Sunday 18 March 2018

Why emotion is the biggest enemy of the savvy property buyer

James Nugent, MD Lisney.
James Nugent, MD Lisney.
Thomas Molloy

Thomas Molloy

James Nugent has one piece of advice for anybody buying property; avoid emotion. The managing director of Dublin-based auctioneer Lisney has seen many buying mistakes in his 25-year career in the business but believes the cardinal error made by both commercial and private buyers is falling in love with a certain property or area and failing to see possibilities elsewhere.

"Property seems to be bought as an emotional decision, even investment property. There is a lot of heart and very little head," says Nugent who thinks people should study data more. "The natural thing is to buy an apartment down the road from you just because you know it. That's not an informed decision."

Sitting in Lisney's new and comfortable headquarters on the Earlsfort Terrace side of St Stephen's Green, the 41-year-old looks healthy; more likely to run a triathlon than doing deals in a smoke-filled clubby backroom. He is analytical and smart; a very modern auctioneer in an industry that is still reeling from the horrors of the last few years.

Nugent maybe a fresh face as managing director of the 80-year-old agency but he has had a long apprenticeship and is a Lisney lifer who began working for the company while still in school. The Dubliner, who grew up close to Booterstown and now lives in Dundrum, is one of those lucky people who seems to have known from an early age what he wanted to do and who he wanted to work for.

Despite a happy childhood in a big family and an education at the expensive Benedictine boarding school in Glenstal in Limerick, he describes himself as a "grafter" and "street urchin" who sold sweets to other children and mowed lawns for neighbours.

The son of a solicitor and antiques shop owner, in retrospect he seems to have been almost destined to go into a career such as auctioneering which combines some legal skills, with a fondness for selling secondhand goods and a good deal of grafting.

As a 16-year-old he wrote to all the Dublin auctioneers looking for part-time work and got a reply from Lisney, which led to weekend jobs and then summer jobs while he studied property at the Dublin Institute of Technology in Bolton Street and estate management in the UK.

Once his studies were over, he joined Lisney in Stephen's Green to qualify as a chartered surveyor despite some initial misgivings about the company which had a somewhat stuffy reputation back then. The young Nugent quickly discovered that he loved buying and selling office blocks just as the Celtic Tiger began to roar.

It is easy to imagine that it must have been fun riding the 10-year boom while working for one of the State's largest firms.

In retrospect, Nugent says he realised things had gone crazy when retail property prices in Dublin were similar to Paris or London's top streets. "You look at your population and that just didn't make sense," he says.

A second warning sign was "a series of commercial auctions with lot sizes of €2m to €5m. In the last three or four auctions, in every individual case, the purchaser had not inspected the property before buying. That was just madness. Buyers came to buy one property and left with another."

The bust seems to have left Nugent relatively unscathed.

With just a family home and a single residential investment, he was not too exposed to the bust personally but Lisney had to make cuts.

At the beginning, the company cut salaries and then began cutting staff. At one stage, the company shrank to 88 people. "It was very difficult. There were people I had personally recruited. There were people who had worked there all your working life. It sounds cold but you have to compartmentalise. You have to say by doing this, you are saving the company. Fee income was through the floor"

Today, Lisney seems to be staging a recovery. Nugent lists three reasons. Rising house prices in Dublin, where the company has most customers and more houses coming up for sale.

In the commercial market, where Lisney makes around three-quarters of its income, there are also signs of a pick-up.

Nugent reckons around €900m was spent on commercial property across Ireland in the first three months of the year and expects about €3bn to be shelled out in 2014. On top of that, All agencies are picking up work valuing the various property loan portfolios that are currently being sold by the likes of Nama or the venture capital funds.

Lisney is the only Irish-owned company in the top five commercial property sales companies in Dublin which is a mixed blessing. "We don't have to send dividends abroad and can take a longer view," says Nugent while admitting that an overseas parent can deliver clients and be very helpful when times are tough.

"There's serious demand in Dublin at the moment. We have a problem. The Dublin market as a whole has about 3,000 properties which is about 3pc of the property stock,"says Nugent while dismissing talk of some kind of bubble. "There's a media fascination with Ranelagh or Dubin 4 but these places do not represent what is really going on."

He cautions that a small number of players can distort the market. A few workers in the tech sector who have benefited from an IPO like Twitter can distort the market in a small area. "We have an international economy that operates from Ireland."

Could prices fall again? "I don't see it. I think there is an underlying value," Nugent says, while admitting elsewhere that people are still sceptical of his industry and dismiss industry analysis as self-serving.

Lisney is also contending with commercial sector shortages. North American companies want large floor spaces in modern buildings and are clustering around the docklands while Irish companies still want Dublin 2, but both are finding it hard to find the right buildings.

As we look out the window over St Stephen's Green, the view is dominated by a Denis O'Brien-owned building that is currently being torn down and replaced with something much more modern. Nugent believes the tearing down of 1960s buildings like this one is the beginning of a process that will eventually see other buildings such as the former Anglo HQ across the Green as well as landmarks such as the former Bank of Ireland headquarters refurbished or demolished.

The people and companies doing this work will be a mixture of familiar faces such as Cosgrave, Michael O'Flynn and Ballymore and new interlopers such as Blackstone and Lone Star, which have been snapping up property-backed loans for some years now.

"It can be good for business but I'm not sure how good it is for the country," Nugent muses on vulture capital funds.

Still, he clearly admires the thoroughness of the US funds and believes we can all learn a trick of two from them. Just a few weeks ago, he was a buyer on behalf of a US company that demanded more information before the sale than any previous client had ever asked for.

While emotion is the enemy of good decision-making when it comes to property, he believes detailed data is the friend of the smart buyer. "There's plenty of it out there," he says. "I'm not sure why people don't use it more."

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