*Article* **An Operational Protocol for the Valorisation of Public Real Estate Assets in Italy**

### **Sebastiano Carbonara \* and Davide Stefano**

Department of Architecture, G. d'Annunzio University, 65127 Pescara, Italy; davide.stefano@unich.it **\*** Correspondence: s.carbonara@unich.it; Tel.: +39-085-4537315

Received: 19 December 2019; Accepted: 15 January 2020; Published: 19 January 2020

**Abstract:** The Italian Treasury Department reports that a quota of the country's public real estate assets, with an estimated value of some 63 billion euros, consists of properties not directly utilised by the State Government and is therefore available for decommissioning alienation; in other words, for adaptive reuse. Numerous legislative initiatives dedicated to this issue over the past 30 years have produced very few comforting results. A plausible explanation for these shortcomings can be traced to the gap between established regulatory principles and the possibilities/capacities of local institutions to apply them. Put another way, legislation and indications, many of interest, have not been supported by adequate economic, structural, and organisational resources. The underlying question is, what is the structure of the decision-making process behind the sale or redevelopment of real estate assets? Beginning with these premises, this paper proposes an operational Business Process Modelling protocol that develops three different indexes—urban values index (Ivu), use index (Iut), and technical-maintenance index (Itm)—which may suggest three hypothetical scenarios of valorisation and three lines of action. A test of this model using a selection of public buildings owned by the City of Pescara showed it to be prognostic of some of the choices subsequently made by the municipal administration.

**Keywords:** public real estate property; operational protocol; model of choice; radar diagram

### **1. Introduction**

The Italian Treasury Department published its *Public Administration Assets* report in 2018. This document examined the composition and value of public real estate assets more than 30 years after the first census made in Republican Italy by the Cassese Commission during the mid-1980s.

The information in the report, relative to publicly-owned real estate assets between 2011–2015, derives from the annual survey public administrations are obliged to produce since 2009 [1].

According to the report, the value of the Italian public real estate assets, for buildings alone, amounts to roughly 283 billion euros for a portfolio of 325 million square metres. Eighty percent of this area is used for strictly institutional purposes related to office functions. The remaining portion, with an estimated value of approximately 63 billion euros, is available and may be put to better use for social purposes or alienated.

In terms of estimated value this important figure makes the Italian State—at least potentially—the most important operator in the real estate market when compared to the assets held by the 450 real estate funds operating in the country, which total approximately 66 billion euros [2].

While this public real estate capital available for valorisation operations is very heterogeneous in its typologies, uses, and dimensions—not to mention highly fragmented and, often, in a significant state of disrepair—there is little doubt that it remains a resource with the possibility to generate additional revenue for public coffers.

### **2. The Real Estate Assets of Italy's** *Comuni*

In Italy, the reform of local government and the economic and financial crisis, together with the budgetary and spending constraints introduced by the European Fiscal Compact, have generated mounting financial pressure on the public administration and highlighted the role of public assets in debt management [3]. While these assets generate a negative balance because very often they are underutilised or not utilised at all, they represent a potential source of revenue in the event of sale [4] or improved use.

As described in the 2015 Ministry of Economy and Finance-Treasury Department report, the majority of these assets are owned by local administrations; the most relevant share belongs to the country's *comuni* (municipalities)—67.42% by number and 59.51% by area. While seemingly large, in reality, these figures refer primarily to minor properties (apartments and related appurtenances, garages, commercial spaces, etc.). On the contrary, state, regional, and provincial governments and public healthcare authorities possess smaller though more valuable portfolios (historical buildings, structured offices, former hospitals, etc.).

Despite their small dimensions, in practical terms, the assets owned by Italy's municipalities can still make a significant financial and social contribution. In fact, it is not so much the asset itself that produces value, as much as the utility derived from it through proper valorisation—"the uses, public and private, economic and social, in any case multiple and diverse, emerge from the context in which the asset is situated" [5].

What follows is the need to develop design skills and visions that postulate possible new scenarios of use; new functions for spaces and sites within a more general notion of transformation [6].

This is particularly problematic for small municipalities. Unlike larger towns or metropolitan areas, they suffer from a lack of technical and financial resources and trained staff, which further complicates the implementation of any process of valorisation. It is clear that the complex factors linked to an adequate policy for the valorisation of public real estate assets cannot be a prerogative "solely of larger municipalities with financial and technical-operational capacities" [7]; hence there is a need to define an operational protocol that is particularly suited to small municipalities.

A further indicator of the need for tools in support of 'small municipalities' is offered by Law n. 158/2017. The principal interventions foreseen by this regulation include the establishment of a fund for the structural, economic, and social development of small municipalities. This fund was created to finance investments in the protection of the environment and cultural heritage, the preservation and urban redevelopment of historical centres, the promotion of economic and social development and the establishment of new productive activities. While this fund cannot count on large sums, nonetheless, the resources allocated may still aid small municipalities with the recovery and valorisation of their real estate assets.

### **3. The Indispensable Role of Knowledge**

An adequate knowledge of real estate assets is the building block of a correct valorisation strategy. Two levels of in-depth analysis can be identified: the first is represented by the wealth of technical-financial information we can refer to as 'material knowledge'; the second, bound to the requirements, expectations and, needs of different communities—evidence of which should be present in political programmes—whose satisfaction can be traced, directly or indirectly, to available real estate assets, represents a level of knowledge that can only be referred to as 'immaterial'.

### *3.1. "Material" Knowledge*

One of the principal factors hindering the success of valorisation projects is rooted in the Public Administration's scarce knowledge of its own assets [8,9].

Despite the issuance of several laws intent on rationalising this aspect, Italy continues to be plagued by a large number of public institutions with fragmented and often out of date information. Italy currently has no national information system [10] documenting the many aspects of its assets. Consequently, the country lacks a standardised procedure for their management. These are anything but secondary aspects: the size of a building and the layout of its interior spaces; the general state of maintenance and efficiency of plant systems; energy efficiency; current use and eventual revenues generated, etc. When such information is lacking, it is truly difficult to develop asset, property, and facility management activities [11], but also to adequately assess the option of selling off these assets.

### *3.2. Immaterial Knowledge*

In the wake of the regulatory changes made during the 1990s and new forms of relationships between the Public Administration and citizens introduced by the principle of horizontal subsidiarity, the public sector has faced a growing demand for greater accountability which led, in turn, to the preparation of the Sustainability Report (or Social Report). This document permits stakeholders to be more informed, and consequently more involved, in the choices made by institutions. It represents a means for re-stitching the institutional 'rift' that developed over time between the public administration and citizens, especially after the "*tangentopoli*" (bribesville) scandal of the 1990s.

There has been a rapid shift from forms of "communication is participation" [12] involving citizens in public affairs, to even more direct forms of participatory budgeting. Inspired by the concept of participatory democracy, decisions are taken directly by citizens [13] and represent an approach to the development of budgets for local authorities through the direct participation of citizens in specific expenditures.

Furthermore, the declining demand for public assets to be alienated or valorised, the bureaucratic complexity linked to valorisation operations, and the complicated marketing of public properties that are both large and difficult to transform (such as former barracks, prisons or military hospitals) have directed public administrations "to test new ways of valorising assets, promoting the action of associations and self-organised groups interested in using buildings otherwise destined for abandonment" [14].

These new forms of bottom-up use (or better yet re-use), directly involve local communities through forms of civic engagement and civic crowdfunding.

While the former can be considered "active" for their civic engagement, the latter can be considered "passive" or "semi-passive" as they occur through fundraising to develop a specific project (or initiative). Without producing economic returns for investors, they are implemented solely due to the common belief that a project is worthy of being developed and implemented [15]. "Citizens will find bottom-up financing to be a tool for having a say in the management and valorisation of common goods, expressing their requirements and participating as active subjects in the decision-making processes of the public administration" [16].

Furthermore, the continuous development of new forms of activity, such as urban neo-manufacturing, digital craftsmanship, the creation of spaces for coworking and start-ups, and social services offered in refurbished spaces in former commercial or institutional buildings, paves the way for new policies of reuse in a form of so-called real estate upcycling.

Participatory budgets, civic engagement and civic crowdfunding undoubtedly represent direct forms of participation in decision-making processes; however, there are other forms that, while following indications provided by the community, are in fact implemented indirectly. Typical of all municipal administrations, they are represented by the implementation of an electoral programme.

This programme, comprised of the ideas underlying a political movement [17], contains the electoral promises made by a candidate during an election (to be respected in the case of victory). "Electoral promises should arise from stakeholder participation in the definition of priorities and the prior verification of reasonably available resources" [18].

Consequently, any process of valorisation or alienation involving public real estate assets must verify the satisfaction of the interests and expectations of the community in advance: these requests are (or should be) contained in an electoral programme.

As a result, it is impossible to implement policies for the valorisation of public real estate when choices are not shared by the local community [19]; this prerogative appears to be essential to the success of any project fielded by the public administration [20]. In fact, many examples demonstrate that when projects are not shared by the community (for example the sale of public assets for immediate monetisation) they can meet with opposition from citizens. Demonstrations of dissent in the interest of protecting these assets, symbols of memory and tradition for an entire community, block (or considerably slow) procedures and compromise any initiative taken by public decision-makers.

The sum of these elements defines the concept of immaterial knowledge.

## *3.3. Using the Third Sector to Favour the Recovery and Reuse of Public Buildings: A Bottom-Up Approach*

Since the 1990s, there have been numerous debates on public real estate and what contribution it could make to the consolidation of public finances. All of the procedures promoted by various legislators share one common element—seeking returns from the market in a relatively short time. Unfortunately, the complexity of regulations and the economic situation have impacted the ability to implement similar operations [21].

All the same, public buildings have always represented a resource for European cities: historically, they have permitted the production of public services and welfare in European cities, and represented one of the stabilising factors of their real estate markets [22]. Today, the "conditions of the European real estate market, the economic crisis and the widespread banking credit crunch oblige the identification of alternative solutions to the alienation of public assets" [23].

The models for valorising traditional public real estate assets have recently begun to make room for new approaches: "temporary uses and the revitalisation of small areas of public buildings are developing progressively, making the practices and management of these processes a possible new way to revitalise these assets" [24]. These bottom-up approaches arise from the requirements and needs of the local community and the development of forms of civic crowdfunding in which citizens, reunited primarily as non-profit associations, initiate real processes for the adaptive reuse of many abandoned public properties.

These forms of reuse are characterised for the most part by free concessions, for short periods of time, and a preference for small redevelopments over large investments. Nonetheless, these activities help foster a high social value by creating new forms of aggregation, such as urban laboratories for co-living, co-making, and co-working, as well as recovering, albeit in part, buildings otherwise destined for abandonment and deterioration.

Additionally, recent migratory movements have accelerated changes, already underway for several years, in the multi-ethnic city. This has generated "an entirely new demand for public and private assets compared to traditional needs" [25]. It is clear that the demand for new spaces in which to implement cultural integration projects can be satisfied through the use of abandoned public buildings by non-profit companies.

A greater impetus to the theme of re-use by non-profit associations came with the agreement signed in November 2017 between the Italian Ministry of Labour and Social Policies, the National Agency for the Administration and Allocation of Assets Seized from Organized Crime (ANBSC), the State Property Office, and the National Association of Italian Municipalities (ANCI). This agreement provides for the allocation of unused public real estate and fixed and mobile assets confiscated from organised crime to associations operating in the third sector to be used exclusively for activities of interest to the general public.

This opportunity sets a virtuous path in motion with a twofold objective: the valorisation of unused public buildings and the development of activities with an elevated social value [26]. Abandoned buildings are often in a poor state of repair. This degradation can expand to the entire neighbourhood in which they are located, generating a flywheel effect of a collective loss of value, [27] as demonstrated by the "Broken Windows Theory".

While forms of valorisation of public real estate assets implemented through civic engagement procedures do not provide for the full recovery of an asset, nonetheless they ensure its use and self-maintenance, warding off (further) decay [28]; moreover, although they do not produce sizable financial resources for the property owner, they can instead heighten the attractiveness of the neighbourhood in which they are located by providing new services to the community that were not present before.

In this perspective, "the success of these bottom-up valorisation processes has highlighted the creation of a new economic and social value linked to redevelopment projects and new functions, restoring the attractiveness of assets" [29].

### **4. An Operational Protocol**

A corporate vision and a managerial approach to the administration of public real estate assets requires the definition of a strategy capable of identifying the full range of activities necessary to reach a desired objective. With this in mind, the representation of the entire decision-making process, capable of guiding a public administration toward the definition of the most appropriate strategies for managing its real estate assets (valorisation, concession or sale), has been translated into a Business Process Modelling exercise (Figure 1). The modelling of this process makes it possible to define the necessary steps, responsibilities and methods for implementing the strategies to be adopted [30].

Starting from these premises, three hierarchical levels of action have been identified.

### *4.1. The Technical Level*

The first phase, strictly the responsibility of public technical offices, focuses on identifying all of an administration's assets [31], followed by the drafting of a real estate due diligence for each asset.

The information to be provided for each property includes legal status (e.g., real or minor real rights held by a public body), eventual heritage listings, state of repair, building materials and construction methods, general maintenance of building plants, geolocation, and current occupancy (used by the public administration, leased, vacant).

This process must begin with the official lists already drawn up by public administrations (in compliance with laws on transparency and the drafting of the state budget). The next step is to verify the information collected against data present in revenue agency archives (land registry documents). This operation makes it possible to detect and, if necessary, correct inconsistencies in land registry documents, and to note the eventual presence of other property rights beyond those of full ownership—for example, co-ownership, usufruct, or surface rights.

In cases of co-ownership, for example, it is desirable to proceed with the immediate alienation of the relative percentage of ownership of assets with no specifically unique characteristics or when they are located in non-strategic positions. On the contrary, the public administration can proceed toward full ownership of the property and thus implement valorisation policies otherwise difficult to pursue.

When the public administration possesses only a surface right to a fixed asset, there is a need for policies designed to encourage property owners to purchase these rights in order to generate cash flows that can be allocated to budgetary needs [32] or to initiate valorisation operations involving other assets.

### *4.2. The Political Level*

The second level involves planning and consultation activities. This level is used by political bodies to summarise the material knowledge of its assets and the wealth of immaterial knowledge represented by requests presented (directly and indirectly) by the community. This level involves the construction of two databases: one containing data relative to all buildings surveyed (material knowledge) and another containing the issues, suggestions and requests presented to the administration by associations, stakeholders and locally interested parties (immaterial knowledge).

The elaboration of summary indexes (see Section 6) helps understand whether public real estate assets can satisfy the requirements and needs expressed by the community. For this reason, the first step involves the identification of properties that could be assigned to associations operating in the area, in order to guarantee the possibility to provide new services. For example, the analysis of requests received from stakeholders should be followed by the identification of properties whose dimensions, location or current state of maintenance are considered suitable. This activity may lead to the development of activities related to urban neo-manufacturing or digital craftsmanship, or propose the creation of spaces dedicated to coworking or the development of social housing, cohousing, etc.

This phase also includes the verification and reorganisation of spaces used by the public administration with the aim of eliminating inefficiencies; the new spaces that may be freed up by this activity can be valorised or sold.

A separate consideration must be made for buildings of notable cultural value [33]. Unfortunately, they are not always recognised as such and as a result not always listed as foreseen by Italian law: "the assets that represent the history and culture of the community do not always present nationally recognised values. In many cases, the identification and safeguarding of testimonials considered significant by local communities are subject to the sensitivity of decentralised local administrations" [34].

For assets of this type, the public administration is responsible for ascertaining the existence of these values beforehand and, if confirmed, initiating procedures for their valorisation. This operation allows for both the preservation of an asset's historical, artistic, or cultural interest and guarantees the possibility to introduce economic activities capable of generating new local economies and a new attractiveness for the territory [35].

In the event that an institution's assets are unable to respond to the requests advanced by stakeholders, it is possible to initiate a third phase, which envisages the use of a model of choice [36] to define the strategies to be adopted (valorisation, concession, or sale).

At this point, it is clear that any future choice made by the public administration should seek to avoid (at least in theory) any criticism and opposition from citizens, already amply involved during the second (political) level of the protocol and therefore in advance of any decision-making process.

### *4.3. The Technical-Political Level*

The third and final level of the protocol, referred to as 'technical-political', is characterised by the implementation of the model of choice. This model is designed to provide a political body with indications regarding the most appropriate approach for properties lacking a strategy at the political level.

As the model provides general indications, it is clear that choices will have to be examined from both a technical and a political angle. We can consider, for example, the possibility of valorising a property for its future leasing or alienation: this requires both a technical evaluation of the operation (in financial terms), together with an evaluation of the opportunity to proceed with an activity that will require resources to achieve a particular objective (political decision).

**Figure 1.** Business process modelling.

### **5. The Model of Choice**

While the Model tends to provide and/or consolidate a use for these assets, it does not develop a real estate rating capable of mathematically quantifying one specific use with respect to another. Based on objective criteria, this tool is easy to implement as the input data is readily obtainable by the public administration.

The process requires the identification of three thematic areas and three corresponding indexes: urban value (Ivu), use (Iut), and technical maintenance (Itm) of an asset. Using a limited quantity of data, the intention is to maximise the desired objective, given the evident need to simplify the aspects characterising the three themes investigated.
