Wednesday 13 December 2017

Home truths: Might RTE sale hint at birth of 'super landlords'?

Some property market watchers are 'flabbergasted' at the €107.5m price paid for the 8.5-acre site at Montrose
Some property market watchers are 'flabbergasted' at the €107.5m price paid for the 8.5-acre site at Montrose
Mark Keenan

Mark Keenan

Does the sale of the 8.5-acre RTÉ site in Donnybrook to Cairn Homes for €107.5m mark a "return to the madness", as some are asserting about the highest price shelled out for residential land in a decade?

At face value it would certainly appear so. Market experts seem to be split on how commercially plausible the purchase can be.

I talked to three property market sources with decades each of experience in the new homes market and two said they were "flabbergasted" at the price paid for the prime site in Dublin 4 which was initially guided at €75m. In complete contrast, my third expert believes the market can comfortably bear the end prices required to profit - likely around €750,00 to €800,000 for two bed apartments.

You have to go right back to the crash to find a higher amount paid for residential land in Ireland. The most recent equivalent was Ray Grehan's shelling out of €62m for the adjoining Techrete and Teeling Motors sites in Howth, totalling 6.5 acres back in 2007. No residential site has been acquired for over €100m since the same Ray Grehan spent an outrageous €171.5m for the two-acre UCD Veterinary College site in Ballsbridge in 2005. It was sold on again in 2013 to the Comers for €22.5m, a price cut of 87pc.

It seems strange that the head of Cairn Homes, Mr Michael Stanley, pointedly said last month that he would abandon the hunt if it was felt that the RTE site became too expensive. Odd again the fact that the London-listed Irish-based company, which will shortly dual list on the Dublin stock exchange, has concentrated chiefly on affordable family homes since its 2015 initial public offering rather than high end abodes.

Two of my experts said the €107.5m price agreed for the Montrose site "doesn't add up" in terms of regular residential development - that is, you build the apartments and sell them in phases as per normal development practices.

One of them, with more than 20 years experience in the business added: "You're looking at around €200,000 per unit there before you've even done anything - on a site that could be headed for years of battles in the planning process, it doesn't make sense for regular development to sale practice." He felt there simply aren't enough people out there to buy 500-plus apartments individually at those prices.

It's a plot of intrigue the Fair City script writers might well savour as their Carrigstown set stands condemned to be flattened for 500-plus top-end apartments.

But Cairn Homes Plc is not one of the cavalier spendthrift developers of the late Celtic Tiger era. The firm stood sound on its own feet through the worst property market crash Ireland has ever experienced. With developments afoot all over the greater Dublin area on eight sites and a massive landbank stuffed up its jumper right now, it is renowned for quality designs and for its shrewdness of approach.

Perhaps the key to solving the mystery of how to make the RTE site a commercial success at this eye watering price might be found in recent comments by Mr Stanley who said a "new approach" was required for the development of homes in Ireland. I tried to contact him a number of times since the sale, but his representatives reported that he was too busy to discuss the logic with Montrose.

My two "doubters" reckoned there is one way to make the site work at the numbers of homes indicated - to flog the finished development, lock, stock and barrel to, or develop it for, one big investor - perhaps a big pension fund or a substantial international venture capital company with an eye on a long-term prize.

One added: "The sorts of yields indicated by the very high purchase prices you would require here would just not be at all attractive to regular small investors; but they might be right for a big pension fund taking a 20 or 30-year view. Consider that office blocks, which are often purchased by pension funds, have a lifespan of perhaps 20 years before they require a massive outlay for top-to-toe refurb. But homes don't have that in-built obsolescence. But it's extremely hard to get units in large enough clusters to justify a purchase like this."

Pension funds and international venture capital firms recently opened up to acquiring Irish residential property clusters as long-term investments - but only in blue chip locations and in great unit numbers. The Montrose site ticks the boxes.

We have seen the property crash produce situations in which entire blocks (previously held by their developers, or finished off after developers have gone bust) have been scooped up in their entirety by vulture funds and rented out en masse. The appetite is certainly there. And D4 is seen a cast iron location for long term rental security.

Might Montrose herald the arrival to Ireland of new 'super landlords' on an unprecedented scale? A new model for development-to-order for "super landlords" could work in a market where funding has become difficult for developers. It could work outside the capital in centres where rents are strong but purchase prices still too low to justify building. To find out, we'll have to keep tuning in to Montrose for the latest in this intriguing new property market soap. Watch this 8.5-acre space.

Indo Property

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