one hand, specific expertise and, on the other, the systematization of criteria and multi-criteria decision-making processes that regulate and combine the needs imposed by the budget and the mission of the public body. The criteria proposed in this research contribute to the debate on optimization of PAs’ use of their real estate to raise capital, save costs and provide better services to citizens [18
The research proposes the taxonomy of guiding criteria as a platform that rationalizes and systematizes endogenous criteria and criteria of purpose with the enhancement strategies and methods available in Italy. This provides a tool to support the PA in order to proceed in the evaluation of the feasibility of the enhancement path on the basis of available resources and the purpose to be achieved.
Indeed, from the analysis, what is clear is that the decision-making process of PAs for selecting a suitable enhancement strategy or tool should rest on the specific technical features of each public asset, the public utility aim that the public entity intends to pursue, the needs of the community (i.e., the demand of public services), and the skills available within the PA, that is, promoting the strategy [61
]. Apart from the endogenous criteria (which derive from the functioning of the instrument and, for these reasons, do not allow space for comparability, if not in the sense of requirements) it is possible to reflect on the “purpose” criteria in future research developments. Thus, the final aim of a public real estate enhancement strategy should be to “create value” [62
], not only in economic terms, but the measurability of this “value” remains, for now, a blurred concept.
The task that today’s Public Administrations are called upon to perform requires a systemic approach to problem-solving and, above all, professional skills oriented towards a managerial approach at the strategic and operational levels [63
]. Since public real estate management is performed according to country-specific procedures [64
], this article strongly refers to Italian laws and regulations for public real estate enhancement. The results of this study are, therefore, not fully generalizable and require adjustments to be applied in other countries, although they can serve as a reference. The research, presented as a viewpoint, deserves a margin for improvement: the results achieved to date lay the foundations for a more virtuous and efficient action of the PA in the management of the public built environment and in pursuit of the objective of public utility. Future research developments are likely to test the usability and applicability of the taxonomy of criteria on real cases during pre-feasibility phases of a public real estate enhancement procedure, and to test the assumptions in this research according to a more robust methodology.