Debt play will free up firm for a stream of investments
Since Minister Michael Noonan passed legislation allowing real estate investment trusts in Ireland, a number of parties have looked at setting them up, but only three have done so.
Green Property was the first mover while IRES was the third entrant to the market - but Hibernia REIT is perhaps the most intriguing.
A product of WNK Nowlan, Hibernia has focused intensely on the Dublin market and has bought numerous properties in the capital. Unlike the other investors, however, Hibernia has focused on properties that may be fully let at relatively low rents today, or properties that may need refurbishment before they can be rented out.
Hibernia's plan to gear up its balance sheet is intriguing because it shows just how much interest there still is in Irish commercial property. The fact that it does not have to return to its shareholders is significant in itself.
It will also likely set off a new round of investing for Hibernia. The firm has €372m in assets at present. Theoretically it could borrow up to that amount again. That won't happen though, for two reasons. Firstly, the more money it borrows, the higher the interest rate it will have to pay. Second, it will be expected to spend any borrowings quite quickly. Unless Hibernia has a particular deal on their radar, it would make no sense to force itself into a position where the money is burning a hole in the balance sheet.
Better to have capacity in the future if need be.