Friday 19 January 2018

F&C plan ‘brave’ foray into Irish property market

Dara Doyle

F&C REIT Asset Management spent £1bn (€1.1bn) buying offices and stores in England and Scotland in 2009. The money manager now is turning to Ireland.

The property business of London-based F&C Asset Management is trying to buy Liffey Valley mall in west Dublin with retailers including Marks & Spencer and Starbucks, Managing Director Kevin McGrath said.

“It’s a brave move, but sometimes fortune favours the brave,” said McGrath, 46, who helps oversee about £8bn on behalf of clients including Cambridge University. “The Irish market has suffered the most. It will probably suffer the longest, but it will come through this.”

F&C is the latest investor to call the bottom of the country's commercial property market after the worst recession in eight decades cut prices for offices and malls by half.

Germany’s DekaBank Deutsche Girozentrale purchased a Dublin store housing Tommy Hilfiger in September and said it’s open to more opportunities.

Gerry Keenan, chief executive officer of Irish Life & Permanent’s fund unit, said in November the number of potential deals signaled the worst may be over.

McGrath said F&C’s “huge statement of confidence” in seeking to acquire the mall from Aviva, the UK’s second-biggest insurer, and property company Grosvenor Group Ltd may prompt more investors to consider purchases.

‘Biggest bubble’

Ireland “was the biggest bubble out there,” McGrath said in an interview in London. “It would have been madness to buy three years ago. Now, it’s worth thinking about.”

F&C REIT, together with Area Property Managers, may pay €350m for Liffey Valley mall. McGrath declined to comment on the report.

McGrath’s company, created in 2008 by a merger between F&C Asset Management’s property business and REIT Asset Management, took advantage of the drop in UK prices last year following the collapse of Lehman Brothers.

“We said this is the worst it’s ever been; there are people out here who are weak and desperate to sell,” said McGrath. “This is our opportunity, our time.”

F&C REIT’s total return was 12.1pc last year, compared with an average of 3pc in the funds monitored by Investment Property Databank Ltd, a research company based in London.

The F&C Commercial Property Trust, which is listed on the London Stock Exchange, has risen 22pc since July.

UK revival

Prices for commercial properties rose by a record 8.1pc in the UK in the fourth quarter from the previous three months, according to IPD. Irish prices fell 4.9pc over the same period, IPD estimated.

DekaBank bought the Hilfiger building from Marks & Spencer at a yield exceeding 2pc more than the 10-year average.

In the property industry, the yield takes into account annual rental income compared with the value of a building.

“We took the view that the yield was sufficient to reflect the prevailing market conditions,” Thomas Schmengler, managing director at Deka Immobilien, the Frankfurt-based bank’s property unit, said in an e-mail.

McGrath said Ireland’s economy is “intrinsically strong,” though property prices may not recover for more than five years.

The Government forecasts gross domestic product will shrink for a third year in 2010 as the property bust ripples through the economy.

Against that backdrop, the Government has been forced to set up NAMA to buy property loans from lenders led by Allied Irish Banks and Bank of Ireland. McGrath, who said F&C REIT is interested in co-investing with the agency, wasn’t surprised by the collapse in the Irish market.

“Everyone was riding this train that was only going in one direction,” he said. “When it went pop, everyone got hurt.”


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