Business Irish

Tuesday 23 September 2014

Kenny returns to the property game here as a conquering hero

Some might call him 'an arrogant son of a bitch', but Frank Kenny of Hibernia REIT tells Donal Lynch that a lot of the vagaries of investment success are out of his control

Donal Lynch

Published 29/06/2014 | 02:30

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Illustration by Don Berkeley.
Illustration by Don Berkeley.

Frank Kenny and I are reminiscing about New York, where we both sought our fortune (he found his). He's wondering why I didn't stay over there and marry "a hot blonde with false tits". That will always be the dream I tell him. "We're all fucked up," he sighs. "I once dated a Jewish bird who was a pain in the ass."

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I nod sympathetically. Somehow I can't imagine some high-maintenance Upper East Side JAP (Jewish-American Princess) meshing well with the twinkly, sometimes garrulous raconteur who has his feet up on the chair in front of me. She might be kicking herself now though. According to the most recent rich list, Kenny – who on the day we meet is celebrating another anniversary with the beautiful Dearbhal – is worth a cool €65m.

He scoffs when I mention the figure. "Way, way off," he drawls in an accent that shifts nimbly between South Dublin and mid-Atlantic. "Not even a fraction of that. I tell you, if I had that kind of money we wouldn't be sitting here in this little office. We'd be discussing it all in a cafe in Saint Tropez."

Somehow neither of those responses rings quite true. Though 65 million might not be the precise figure, Kenny, one of Ireland's most accomplished and respected dealmakers, is certainly a man of considerable means. His New York-based Willett Companies has a property portfolio which brings in rents of €51m a year. His kids went to Harvard and Columbia. He collects fine art. His house insurance alone is €30k a year. The former Lisney executive is also helping to bankroll the €430m Hibernian real estate investment trust.

And even if he had a billion in the bank I doubt we'd be talking in Saint Tropez. After decades in the US (where he is still a resident and citizen) Kenny is back in the hunt on home turf, and you get the feeling there is literally nowhere he'd rather be. A few years ago he came here and felt "the place is fucked – last person out turn off the lights", but since then he's grown cautiously optimistic and the day-to-day of working with old friends like Bill Nowlan (with whom he worked at Irish Life) and Kevin Nowlan, whom he describes as a "spiritual son", has energised him. Together they form the senior management team at Hibernia REIT, where Kenny is Development Director. The company listed on the Irish and London Stock Exchange in December last year. Since listing Hibernia has completed seven deals and invested €253m of the funds raised (of which €243m invested in off-market deals). They're targeting a 10-15 per cent shareholder return.

"We had a strategy," he tells me. "Buildings are renting but rents are moving up quickly now and over time you get good capital appreciation...

"We told people we were going to focus on office buildings, so of course the first thing we did was go out and buy a big residential project. But it's turned out to be a good thing: we bought a big half-built residential property out in Dundrum. The first two or three months we were quiet, now we really have got a lot of traction and we're moving along at a very good speed. The management team is in place, we're having good craic and I'm bolloxed tired!"

He obviously doesn't quite consider Dundrum the 'burbs because he tells me that the only time he's ever been burned is when he tried to invest in suburban areas.

"In relative size, Hibernia is not a huge company, you can't be everywhere. Would we do something in the suburbs? Maybe, but I've have to steal it. I never made money in the suburbs in the States. People forget that space is quite limited in the suburbs, so one major tenant goes out the door and you're screwed. Any time I've got a kick in the ass it's because I've been chasing yield in the suburbs."

Will they invest outside Dublin?

"You never say never, but the primary focus at the moment is an element of residential and CBD [central business district] offices. And 'add value opportunities' – buildings where we think we can add value."

The bubble, which so many fret about, is not a major concern, he tells me.

"The market is being driven with cash, not borrowings. The good real estate in Dublin didn't suddenly become bad real estate. It's just that people were ridiculously over borrowed, so that brought the whole shop down. Things are different now.

"First of all, there's no supply of office space in Dublin. The city needs 9,000 or 10,000 housing units a year – and it's producing 1,600. Not that many individual assets are actually changing hands. A lot of assets have just gone from one bank to another bank. We say no to eight out of every 10 things."

Kenny returns to the game here as something of a conquering hero, a man who has already made his fortune, someone with the connections of a local and the perspective of an outsider. His breeding is impeccable. His father, a former president of Fitzwilliam Tennis Club, ran Kenny Construction in Mount Merrion ("I've been in the building business since I could walk"), and his uncle John was a Supreme Court justice.

"He wrote a land act about controlling the price of land," Kenny tells me. "If it had ever been enacted we would never have gotten into the massive fuck up we had here. It was about moderate increases in land prices."

Very well off for the times, the siblings – five girls and three boys – all went to private school. Kenny himself was sent to Belvedere College.

"I was a little wild as a kid and my mother took it into her head that the only way to tone this guy down was to send him to the northside," he explains. After school he went to Bolton Street and then, after graduation, to Lisney, where he worked for Paddy Spain, "one of the great dealmakers in Dublin in those days. He was very good to me. He chain-smoked cigars and wrote everything on the back of a cigar box. No files, nothing".

He went to work for a property company in the US but after three years knew it wasn't for him. He thought about heading back home to Dublin – he was already getting offers from people who wanted to lure him home. His enthrallment with the American dream won the day, however.

"I'd had a great training already and I was fascinated by the place. I decided to give it a go. I had a client here who'd been incredibly good to me – Christopher Bennett – the chairman of Bennett Construction. He said, 'I'll give you a bit of seed capital to get going.' I squandered that, but he stayed with me through thick and thin.

"I raised a little bit of money from Irish Life. An American guy had tried to recruit me to work for him. And he said if you raise $5m I'll give you a million. I was down to my last $20 at that point."

Gradually his company – Willett Companies LLC – got up and running. Kenny's deals were soon worth up to $60m.

"This was the start of the Nineties. I made some mistakes and did some good things," he tells me. "When you're scrabbling around, $5m sounds like a lot of money – but when you have a property company in America it doesn't count for a lot."

Part of the difficulties he encountered came from the nature of syndicated deals. "When you run syndicated deals it's like running 30 separate companies because they're all separate and they're not related and the wheels fall off. They're all standing in isolation. Looking back I think the model is kind of flawed. You're trying to build a property company but the investors couldn't give a fiddler's fuck – they're just trying to make money quickly.

"If you get 80 per cent of what you do right in our business you're actually at the rocket scientist level. I would say I got 75 per cent of what I did right. Another 10 per cent was okay and the rest was a total bitch. It's just the nature of the business."

He tells me that some might call him "an arrogant son of a bitch", but he's humble enough to acknowledge that a lot of the vagaries of investment success are outside his control.

"The important elements are timing, how you do it. But a combination of things can go wrong. There might be a budget freeze in Washington and suddenly the tenants stop coming into the market. There are many things you can't control. People ask afterwards, how did you fuck that up or how did you do so brilliantly, but the reality is that often you don't know how you did so brilliantly. You buy in haste and you repent at leisure in our business."

One of the most unpredictable events of his time in the US was 9/11. A lot of people from Rye got killed on that day. "To see all the kids marching into church with their mothers because their fathers had been killed, that was really horrific. I was watching it on the television in my office. My son was a little fellow at the time and he ran out of school because he thought I had been in the towers."

The financial crash, by contrast, he remembers as being "stressful but also strangely exciting – it was like being in some movie. We said if Citibank goes under we're fucked so let's just buy a tent and head for the hills".

Now, as many fear the mistakes of the past being repeat-

ed, Kenny tells me he has less fear of the property market "going bonkers" than that "Ireland Inc" is not being managed effectively.

"Dublin is a lifestyle city, it's a college city, a good city for sporting events, it's a fun place to live," he says. "But if an executive wants to move someone to Ireland, that person is going to ask: is it safe? What is the school system like? What is the health system like?

"If you were the CEO of Ireland Inc these are things that need to be addressed. People are entitled to good health. I saw a policeman today for the first time since I came here. If you asked your girlfriend would you give up the price of three cups a coffee a year to feel safe, she'd pay it in a second ... Ireland Inc has a great opportunity now and they'd better not fuck it up."

Nama has not been part of the problem, he says.

"Given the size of the task they faced I think they've done a fabulous job. From the outside they took a massive amount of stick. Imagine you had to take over 30 newspapers in the morning. We'll see a few comebacks soon. Johnny Ronan is a great developer. He'll be back in the game."

He will turn 61 next January and thinks he has "five or six years on a full tank" left.

"My dad retired too early – and it makes you old very quickly. I've decided as soon as I need a nap in the afternoon I'm going to retire. But I'm not even nearly there yet. Bill and Kevin and I are passionate about this business. The day I get up and can't do it any more then I'm out. You've got to get a bit of fun out of it."

'I love to read all the Irish newspapers'

My favourite share is ... "It's got to be Hibernia. I wouldn't be a big player in the stock market."

My favourite websites are ... "Even when I'm in the States, I love to read all the Irish newspapers. Beyond that my reading is all to do with sport: rugby- or tennis-related mostly."

The last great gift I got was ... "Bill and Kevin [Nowlan] gave me a great gift the other night to thank me for everything. They took me to a place called Mama Mia and gave me a piece of sculpture by George Rhoads. It was a very nice evening."

The books on my bedside table are ... "Penthouse? No, seriously, a biography of Tony Ryan and the autobiographies of Michael Smurfit and of Hillary Clinton. Honestly, I can't remember the last time I read a novel. Though my wife is a prolific reader."

My favourite travel experience was ... "I don't really like to go to places that are too fancy. I love Cape Cod. A nice swim in the sea, some lobster for dinner and a bottle of good wine. That does me fine."

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