Monday 26 September 2016

The man behind the biggest Irish land gamble

Arklow 29-year-old Greg Kavanagh is backed by one of the world's biggest pension funds in a €350m punt on a recovering market, so why do people doubt him?

Published 05/04/2015 | 02:30

BACK ON THE SITE: From left, New Generation CEO Pat Crean and developers Greg and Hugh Kavanagh. Photo: Gerry Mooney
BACK ON THE SITE: From left, New Generation CEO Pat Crean and developers Greg and Hugh Kavanagh. Photo: Gerry Mooney

Greg Kavanagh will celebrate his 30th birthday in two weeks' time. It could be quite a party.

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The Arklow builder is fronting a €450m gamble on the recovering property market and has been backed by M&G, which manages €340bn in assets, as well as US private equity behemoth Starwood, Sir John Beckwith's €20bn Pacific Investments and Irish software tycoon Pat McDonagh since starting to buy land around Dublin straight after the Troika rolled into town at the end of 2011.

It was a staggeringly brave call and one that looks set to make Kavanagh and his backers millions in profits.

Kavanagh and his elder brother Hugh worked as contractors building homes, extensions or renovating houses in south Wicklow and north Wexford from 2005 onwards. Then the crash came and all building work ceased.

This gave self-taught economics prodigy Greg time to crunch numbers. While almost everyone else was predicting the end of the world, Greg saw something that almost no one else could see at the time.

"We had done our analysis of the Irish economy and we believed in the growth story and that the fundamentals were there for a strong recovery. It was just us and Kennedy Wilson. There was nobody else in 2011," Kavanagh tells me, sitting in the boardroom of his Tara Street offices, flanked by New Generation CEO Pat Crean.

"We started with our own capital. It wasn't a monstrous amount but it was enough to get us started on a few small sites."

They bought a site on Dublin's Grand Canal Street and then built 19 houses in Carrickmines and another four in Knocklyon.

"The drivers delivering the cement couldn't believe it, they said that they never thought they'd see people building houses again," Kavanagh recalls.

But New Generation needed cash, millions of it, in order to place one of the biggest gambles ever seen. Kavanagh and Crean went out to find investors and sell them the Irish recovery story.

A "wide variety" of investors backed them with cash, although confidentiality clauses prevent them being identified. However, US private equity group Starwood, Sir John Beckwith's Pacific Investments and former Skillsoft and Riverdeep founder Pat McDonagh have all been widely linked with investments.

Their money was put to work on individual projects rather than to fund the overall land purchase strategy. McDonagh was involved with Aiken Village in Sandyford and Starwood with the Barrington Tower site and the Beckwith family with a number of others.

"There was a natural finish to the relationships," says Kavanagh.

It's something of an understatement. The Beckwiths were recently quoted as saying that things hadn't ended amicably. New Generation is no longer involved with McDonagh or Starwood.

"We made a decision that managing all of these relationships was a very difficult job and we didn't want to upset anyone. We thought that if we couldn't give 100pc to something, we should just end it," Kavanagh adds.

"So we decided to consolidate our position and put the company on a better long-term position. We wanted to find a long-term partner." Following a lengthy roadshow, which saw New Generation lift its skirts for 27 potential investors, last May it signed a deal with global pension fund and investment manager M&G, which has €340bn under management. It's one of the biggest financial houses in the world, with assets worth double the entire Irish economy under management.

Kavanagh's history (including a messy showdown with a gangland villain and a gun), the company's assets and relationships, strategies and financials were all under the microscope.

"A company like that does a huge amount of due diligence. They left no stone unturned.

"There's a huge a mount of paperwork when you get a mortgage - multiply that by a couple of hundred," says Crean.

Details of the arrangement with M&G are "commercially sensitive". However, industry estimates have suggested that New Generation has bagged a €350m deal with M&G. Kavanagh sits stonefaced and repeats the "commercially sensitive" line over and over again.

"It is a long-term partnership that brings us to the next stage where we'd become an institutional-like company." As well as cash, M&G has also injected talent, with a number of heavy hitting advisors coming in to bulk up the New Generation board.

The scale of New Generation's gamble on the Irish - and particularly Dublin - property market has never been fully clear. In January 2014, when the Sunday Independent first revealed Kavanagh's buying spree (see below), it was estimated he'd spent close to €100m buying land and building homes. Examination of New Generation's planning applications and land sales are likely to have brought that close to €350m, though he declined to comment on finances.

So far New Generation has built or is in the process of completing 500 homes, stretching from Rathmichael, Aiken Village, Sutton, Knocklyon, Carrickmines and Knocknacree.

There are plans to build "many thousands" of new homes on its Dublin landbank. Neither Kavanagh nor Crean will flesh out how many thousands or indeed how many sites they have. It depends on planners.

Industry estimates suggest that New Generation has over 100 sites around Dublin.

"There's 10 years of construction," Kavanagh says. "It takes three years before you can deliver a home, and it'll take about 10 years to get through this portfolio and we'll keep assessing it as we go."

The pace of buying land banks has certainly slowed, admits Crean but New Generation "is still looking proactively."

It is a criticism levied by some in the industry. New Generation kick a lot of tyres and promise a lot without necessarily completing deals. But when they do, they pay good money.

The company employs "hundreds of people" on various building projects but there is a definite skills shortage. Crean is active in trying to persuade skilled emigrants to come home.

"The message needs to get out. There are things happening in construction in Ireland again."

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