EUROPE NEWS: From brigadeers to Dubliners

They used to be called the 24-hour Dublin brigade: dealmakers from private equity real estate firms who would fly into the Irish capital to meet with homespun market participants, such as Ireland’s National Asset Management Agency (NAMA), and then fly home again. Often disappointed there was nothing immediate to buy, those men and women could at least console themselves with collected business cards, which surely would come in useful when the market heated up.

That time has come. However, rather than travel into Dublin on low-cost flyers such as Ryanair, firms are opening up in Dublin to take advantage of the thawing market.

There now are plenty of examples of firms with a greater presence on the ground, some of which weren’t around just one year ago. For example, Apollo Global Management has beefed up its presence in Ireland via an asset management and loan servicing subsidiary that is dealing with real estate loans after acquiring a package of distressed Irish portfolio from Lloyds Banking Group for £149 million (€185 million; $237 million) in November on behalf of its European Principal Finance Fund. The subsidiary hired David Hickey from AREA Property Partners and formerly the National Treasury Management Agency.

Hudson Advisors, the workout ‘factory’ of Lone Star Funds, has opened up. Michael Hynes, vice president and head of real estate at Hudson Advisors Ireland, joined the firm in January, having served as a portfolio manager at NAMA for 18 months.

Newly active investors and advisors also have added boots on the ground. Australia’s Pepper Group, which established itself in Ireland in November, is among them. On March 25, it opened a new head office in Dublin.

Pepper Group is a less well-known firm that nevertheless is beginning to make a name for itself in private equity real estate circles. In January, it was appointed by CarVal Investors to manage a €380 million portfolio of Irish loans that the Minneapolis-based investor bought from Lloyds Banking Group for around 25 cent on the euro and, in March, it announced it had been appointed by Danske Bank to provide special servicing and asset management on a €600 million-plus loan portfolio.

Pepper also announced it will be making a €3 million
co-investment alongside CarVal, marking its first investment in an Irish commercial property portfolio and its second investment in Ireland since completing the acquisition of
GE Capital’s Irish residential mortgage book in June 2012.

“We continue to identify potential acquisition and third-party servicing opportunities in the Irish lending market,” a Pepper spokesman told PERE. “We also will continue to
co-invest in residential and commercial portfolios in Ireland. Given the level of distress in the Irish market, there is a growing need for specialized expertise.”

Industry gets a voice

While private equity-related firms are setting up to take advantage of distress, other bodies are setting up in the hopes of a recovery.

Finola McDonnell is a director at Property Industry Ireland, an association formed two years ago to help Ireland’s real estate industry. It has 80 members consisting of construction companies, contractors and developers, as well as finance-related companies that are part of the “solution.”

Currently, Property Industry Ireland is working with Ireland’s Department of Finance to set out a strategy for the “road to recovery,” said McDonnell.  As a ‘pre-strategy’, the association wants to capture the “spirit” of the market in terms of emerging demand among occupiers and forecast what types of property are going to recover first. Then, it will examine how a recovery can be funded now that the Irish banking sector is smaller and far from healthy. Indeed, there is not much competition among those ready to fund development, although the Bank of Ireland is faring quite well.

“There is a continuing restructuring going on here in Ireland for the likes of the Pepper Group and others that are coming in to buy up loan books,” said McDonnell. “To some extent, they are looking to take advantage of good value in the market, but there is not necessarily a sustainable market underneath this somewhat temporary activity.”

Addressing the challenges, the Pepper spokesman said:  “Given the level of arrears in Ireland and the broader economic challenges, Irish banks will need to absorb further losses to move the economy on, but this also needs to be delicately balanced with their on-going capital requirements.”

McDonnell also pointed out that Ireland now has legislation to enable REITs. “We may see the emergence of a small publicly-traded sector, which we have never had in Ireland,” she said.

McDonnell explained that, once some new development emerged, the “demand” side – meaning occupiers – will come in and hopefully that would make funding more viable. “At the moment, rents are at levels that mean development propositions don’t stack up,” she said. “However, demand means rents should recover, which is good for the market in the long run.”