Chip off the old block
IRISH people spent ?8bn buying offices and commercial buildings last year. And that's not a typo. Investors splurged ?6bn in the UK and continental Europe, with the remaining ?2bn spent at home.
Guess how much overseas investors spent buying commercial property in Ireland? Zero. Somebody is missing something.
"It's because the Irish market is so small. It's only a ?2bn market," says Pat Gunne, munching a cajun chicken wrappo in his swanky new office block opposite the Mespil Hotel in Dublin.
Gunne is clearly going up in the world. The lifts have marble floors. He's even bringing in Xboxes and plasma screen TVs for the staff. For goodness sake, there's even a bar. There's lots and lots of money in this property lark.
Gunne has got some too. Last year he sold part of the family business to global real estate goliath CBRE for a cool ?20m. It was just the highly profitable commercial property bit with the Gunne residential estate agent part remaining under his control.
There were already strong links with CBRE, with the US firm having taken a 10 per cent stake in Gunne some years ago. The commercial property division was even called CBRE Gunne. The bottom line is that you're a nobody in the business unless you have a big international name over the door.
The full takeover was a straight cash deal, netting the Gunne family about ?14m for its 70 per cent stake. "The money is invested in property. In Dublin, London and New York and a bit in eastern Europe," reveals Gunne.
On his corner office wall is a large photograph of his father Fintan, founder of Gunne, who died suddenly in 1997, throwing the 25-year-old Pat in at the deep end to run the firm. But after a wobbly start, Gunne has built up the company to become the largest commercial player in Ireland.
"From a personal perspective it means that the company is extremely safe. The foundations will stand the test of time. I know that my dad's legacy is now set in stone and the company that he spent his life building up is part of one of the biggest companies in the world," he says.
"My personal obligations in fulfilling what Dad would have wanted in looking after the family, has been looked after. Taking those two pressures away have meant that, although I'm doing the same job, the stress levels have gone way down." With a four-year contract under his belt he'll remain a hired Gunne for some time yet.
Unless you're a Humvee-driving property mogul or a squillionaire, you probably won't have come across CBRE that much. But it's making serious amounts of money here. Gunnes forecasts that Ireland will bring in about ?20m in fees this year.
"We've being growing very fast. Its doubled in size over the last two years," he says. Given that the costs have remain reasonably stable, the profits have bounced right up. "I reckon the next three years will be as dramatic," he predicts, waving away a plate of chocolate biscuits. "I'll only be tempted."
Irish investors have been positively hyperactive in the UK, devouring swaths of prime real estate. Scribble something on a wall in London and chances are it's owned by the Micks. Irish syndicates have bought up giant slabs of Knightsbridge, Sean Mulryan seems to own most of the docklands - and everyone, from Larry Goodman to Coolmore's John Magnier or Ryanair's Michael O'Leary, has a couple of London office blocks.
While huge blobs of the money used to buy these properties are coming from private investors, Gunne suggests that pension funds are going to return to the office market with a bang.
"The institutional money looks as if it will come back. A lot of the pension funds in Europe are underfunded and the weighting of property is going up all of the time."
It could see a further price hike. One example is that Australian pension funds are now the biggest inward investors into the US office market. And, obviously, the Irish telecoms market.
However, buying office blocks or snazzy retail units isn't the guaranteed money spinner that it once was. Lots of people have copped on to the idea. "Yields are going to continue to come down and the return that people are willing to accept is going to continue to come down as well," he warns. "But anyone who invested in property last year will continue to do well for another couple of years."
About 53 per cent of all the money spent by Europeans on commercial property goes into the UK.
"I think, as a place to put money, it's hard to beat. Last year I said - people thought I was crackers - that for the next 12 months you should plough money into the UK. I think the best buy at the moment is probably offices in the City. I think it's a great buy."
While the CBRE commercial side is clearly teacher's pet, Gunne Residential is causing a few furrowed brows. The business hasn't moved to the new building. Pat Gunne holds about 95 per cent of the business, which should have revenues of about ?7m this year. "We haven't grown the way we should have," he says. "We haven't grown in tandem with the size of the market."
"We're going to do something in residential. We're in the middle of throwing all the strategy up in the air. We're looking at anything from the shareholding structure to the reward structure to branches to whatever," he reveals.
"Huge expansion is an option. A dramatic change in the shareholding is an option. Selling is an option. Nothing is not an option." Things are moving fast. "Hopefully it'll be in the first half of the year. It's active at the moment."
If Gunne sells out a large block of his shares in the company, as looks likely, it's not necessarily a thumbs-down for the auctioneering sector. "I think that the problem with residential is that you need huge volumes to create substantial profits."
With commission rates of between 1 and 1.25 per cent, selling houses isn't exactly the highest-margin business in the world. "I think a bit more consolidation might be good for the industry," he says.
Gunne could yet cash in on its 20 per cent stake in ?25m property website myhome.ie, which has retained IBI Corporate Finance to examine strategic options. "That's all speculation," he says unhelpfully.
Despite seemingly heading for the cashier with his chips, Gunne still feels that the residential market is generally rock solid. However, there might be a few bumps ahead. "What's going to happen in the [Dublin] docklands is that there's a big push to make it high density but attractive living for families. If that is successful it'll put pressure on the apartment developments in the outer areas." Yikes.
With conflicting property forecasts published almost every month, the future for investors is nowhere near clear.
"As you get closer to the top, whenever the turn comes, there are always going to be casualties. Property is cyclical. It doesn't only go in one direction," Gunne admits.
Interest rates are what will get his knees knocking. "It's probably if interest rate rises are dramatic. If, within a 12-month period, rates rose by two per cent, that would be significant because the market is highly leveraged," he suggests, quickly adding: "But the underlying market is more healthy than it was four years ago."