ULI’s panel: Foley, Gunne and Feeney debate Ireland turnaround

By James Wallace - Thursday, May 01, 2014 9:07

Ireland’s property markets recovery has been stellar over the last 18 months, driven by a strengthening macro environment, improving occupier markets and a weight of international capital chasing stock.

To explore the turnaround in the Irish market’s fortunes, Urban Land Institute (ULI) assembled an expert panel to debate the trends on 23 April, through its series of ULI UK Young Leaders events network.

The ULI panel line-up is from left to right:  Deirdre Foley, founder and CEO of D2 Private, Pat Gunne, managing director and co-lead of Green REIT's investment management team, James Wallace, CoStar Finance Editor, and IBRC’s Fergal Feeney.

The debate, chaired by CoStar News’ Finance Editor James Wallace, opened with the big supply-demand question. Already in the fist quarter of 2014, Ireland has seen €938m worth of transactions across 37 separate deals, compared to €1.78bn for the full 2013 calendar year, according to CBRE.

That equates to more than half of last year’s total transactions in just the first three months of the year. And this excludes loan sales. Inclusive of loan sales, transactional activity is orders of magnitude larger.

CoStar News estimates that year to date, there has been up to €8bn in Irish real estate loan sales, around €6.5bn of which is Irish commercial real estate.

And there is more to come on both fronts - NAMA, Ulster Bank and Lloyds Banking Group are all expected to sell more loan portfolios, while hard asset sales are forecast now to reach €3bn for 2014.

Is there a danger that market could start becoming over flooded with stock?

“There is enough demand to support the flood of stock coming to the market,” said Green REIT’s Pat Gunne. “The private equity players all have substantial capital raised. The more interesting phase will be when these investors sell-on the assets and loans they have acquired in bulk.”

D2 Private’s Deirdre Foley agreed and said the next phase would prove fascinating providing a sense of whether the secondary market for Irish stock is deep enough to support the flood of stock after private equity has crystalised profit and the remainder of the banks and NAMA dispose of their loan books or undertake asset sales.

IBRC’s Feeney said the big macro trades in Ireland will likely continue over the coming two to three years, with an ever widening universe of interested bidders on loan portfolios. “There will not be an oversupply as there is significant demand from lots of real estate private equity firms for Irish debt and assets. 

"NAMA has been very successful with its loan and asset sales programme to date and it is expected to continue if not accelerate sales. If it continues the current pace of sales it may wind down earlier than its 2020 deadline."

So far the recovery has been almost entirely Dublin-centric, with yield compression in Dublin prime offices and retail somewhat surprisingly accelerated.

“Yields are artificially compressing at the moment because of this weight of capital, which is a little distorting,” argued Foley.

In Dublin’s prime office markets the opportunities arise from the city’s structural undersupply of prime office space.

“There are a number of office-led development schemes which will be keenly competed when they come to the market, some opportunities are already out there,” hinted Green REIT’s Gunne.

Gunne added: “Even though yields have compressed considerably over the past 12 months, rental growth still has a way to go.”

Over the next 12 to 18 months, “grade A” rents could potentially reach circa €50 per sq ft, due to the lack of new development in the city centre.

The shortage of office accommodation is fueled by the continued occupier demand from the TMT sector with demand for office accommodation in Dublin having remained resilient over the past five years.. The supply pipeline has also been shut off for years and ultimately in any major capital city this forces upward pressure on rents. This represents an opportunity for those investors willing to take on higher levels of risk.

The TMT sector also impacts on accommodation requirements in Dublin city centre as the TMT employees don’t necessarily wish to commute but prefer to cycle or walk to work.

Ireland’s broader macro recovery is trickling down into consumer spending, improving the performance of retail assets. The next major irish trophy asset will be the sale of the Dundrum Sopping Centre, thought to be valued at around €1bn.

NAMA acquired two syndicated loans secured by the performing shopping centre in February to unite the debt together. A hard asset sale is expected this year, and the panelists expect competition to be considerable.

“If ever there was an asset in Ireland which would attract sovereign wealth fund capital - whether European, Middle Eastern or Far Eastern - it is the Dundrum Shopping Centre,” D2 Private’s Foley told delegates.

Less appetising for sovereign investors is Ireland’s provincial markets, likely more the preserve of Irish investors who have deeper historical knowledge of the local markets.

“You would be surprised how much ‘mattress money’ there is in Ireland’s family offices which will come back when the right deals come back to market in the regions,” said Gunne.

“The provinces are very small markets, the most attractive stock from within the regions will be easily absorbed by willing investors.” Foley agreed.

Ireland’s transactional market continues to be lubricated by a gradually improving banking market. The domestic market, comprised now of just Bank of Ireland and Allied Irish Bank, is supported by international lenders.

Fergal Feeney told delegates: “The big investment banks are following their clients, the private equity funds, on the big macro trades, and in addition we have already seen some loans from insurance lenders. It is this and the alternative lenders which hopefully form part of Ireland’s sustaining post-recovery lending market.

“Lending remains at very conservative LTVs and mainly to international sponsors and margins are not yet under that much pressure.”



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