Once the big spenders abroad, Irish commercial property investors are almost nowhere to be seen, writes JACK FAGAN
IRISH COMMERCIAL property investors seem to be suffering from a hangover. After dominating the market for almost 20 years, they are nowhere to be seen – even as an increasing number of institutions offer greatly enhanced returns on commercial investments they need to sell to reimburse their retail investors.
Virtually all the inquiries about the €10 million-plus properties currently on the market are coming from overseas, particularly German funds and wealthy British investors. For the first time in decades, the Irish seem content to be spectators rather than players in the investment game.
This is in stark contrast with the recent past when Irish-based investors chased virtually every available commercial property investment here, frequently upstaging the powerful insurance companies and pension funds which once controlled the top end of the market.
When the Irish spending spree was in full swing, new players found it impossible to challenge those with compliant bankers behind them. They set the market and rarely shirked at paying top prices for the right properties.
Much of the time they were content to settle for fairly tight yields, broadly similar to those available on prime properties in London, Paris, Frankfurt or New York. Dublin was the new Dubai.
The spending spree here was facilitated by a string of banks which competed with each other to grab as much as possible of the real estate prize. The huge volume of acquisitions were facilitated by debt financing. Everything seemed hunky dory.
And it did not stop there. The Irish were also big spenders abroad. The global estate agencies with Dublin offices assigned special advisers to help their Irish clients to find appropriate investments in Europe and the United States. They poured over €10 billion into foreign commercial property investments in 2007 and another €8.1 billion in 2006.
This all happened because of the often frustrating scarcity of investment opportunities in Dublin. It meant that these investors had to switch their attention to overseas markets to satisfy their preoccupation with finding a better portfolio than their friend down the road.
Hardly a single property developer or investor of any standing in Ireland – not to mention a flurry of hastily launched investment funds set up by guys who euphemistically called themselves “wealth managers” – resisted the temptation to pick up a high street investment in London or Paris or a tired shopping centre on the edge of a British city.
For a time the Irish became some of the biggest spenders on the international market, at one stage bowing only to the superior wealth of Middle Eastern oil sheiks.
The daddy of them all was Derek Quinlan. The former tax inspector racked up several deals valued at over €1 billion each. His band of investors believed he could walk on water. Undoubtedly they are still hoping that he will continue to serve them well, particularly in this difficult economic climate.
Nowhere in the buying frenzy was a global credit crunch in the script. But after it struck in August, 2007, sentiment in the commercial market at home and abroad took a hammering. Everyone quickly realised that an industry heavily dependent on debt financing simply cannot function without generous lending by the banks.
The initial reaction was one of shock and disbelief, and while London and other centres were relatively quick to bite the bullet and acknowledge that the good times were over, it has taken the best part of 18 months for the Irish to subscribe to any significant readjustment in capital values. That process is finally under way, led inevitably by the institutions which are obliged to review valuations on a regular basis and reimburse nervous retail investors whenever things get tough. Welcome back to the real world.
