Who's Buying Ireland: International investment is a good thing
Large chunks of Ireland are being bought up, mainly by foreign investors. Office blocks, hotels, golf courses, apartments, loans and bonds are being snapped up as buyer from Russia, the United States, Israel and pretty much every else, spend billions of euro here.
That was the conclusion of the fascinating RTE TV programme by journalist Ian Kehoe, called Who Is Buying Ireland. Aside from outlining the extent, motivation and origins of the buyers, the programme also raises a few obvious questions. Is this a good or bad thing?
It isn’t a particularly difficult question to answer. The fact that we have found ourselves in this situation is very bad. But international investment coming in, is no bad thing. There are a number of myths around the buy-up of Ireland that need to be knocked on the head.
1. If a foreign investor buys a building that cost €45m for just €10m, because we bailed out the banks that lent the first guy the money, we are losing €35m.
This is not a myth but a statement of fact. However, the reality is that the money has already been lost. Some guy buying the building doesn’t make it a loss, it has already happened. He is simply fixing a price on what the loss will be. And he is stepping up where others are not.
2. After these international investors buy up everything at bargain basement prices, they will simply sweat the assets and rip us off.
Yes they will sweat the assets because they have taken a risk in buying them. But who wouldn’t sweat the assets? Would Irish buyers, if they had the money or the risk appetite, be any different? No they wouldn’t.
The fact they are buying them so cheap suggests they won’t have that much sweating to do. If these international funds hike up rents in order to maximise their return, they won’t be any different to a class of indigenous Irish investors and developers who did the very same thing during the boom with upward only rent reviews.
3. Once they are finished, they will sell the assets back to us at much higher prices.
There are different types of assets. Small retail units around the country may end up being bought back by Irish investors. But I would seriously question whether in five or seven years from now, there will be enough wealthy Irish investors, fully financed to buy back these trophy hotels, golf courses, Grafton Street buildings etc, at massive prices.
Also, if there were, it would suggest that the economy had done extremely well to repair its banking system to lend the money, and to create a coterie of wealthy Irish buyers who could afford to charge high enough rents to finance the purchase.
Property ownership is becoming more international. Is it worse to have a multi-billion dollar American investment fund owning something here, or have the Bovale Bailey brothers owning it?
3. They are just vultures
Yes they are capitalising on a market where everybody wants to sell. Vultures feed off dead or dying carcasses. These guys will have to seriously invest in their assets to make a good return. For example, I know of a manager of one hotel in Ireland who left because the new international owners wanted him to go to long-standing corporate clients and jack up the prices. But wouldn’t any owner do the same thing? The nationality of the owner doesn’t matter here.
Also, how many of our hotels, such as Jurys, The Berkeley Court and the Burlington were acquired by Irish developers to be knocked down. How many small time Irish developers bought and then closed petrol stations, to build apartments? There were lots. Was this not a form of short termism that was ultimately destructive of wealth? It was about a vulture-like as anything I have seen.
The fact is that a lot of international money is coming into Ireland through these purchases. For example, I recently visited the former Burlington Hotel in Dublin. It was scheduled to be knocked down as part of a grand plan by Bernard McNamara. Recently bought out of receivership by an international group, they are refurbishing the place. The basement car park is being completely re-built and right now is full of builders doing the job as fast as they can.
Their wages are being paid by their Irish company boss, which in turn are paid by the new American owners. The Americans probably borrowed the money from abroad. It is a direct cash injection into the Irish economy.
We also have to get over our obsession with property. Commercial property is a commodity. Does it matter who owns a hotel? Take great cities of the world like, New York or London. The commercial property in Manhattan or Kensington is owned by people from all over the world and has been for decades. It doesn’t matter.
Owning strategically important businesses is a different thing. Who owns our banks actually matters. Who owns large employers and what their intentions are, actually matters. Yet, few actual businesses in Ireland are being bought out by international investors.
It is extraordinary, that what people call a “vote of confidence” in Ireland Inc has happened in property and bonds, but not real businesses.
This is where the real questions have to be asked. If all of the investors interviewed by Ian Kehoe, for his excellent programme, were so bullish about Ireland, did they need to be subsidised with property tax breaks to come in and make the purchase? If it was so compelling, could the Irish exchequer not have got a little more out of the deal?
And if Ireland’s economic story is so compelling, then why are so few businesses changing hands. It is happening a little, but distressed property assets appear to be a great investment while distressed businesses are not.