Sorgente SGR is putting into effect an all round strategy to expand beyond national borders and retain the position it has carved for itself in the real estate investment fund sector. The first step has taken the company across the Atlantic where Michelangelo Properties, in which the Michelangelo closed fund has an 80% stake, the remaining 20% being held by the British property company Goldfay and Watson, has purchased a building in Downtown New York. The building which dates back to the beginning of the 20th century has been completely restructured and cost 250 million dollars (191.5 million euros).
Valter Mainetti, the Sorgente Group's CEO has chosen New York for the good prospects that the city offers and also for the ties his family can claim with the Big Apple. In the early 1900s his maternal grandfather had an interest in property in New York where he founded a company and built the steel structures for several historic buildings including the famous Chrysler building.
However the entrepreneur looks at New York "because the prices are low, especially in the Wall Street area, the dollar remains decidedly low compared to the euro and here it's possible to find rare buildings from the first decade of the 20th century which can easily be converted to condominiums, that is from office blocks into residential structures," stresses Mainetti. "The building we have purchased cost 220 dollars per square foot or 2,200 per square meter. Today the building has a yield of 6.5% but with a further 200 dollars per square foot we can convert it into residential accommodation and then look afresh. In this case we could earn 300 dollars per square foot." The investment was carried out in partnership with its American associates. Seventy per cent was purchased by Sorgente and the remaining 30% by the Capital Group. This first step is part of the Sorgente internationalization strategy aimed at diversifying risk by investing in different countries. In the United States this strategy is centered only on New York where Mainetti is negotiating another purchase which, for the moment, remains top secret.
In the meantime the company is about to launch its fifth fund in Italy, after the Raffaello, Michelangelo, Caravaggio and Donatello the new fund will be called the Tiziano Fund. In contrast to the others it will be an open end fund investing in shares in real estate companies listed on the stock exchange and in quotas of closed funds that are also listed. "Investments will be concentrated in Italy although our range of action will cover the whole of Europe," says Mainetti, "The Tiziano Fund is currently awaiting authorization. Once this has been obtained it will be placed on the market."
Expansion abroad also envisages the creation of real estate investment funds operating under foreign law to find new subscribers outside Italy. Once again, the first is in the United States. However Mainetti's company is also turning its sights towards Russia and Eastern Europe, especially countries like Lithuania and Estonia. "We will open two or three branches abroad. We have already opened offices in America. There it is easy to put our plans into effect quite rapidly because the country welcomes foreign entrepreneurs and investors," Mainetti goes on to say. "In other countries, especially in the East, we are looking at what legal instruments to adopt in order to be able to carry out business activities. We are therefore currently studying maneuvers in order to approach the Far East, China and India to start with. We are examining any possible legal problems that could arise in these two countries.

Sorgente SGR is an entrepreneurial style firm which currently deals with savings management, how did it start and what are your objectives?
Sorgente is the result of an idea which matured over many years experience of working in the property investment sector. In my career as property entrepreneur that has developed in an international context, I have always had an interest in the REITs sector to which I have paid great attention. When legislation on real estate investment funds was introduced in Italy, I shared the idea with some friends to redirect expertise gathered in the property market to the promotion and management of these innovative investment products. The idea was greeted with approval and grew with the creation of the Sorgente funds. The validity of the formula is reflected in the results achieved which see our funds among those at the top of the performance lists. The market has understood and known how to appreciate these results and today Sorgente aspires to a position of leadership in the sector also with regard to size. Future objectives include continuing to look beyond national borders to internationalize the sector, even exercising enough appeal to interest Italians in property funds in the same way that I was attracted to REITs in the past.
In Sorgente the real estate fund bring together a suitable class of assets to represent an ideal level of diversification to create an excellent shopping basket of investments, both for the small saver and for large institutional investors. On what criteria is this diversification based?
Property investment funds allow the investors to make their way in the real estate sector with investments that are commensurate with their particular needs. The property fund is well able to diversify its portfolio because it presents the very advantages of a securities instrument - in so far as the properties generate stable flows linked to the rental revenues - and a shareholding - in so far as the assets can always be relied on to increase in value. Above all, small savers should bear in mind that investment in a property fund is a medium to long term investment and in this sort of time scale, it is the one that is best able to put an investment plan fully into effect and which produces the best satisfaction. The most important aspect to emphasize is the necessity of placing one's trust in a professional manager in order to enter the complex property investment sector in the optimum manner.
How did the Sorgente Michelangelo Fund come to turn its interest to a historic building like the Chrysler?
Sorgente has been observing the New York market for some time, and Manhattan in particular shows considerable potential. Our interest in that is based on the guideline criteria that we have always followed for our funds: highly prestigious properties, situated in central zones in major urban areas, with satisfactory revenues and a suitable potential for added value. The standing of the Chrysler Building makes it practically a liquid investment: the property currently has a gross rental yield of approximately12% and cost less than 3,500 dollars per m2. These are the reasons that guided our choice.
What effect do you think the acquisition of this historic building will have on Sorgente SGR's image?
The deal was certainly a very complex one. Negotiations were carried out between Munich and New York and we had to reconcile very different negotiating patterns and legal approaches. Clinching the deal, with considerable benefits for the Michelangelo fund investors was above all a success for the recognition of credibility and professional expertise as an Italian operator it gave us in the global property finance world. It is our conviction that Italian management companies have the necessary expertise and prestige to compete at international level. Sorgente has set out on this virtuous path which raises the competitiveness and credibility of our national economic system.
Sorgente SGR as an enterprise was conceived of by yourself who believed in putting distinctive real estate expertise to the service of private savers. What are your strong points? What makes you different from other savings management companies in the market?
When you speak of distinctive expertise, you hit the nail on the head. I don't want to say that the others aren't as good or better than us; I simply mean that the genetic principle underpinning Sorgente SGR is that very professionalism based on a tradition built up in the property sector. Sorgente is a management company specializing in property finance that remains true to its DNA; for us, property funds are not complementary to a range of other savings instruments on offer. We have entered this sector since its inception purely as managers, without direct interest or links with major property holders. We only answer to our shareholders through the results we are able to achieve and there is no-one else we have to take into account. Doing the job we concentrate all our resources on well is a vital as well as successful factor for us: it seems to me that this total rapport that we have with our reference market is the best guarantee that a savings manager can offer.
What is the current situation for the property market? How do you see future trends? Based on your professional experience, what sort of investment would you advise?
The Italian real estate market has developed and grown both professionally and in size also because of the contribution property funds have made and the concrete interest professional foreign investors have exerted in recent years. Today there is a property industry that has influence and establishes the characteristics of a sounder, more transparent, more efficient and more stable market than in the past. We have certainly witnessed a structural change in the components of supply and demand and this change is having a greater impact on cycles, extending the growth in value stage which puts all the efforts of forecasting by traditionally more cautious observers to the test. The most obvious innovation is, in fact, the solid professional quality of the institutional sector of the market which approaches property investment with ability and efficient tools for the analysis and evaluation of the profit/risk factor. This consideration brings me to your last question. The advice that I feel I must offer those looking to invest in property is to forget the do-it-yourself approach and put one's trust in those who do this job with dedication and results.

The Sorgente SGR Board of Directors has approved the accounts for year ending December 31, 2005 for the Caravaggio Real Estate Investment Fund open to private savers. The accounts show a 15.71% rise in net overall value compared to the placement value.
At 12/31/05 the share value stood at € 2,892.775 compared to € 2,714.12 on 12/31/04 (+ 6.58%), while the overall annual yield reached 7.5%. The performance of the fund listed on the Milan stock exchange on 12 May is the result of carefully selected investments made with a view to producing significant profits over time to benefit the fund's assets and its subscribers.
The total investment in real estate, both directly and indirectly, at current values, stands at approximately 174 million euros; mortgages taken out amount to approximately 24.06% of the fund's total property investment with an available leverage of about 100% on property investments.
Enclosed is summary of the fund's assets and brief management data for year ending December 31, 2005 duly distributed to the press (dated 02/28/2006)

The Baglioni fund is taking off: It will have 9 hotels and will trade on the Paris stock exchange as an SIIC
The properties of the prestigious Baglioni Group chain of hotels are about to be transferred to the Sorgente SGR Baglioni Fund established last November. There are nine highly prestigious hotels in Italy and France, all situated in major luxury urban tourism centres. Thus Sorgente SGR is about to set up a Société d'Investissement Immobilier Cotée (SIIC) in France through which the French properties in the Baglioni Real Estate Fund can be floated on the Paris stock exchange. It is a fundamental step in the existence of the subscription in kind real estate fund based on the hotel industry, the first in Italy to specialize in a particular sector in this way. For the creation of the SIIC, the twenty-fourth on the French market, the management company has called upon law firm Delli Santi & Partners for legal advice.
More in detail, the operation requires the setting up of a holding company under French law with the requisites for later floatation and tax categorization as an SIIC to which the property shares for the Chateau de Mirambeau Hotel, situated between Bordeaux and Cognac, the Chateau de Codignat Hotel, in Auvergne, the Royal Champagne Hotel, near Reims and the La Villa Gallici Hotel, in the Aix en Provence area will be transferred. The newly-created French holding company which will be directly transferred to the Italian Baglioni Fund, will have a start up capital of approximately 25 million euros of which the Michelangelo Fund will hold a 30% share. Further acquisitions are expected in France to increase the equity up to 40 million euros. Through the transfer of the other Baglioni Hotels properties, the Luna Hotel in Venice, the Cala del Porto Hotel and the Alleluja di Punta Ala Hotel to the Baglioni Fund will bring the assets of 150 million euros. The fund will have an interesting yield; the properties are all let to the managing company Baglioni with a cap rate of between 6.5 and 7%. Financial leverage to 60% of investments will give a strong impetus to performance from the start.
After its important real estate operations in New York, through the Baglioni Fund Sorgente is also entering the French market with a wholly transparent investment structure - a listed French company for the purchase of French properties.
For some time the management company has been turning its attention to foreign markets to enhance its growth potential and anticipate development. Major attention has been paid to the selection of investment property both from an artistic and architectural point of view as well as the possible revenues including the possibility of development and requalification.

Again last year, Sorgente confirmed its tradition of high performance for its Michelangelo Fund reserved for institutional investors. On December 31, 2005 the share value had reached € 153,626.91 with a growth of 7,8% compared to 2004. Since the launch of the fund in 2001, with and increase of 53,627 euros, the year on year performance has achieved a level of over 11%. Over the past financial year, the Michelangelo Fund has acquired the majority shareholding in the Chrysler Building in Manhattan through its associated company Chrysler Building Properties LLC. The building, one of the most prestigious in the world, offers a gross yield of over 12%. With regard to the prospects for 2006, according to Sorgente CEO Valter Mainetti, "The Michelangelo Fund's US strategy promises further success for the investors. The Chrysler is an excellent investment and we intend to increase our share of the ownership. We are also interested in some other opportunities.