Thursday 22 February 2018

Lack of European funds threatens to undermine recovery in market

Land Mark: Brehon Capital placed an apartment block, linked to the Marker Hotel, up for sale last month, an indication that some big sales could be coming
Land Mark: Brehon Capital placed an apartment block, linked to the Marker Hotel, up for sale last month, an indication that some big sales could be coming

FRESH doubts about the long term prospects for the booming commercial property market have been raised amid the lack of conservative European funds entering the sector here.

Since the commercial property market surged back, most of the buyers have been US private equity funds which traditionally focus on short term gains. While their arrival helped resuscitate what had been a moribund market, particularly in Dublin, there are concerns that there are few long term players ready to take their place once they start selling.

Brehon Capital put an apartment block, tied to the Marker Hotel in Dublin's docklands, on the market last month and numerous other investment firms are understood to be running the numbers to decide whether they should be divesting themselves of certain assets – particular from the second tier in terms of quality.

Speaking at a property event this week Green REIT managing director Pat Gunne admitted the absence of big European funds could become a problem.

"Most of the investors in recent years have been private equity firms which are at the shorter end of the investment spectrum.

"Up to now it has been a case of getting in and out, and the market to date has been dominated by the US funds.

"You would like to to see longer term capital and you would like to see the European core pension funds [putting money in here] because they are longer term investors.

"We have the Irish players buying at the moment such as IPUT, Irish Life, and a few REITs so we do have a domestic players.

"This is basically one big jumble sale at the moment and you would like to see a deeper base of institutions and longer term money but that has to happen," he added.

With so many US players in the market, many of whom are known for short term investments, property analysts are becoming increasingly concerned at the need for a "second wave" of investors to fill the potential vacuum that could be left when these investors pull out.

Nevertheless, for Savills head of research John McCartney there will not be a shortage of foreign invetment in Ireland as long as the state of the wider economy justifies such a move.

"Equity capital is like sand – it will get in anywhere it can. Ultimately it comes back to the strength of the national economy and the occupier markets. Ireland is on a positive trajectory which will conitnue to attract buyers. Now, I don't know if in the long run whether it will be the same players [that are here now] but there will be no shortage of foreign investors," he claimed.

Nama's head of asset management Mary Birmingham took a similar line. She believes investment will remain plentiful so long as economic conditions are "benign".

"There is a huge weight of money seeking investment and a fair amount is foreign."

"There is a diverse range of investors and that is welcome. There will be significant activity and quite a large pipeline of transactions, and as long as the market keeps on delivering value those investors will stay in Ireland." Some have made longer term investments while there is a certain amount of mobility around that capital but with market conditions remaining benign that is not an issue, she added.

For their part, many of the private equity firms investing in Ireland have made it plain they don't see them making a swift exit.

"We tend to do deals and look to take profit sooner rather than later," said one investor which has done several deals in Ireland. said one major investor

"Having said that it wouldn't serve our purpose to dump our portfolio on the market and drive down prices – that would only hurt our position," they added.

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