Monday 9 December 2019

Lone Star unit says private equity loans are too expensive for housing schemes

High demand: The Dún Sí development in Portmarnock, where prices for three-bed, semi-detached houses start at €500,000
High demand: The Dún Sí development in Portmarnock, where prices for three-bed, semi-detached houses start at €500,000

Seán McCárthaigh

A Lone Star unit has insisted it's too expensive to borrow money from private equity firms to fund affordable housing developments in Ireland, and it would prefer to borrow from banks.

An Irish unit of the Texas financial giant is seeking planning permission for a large development in north Dublin, where it has already built about 250 homes in a scheme that will eventually have about 1,000 units.

Planners acting for the Lone Star affiliate seeking permission for the next 153 new homes in the Portmarnock development, have told An Bord Pleanála that private equity firms can charge interest rates of up to 12pc for finance.

"There are a number of active alternative lending institutions such as KKR, Cardinal and Broadhaven that will lend on land banks without a valid planning permission," the planners said.

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"These alternative lenders charge high interest rates in the region of 12pc, making it very difficult to deliver much-needed affordable housing.

"A key obstacle to delivering affordable housing is securing appropriate levels of bank finance from traditional financial institutions such as AIB or Bank of Ireland."

The Lone Star affiliate - Irish firm St Marnock's II - is seeking a derogation from the maximum suggested limit on the size of the new housing phase in Portmarnock in order to secure finance at a cheaper rate from traditional high street banks.

Permission for the development is being sought under the fast-track Strategic Housing Development regulations, with a decision due in February.

Planners for the firm, which is owned by a Luxembourg-based unit of Lone Star, confirmed it was seeking planning permission for a housing development "slightly above" the normal permitted number of units to replace a loan from alternative lending institutions with one from a traditional bank that would lead to a reduction in financing charges.

"This will enable the land owner to deliver houses at more affordable levels to the market due to reduced costs," they added.

The local area plan for south Portmarnock stipulates that planning applications for residential development should generally not exceed 150 units unless a clear justification for a higher number is shown by a developer. In a submission to An Bord Pleanála, planners for St Marnock's II claimed there were both economic and planning reasons for seeking approval for a housing development above the normal permitted size.

The planners for St Marnock's II said there was a strong demand for new housing with Dublin's population currently expanding by more than 22,000 per annum. They said the level of demand in Fingal had been highlighted since the release of the second phase of Lone Star's housing development at St Marnock's Bay which had recorded 83 sales since March. Prices for three-bed, semi-detached houses in the Dún Sí estate start at €500,000.

St Marnock's II has proposed selling 15 units in the Station Road development to Fingal County Council at an estimated cost of more than €5.27m under the Part V process, where social housing must be reserved for the local authority.

Last month, Lone Star abandoned its plans to float its Irish development business on the stock market in conjunction with the construction firm, Durkan Residential. The flotation, through a vehicle called Dres, was expected to value the company at about €300m. Dres built the latest phase at Dún Sí and is also expected to build the phase for which permission is currently being sought.

Lone Star is using a UK-based residential firm called Quintain to oversee the development of its Irish land banks which replaced its previous vehicle, Hudson Advisors.

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