Saturday 22 July 2017

The Right Moves: Developer Pat Crean to offer 1,800 apartments to global investment market

Developer Pat Crean
Developer Pat Crean

Paul McNeive

In a forward-funding deal which will be the first of its type in Ireland, developer Pat Crean's Marlet Property Group has instructed Savills to offer up to 1,800 apartments to the global investment market in a deal which is likely to have a value in excess of €500m. Later this month, a campaign will be launched seeking offers to forward purchase blocks of apartments which will be constructed on up to six prime Dublin sites. The sites are understood to form part of a portfolio of sites largely assembled by Crean and Greg Kavanagh during their time together at the helm of New Generation Homes.

While the two developers went their separate ways last October, Crean's Marlet Property Group retained control of a significant number of New Generation's assets and the financial backing of the company's funders, the international asset managers, M&G Investments.

The Marlet Property Group's offer to sell apartments to global investors is evidence of the new institutional market here for long term residential investment, and will be welcomed by the Government, which is desperate to see large scale construction of units for renting. Whilst forward funding of commercial schemes is long established, this will be the first time that large residential developments have been similarly offered. It also underlines a cultural shift to a permanent level of demand for long term rentals from both Irish people and tens of thousands of overseas employees of multinationals based here. In mature rental markets such as Germany, forward funding of apartments is common. This method of procurement has emerged in the UK in recent years.

Savills were not prepared to comment on the instruction but I understand that two of the sites involved are the Marlet Property Group's Mount Argus property and its St. Clare's scheme, both of which are in Harolds Cross, Dublin 6. Construction has already started on one block of apartments at Mount Argus, and that block will be included in the offer. Crean and M&G will be finalising shortly how many blocks they intend to build and offer in the deal. Up to four other sites could be included, all in prime locations inside the M50. All of the sites have planning permission and the process of appointing building contractors is ongoing. The total number of units likely to be offered for pre-sale is between 1,200 and 1,800 and the apartment blocks will be delivered on a phased basis between 2018 and 2020.

The blocks to be sold have all been designed for the long term rental market. The apartments are bigger than traditional units and the blocks will incorporate facilities for residents such as meeting rooms, storage areas, bicycle parking and gyms.

Crean and M&G could hardly have got their timing any better, with Daft.ie reporting this week that rents nationally are at an all time high, having increased by 13.4 pc over the last year. The main reason for that is that the supply of new properties is tiny and there is an all time low of approximately 3,000 properties available to rent in the country. With the economy and population growing fast, and most of the major overseas companies expanding employment numbers, the only likely outcome is that rents will rise even more.

The Government has been strangling the supply of new properties with penal VAT and levies and the ill-conceived Rent Pressure Zones (RPZs) have, as predicted, succeeded in putting only upwards pressure on rents, by discouraging supply and penalising landlords.

Interestingly, the new apartments to be sold by the Marlet Property Group and its financial backers will not be affected by the Rent Pressure Zone regulations, at least for the first lettings, and the evidence is that the few new units coming to market are achieving strong premiums over controlled rents. In a report this week, Goodbody Stockbrokers pointed out that Irish Residential Properties (I-RES) Reit, which will complete 68 apartments at Beacon South Quarter this July, is quoting €1,925 per month for one-bed apartments and €2,570 per month for two-bed units, almost 60pc above the capped average in the area.

The agents are likely to offer the apartment blocks in one or more lots. One of the attractions of the offer is its unusually large scale, which will appeal to international pension funds, domestic institutions and multinational funds like Allianz and AIG, tempted by the opportunity to buy completed blocks in a red-hot market, with minimal vacancy rates and strong potential income growth.

The Government's decision to make sites owned by public bodies potentially available for development is a good one, if overdue. Another barrier to supply is the lack of bank lending and M&G's forward funding initiative may well be a template for unlocking sites.

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