The Dubliners

After almost 20 years investing for private high-net-worth clients, famed Irish property firm Quinlan Private has moved into private equity style fund management. Chief executive officer Olan Cremin and chief financial officer Ronan O'Donoghue tell PERE how the asset manager has become institutionalized. By Robin Marriott

Quinlan Private is perhaps the one private Irish property firm that most global investors in real estate have heard of. That name is set to reverberate still more as the company enters into a new era of managing closed-ended funds for US and European institutional investors.

The Dublin-based firm, established in 1989 by former tax inspector Derek Quinlan, has achieved a high profile locally for barnstorming deals that have captured headlines. The most notable of them was the £740 million ($1.45 billion; €920 million) acquisition of the Savoy Group of Hotels – including London's famous Claridge's Hotel – from Blackstone and Colony Capital in 2004. The deal made news around the world.

There have been plenty of other celebrated deals since then as the firm worked its way towards amassing €10 billion ($13 billion) of property under management in Europe. The Estate of Knightsbridge in London; the Irish budget hotel chain Jurys Inns; the Diaganol Mar shopping center in Barcelona; the Mall of Sofia in Bulgaria and four hotels operated by Four Seasons in Prague, Budapest, Dublin and Milan (which has since been sold) are stand-out deals.

But it is only recently that the firm decided to branch out into private equity-style investing via the European Strategic Property Fund. That fund is expected to close soon with around €400 million of commitments from US investors, with a second fund due to be launched at the end of this year. This entrée into raising closed-ended institutional-type blind pools of capital is why PERE recently caught up with the two men that represent the new “professionalized” Quinlan.

Olan Cremin, the principal and chief executive officer, and Ronan O'Donoghue, chief financial officer, joined the firm within the last three years to help establish Derek Quinlan's ambition of becoming an institutional real estate managers.

Cremin, who is one of six partners at the firm, cut his teeth in property investment, private banking and structured finance while O'Donoghue started out at KPMG's property team but more recently worked with London-based Curzon Global Partners as director of finance.

“We are becoming institutionalized,” says Cremin. “How can I put this delicately? Derek has his own interests. He spends a good deal of time with this business, but between Ronan and myself there is a need for someone who is responsible for the business on a day to day basis.”

Given that Derek Quinlan has a reputation for being a gregarious character, it is not difficult to see why Cremin is a good foil. Cremin, a former head of banking in Ireland for the Netherland's KBC bank is less of the effervescent anecdote teller and more of the professional chief executive. “We're just different people, that's all,” he says. “We sing from the same hymn sheet, he just presents things in a different way than I do.”

The presentation of the firm, though, begins with its address. As one powerful US university endowment investor discovered as part of a vigorous due diligence process, 8 Raglan Road is not a glitzy downtown office but a period house in the residential D4 area of Dublin. The house that Quinlan bought is opposite the Embassy of Mexico and is surrounded by the other embassies in leafy residential streets. Like so many of Dublin's private wealth managers, it is a demure headquarters. There is only a discreet name plaque next to the door bell at the top of the entrance steps. The fleet of black Mercedes cars on the pebbled drive are in keeping with understatement. Only a Porsche Cayenne that sweeps onto the driveway suggests any hint of excess. This is far from a flash firm, though. The address, the cars and the management are more about quality than showiness.

Quinlan Private is the poster boy of Dublin property firms, but it has a fairly typical origin. It started out as a private wealth manager advising clients on tax issues. When it was established, there existed considerable tax incentives in Ireland to invest in car parks, under-used land and various real estate-related businesses, but when the incentives largely dried up the firm morphed into a non-tax driven property investor, expanding first to the UK, then to Continental Europe.

Like the large private wealth managers, Quinlan has a long list of around 500 clients on its books, many of whom have not only preserved the money they made during the Irish economic miracle, but have been considerably enriched by the firm's activities in property.

The club or “syndicate” model to date has performed well, but the reason why Quinlan chose to tap the institutional market (and why other private property firms in Dublin are preparing to follow suit) is to diversify its capital base, increase investment capacity and improve efficiency. The model until 2007 was this: every time Quinlan wanted to acquire a property, it contacted its clients to see if they wanted invest in a fund that would own the investment. From the moment a deposit was paid, Quinlan's private client managers would find out which ones wanted to participate in a deal. This requires significant human capital and can be harder to achieve in times when clients are nervous about commercial property, but it also fairly inefficient and offers little growth of capital.

Along with Cremin, Quinlan hired O'Donoghue to address the issue. He immediately started work on the pitch book.

O'Donoghue says: “We had to put our strategy together. It's a great story. We've done a huge amount of deals – in excess of 100 transactions – but we needed to show how those deals have performed. There is a lot more to QP than people immediately know about.”

Quinlan has forged a reputation for buying quality real estate, but it is the scale of the operation, with €10 billion of assets, that has taken investors by surprise, along with its large footprint in Central and Eastern Europe.

“People only knew bits of the story and were surprised we had €10 billion of assets under management,” says O'Donoghue. “They had the impression we only buy trophy assets but they didn't know that we are developing office buildings in Central and Eastern European countries and ten residential development sites in the region as well, for example.”

Overall, the firm has 34 professionals in Dublin, London and the newly-opened New York office, from which it handled the recent fundraise. In addition there are 70 professionals working for its joint venture with Golub in Prague, Warsaw, Budapest and Bratislava. GE Capital, Africa Israel, GTC and Delek–International are among blue chip developers and coinvestors it has been working with.

It has also got in place a respected team of investment heads and a sizeable asset management team. Thomas Dowd leads the team in Western Europe, while another partner, Peter Donnelly, leads the program in Central and Eastern Europe where the firm has a vertically integrated platform to source deals, enter into commitments, engage in construction management and lease projects. Pauline Bradley, who is a director and head of transactions in London, is also an important figure within the firm given that a significant share of Quinlan's investments have been in the UK.

“They have some excellent people operating in the UK, Europe and US where they have an ever increasing amount of firepower behind them,” comments Matt Maltz, a partner at Ernst & Young's real estate team in London. “They also have a very impressive array of relationships with other JV partners from the UK, US and Middle East which they have used well to close various sizeable transactions – relationships that larger and more established European funds would be and should be very jealous of.”

“We had to put our strategy together. It's a great story. We've done a huge amount of deals – in excess of 100 transactions – but we needed to show how those deals have performed. There is a lot more to QP than people immediately know about.”

But the US fundraise was no cake walk. It chose to fundraise in the US even though North America is virgin territory for Quinlan. Cremin comments: “The brand had travelled to the US, but not as much you would think. As a first-time fund you are on the back foot already.”

Track record
The fact that Quinlan had built up a 17-year track record by the time they began the fundraising helped, of course. It decided to open an office on the Upper East Side of Manhattan from where its own fundraising team hit the streets. The decision not to use a placement agent, says O'Donoghue, was a strategic one so as not to keep investors “at arms length.”

Part of the hurdle to get over in the US was a misconception problem. Probably because of the acquisition of the Savoy Group in 2004, investors assumed Quinlan to be a core investor. Within eight months of the deal, Quinlan had sold the landmark Savoy Hotel for a £30 million profit on a purchase price of around £200 million, perhaps sending a signal that it was only interested in exiting the assets quickly. But this was not a quick turn deal. Instead it is pursuing a bolt-on and build strategy of luxury hotels in key European cities.

“We deliberately concentrated our fundraising activities in the US as proof of concept. Now we are comfortable with how funds work.”

It rebranded the Savoy Group as the Maybourne Hotel Group and began operating the business with the expectation of an upturn in the luxury sector. Since the deal, it has shunned a lucrative 30-year management offer from an internationally renowned hotel operator that would have de-risked the acquisition. Instead Quinlan kept management of the assets, employing 70 people in the group's London head office, and implemented a value-add strategy. The Maybourne portfolio also includes a property adjoining the Berkeley Hotel and one next to Claridge's, which will allow expansion of both assets. The firm is also adding 90 suites at Claridge's and has also won planning permission to renovate and add 34 rooms at the Connaught Hotel, also part of the portfolio. Quinlan has since added the Clarence Hotel in Dublin to its books with more acquisitions expected to follow.

“This is a very scalable business,” says Cremin. “The Maybourne Hotel Group is looking for opportunities in Moscow and other parts of Europe.”

Cremin mentions the Savoy deal as example-in-chief of the value-add, opportunistic strategy that has achieved return multiples of 3.9x equity on more than €1 billion of equity invested to date. The strategy of the new fund, he says, is to develop or reposition property in Western Europe and to develop assets in Central and Eastern Europe as well as buy hospitality assets in that region. The fund is structured to allow the US investors in the vehicle to invest alongside Quinlan's private clients in separate funds.

Since 2007, part of the investments that Quinlan has made have been inserted into the new fund. The way it is structured gives US investors majority ownership, with the new fund owning 55 percent of the investments and Quinlan's private clients owning the remaining 45 percent.

A term allows Quinlan to invest in certain deals outside the strategy of the new fund each year, but only between the close of the first fund and the launch of a second fund, which Quinlan is planning later this year.

The investments made to date are a diverse bunch, and include UK and European hotels, Central and Western European residential and office developments as well as central London office plays.

Part of the €1 billion acquisition of the budget Irish hotel chain, Jurys Inns, last June has gone into the new fund. The plan is to expand the brand in the UK and Central and Eastern Europe.

In addition, the new fund owns part of a Central and Eastern European residential fund that was set up for Quinlan's private clients. The new fund has a stake of about €60 million in the residential vehicle which has entered 15 transactions in countries such as the Czech Republic, Poland, Slovakia and Hungary.

Further, the new fund owns a piece of the Western European Office Property fund of office developments. That includes the Atrium building in Amsterdam acquired from US firm Tishman Speyer, Senator House in London and a property in Frankfurt. There is also the Central European Office Property fund, which owns schemes in Prague, Bratislava, Krakow and Vilnius.

Separately, the European Strategic Property Fund owns a large land parcel south of Bratislava where a new urban masterplan will deliver offices, retail, hotels and residential. Most recent of all, is the acquisition of an office development with Morley Fund Management this year in Paddington, west London.

Though Quinlan deploys a “micro” approach to investing, it has shunned the UK for the past couple of years because of high prices. “We thought that the UK was a bit expensive, so we were active in Central and Eastern Europe and we remain active in those places. But we are most certainly looking at the UK. We welcome the correction [in prices] we are seeing.”

The strategy behind the Paddington deal is that with so many developers holding off projects, there may not be fierce competition from rival buildings in west London when Quinlan and Morley complete their scheme in 2009 to 2010.

It sounds like much of the €400 million fund has already been committed, but Cremin declines to comment. “People can draw their own conclusions,” he says.

When matched with Quinlan's private clients, the fund has €2 billion of leveraged buying capacity over the lifetime of the fund, which is eight years with two one–year extensions. The management fee is 1.5 percent, with a 10 percent preferred return and 20 percent carried interest. The firm has put up 10 percent of the total equity commitments with a ceiling of €35 million.

Name: Quinlan PrivateFounded: 1989 by executive chairman Derek QuinlanHeadquarters: DublinAssets under management: €10 billion ($15.7 billion)Fund name: European Strategic Property FundEquity raised: approximately €400 million ($632 million)First close: July 2007Investors: US domiciledStrategy: Development and major renovation (targetbetween 60 and 70 percent), value-added, core-plus(target up to 40 percent). Western Europe and Central andEastern Europe.Future vehicles: follow-up vehicle to launch later this year