News analysis: Irish storm proves too much for TPG

How Ireland’s recent woes caused US private equity firm TPG and UK partner Green Property to walk away from a €120 million property deal

In the past few days, US private equity firm TPG Capital Partners and its UK real estate partner Green Property have decided to walk away from a €120 million portfolio in Ireland – but there was nothing wrong with the assets. Instead, the decision was taken because of Ireland’s present woes.

The pair entered into exclusive talks in October to buy 16 assets from Royal Liver Assurance, a mutual life insurance company based in Liverpool which has a sizeable business in Ireland.

As part of a rebalancing exercise, Royal Liver decided to sell its entire Irish property portfolio consisting almost entirely of retail properties occupied by various chains such as McDonald’s and bookstore, Waterstones.

Had the deal gone ahead, the Irish Times newspaper said it would have probably have been the single largest Irish property investment since the credit crunch.

Dallas-based TPG – or Texas Pacific Group as it used to be known – announced its joint venture with Green Property in June this year. At the time, the buyout titan led by David Bonderman said Green TPG Partners would target commercial real estate opportunities in the UK and Ireland and would “actively seek to partner with government agencies and financial institutions to help manage their exposure to the sector”.

In Royal Liver, the partners had found a financial institution in need of help. But TPG and Green could not have foreseen the financial storm that would engulf Ireland. The country’s problems were worse than most people had thought.

Though initially opposed to the notion, the Irish government in October admitted the country needed an €85 billion bailout by the European Union and the IMF. The Irish Government subsequently paid the political price and an election was called for early 2011. Its most severe austerity budget ever was announced, designed to reduce the public deficit to below three percent of GDP having reached 32 percent in breach of EU targets.

For TPG and Green, all this was clearly too much. It was a game changer in terms of the portfolio of property it was seriously planning to buy.

According to PERE sources familiar with the partnership, Royal Liver was told Green TPG Partners wouldn’t complete the deal at the level at which it had entered into exclusivity. The reason given was that Green TPG now felt the rental reversions were under more pressure than it had originally underwritten at.

In essence, the macro situation had overtaken the dynamics of the portfolio, which was fundamentally sound.   

According to the Irish Times, Caroline McCarthy of selling agent Richard Ellis said it was disappointed the sale would not proceed because of the rapid change in economic conditions over recent weeks.

For TPG Capital and Green, however, this might not be the end of the story.

The partnership is not expected to walk away from Ireland as a whole. It still sees Ireland as a place to buy assets. When things calm down, maybe they will resume talks with Royal Liver in 2011. That cannot be completely ruled out.