Sunday 18 February 2018

New REITs for Irish market to target €2bn investment funds

Finance minister Michael Noonan launches Hibernia REIT last month with CEO Kevin Nowlan and Irish Stock Exchange chief Deirdre Somers.
Finance minister Michael Noonan launches Hibernia REIT last month with CEO Kevin Nowlan and Irish Stock Exchange chief Deirdre Somers.

Donal Buckley

AT least two more real estate investment trusts (REITs) are expected to be launched on the Irish stock market this year.

They will be targeting some of the €1.5bn plus which investors are willing to devote to this tax efficient form of investment.

Jim Clery, tax partner with KPMG, estimates that between €1.5bn and €2bn is available for investment in REITs.

"Some of these funds may well be absorbed by the two existing Irish REITs should they seek more funds for further property purchases. Alternatively the funds could be targeted by two or three new REITs," he said.

Market speculation has focussed on the possibility of new REITs being launched by the US investment firm Kennedy Wilson and the Irish property investment fund IPUT. However a spokesperson for Kennedy Wilson dismissed this as speculation.

IPUT had not responded to our queries before we went to press but some experts feel that IPUT does not need the tax advantages of a REIT, although a REIT might well extend its investor base.

SPECULATION

However the speculation continues. On Tuesday this week CBRE director Marie Hunt went on record forecasting that two REITs would come to the stock market this year.

That followed Noel Smyth's disclosure that he had advised three or four people on setting up REITs or qualified investment funds (QIFs).

REITs can be expensive to set up as the Hibernia REIT recently found when it spent an estimated €11m to raise €385m.

Smaller REITs may not have to spend as much but Irish property developers who cherish their privacy and their cash may consider such expenditure a deterrent.

As banks have been reluctant to lend, property companies can appreciate how REITs could provide an alternative source of funding before prices for development land and redevelopment opportunities become too expensive.

Some of those developers may prefer QIFs which are less expensive as they are not quoted on the stock markets and have less onerous regulatory and disclosure obligations.

The most notable QIF so far established is the South Docks Fund, a joint venture by Oaktree, NAMA and Bennett Construction to develop offices on a site at Grand Canal Harbour.

As well as having a small shareholder base, most QIFs are established for specific projects, such as special purpose vehicles.

Should South Docks expand its portfolio and upgrade to a successful stock market REIT, then NAMA might well earn some kudos from offering Irish investors the opportunity to share in its success.

Oaktree and Bennett are also planning a mixed use development on a Digital Hub site in Dublin's Liberties. Their combination of US investment funds and Bennett's local property expertise might well provide the nucleus for another REIT.

On the other hand the financial experts who are promoting REITs are facing increased competition.

CONSULTANTS

Already there are signs that international banks are beginning to compete for a share of the Irish property recovery action so some of those Irish developers and consultants with respectable track records may have an alternative source of funds other than REITs.

In addition, Irish investment firms have returned to the Irish market. Not alone has IPUT spent €58m on the A&L Goodbody offices and €50m on the Airlines Portfolio without any need for a REIT, but Irish Life spent €40m on a Citygate office block in Cork and €15.5m on offices at Pembroke Road, Ballsbridge, Dublin 4.

Davy stockbrokers put together a group to invest €31.5m to buy the Harcourt Building on Harcourt Street, Dublin 2.

REITs are facing competition not only in bidding to buy properties but also in raising funds from investors, including the smaller investors who would traditionally have invested with institutions such as Irish Life.

Nevertheless even for smaller investors REITs will continue to have a key major advantage over unit-liked funds.

REIT shares can be sold on the stock market whenever an investor wishes. This contrasts with unit-linked funds where investors may have to wait months before they can cash in their chips.

When it comes to competing to acquire, the REIT's face stiff competition as the Hibernia REIT was recently outbid on at least one deal.

In contrast, the Green REIT's way of dealing with competition has been to team up with two of the biggest international players on the Irish market -- PIMCO and Kennedy Wilson -- in a bid for the Central Park portfolio in Leopardstown, Dublin 18.

TIMING

With deep-pocketed investment partners like that, Green can capitalise on its expertise and call on financial muscle when it's needed.

In this way it can get a share of the big deals when they arise and be more measured in the timing of any rights issue.

But the trio are also competing with other major international players. NAMA is reported to have short-listed four other bidders for Central Park. One of these is Oaktree, which has teamed up with Patrizia, a German fund.

Also on the short list is the Kenny family's Clancourt, which developed a number of offices in Harcourt and Hatch Street.

They have also teamed up with international firm Apollo which has already acquired two major Irish non-performing loan portfolios from Lloyds.

Blackstone and Lonestar have submitted separate bids. A report in Costar says that first round bids for Central Park ranged between €262m and €247.5m.

Final bids are due before the end of the month.

Irish Independent

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