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Ireland’s growing PRS sector attracts development loan

Hines and APG Asset Management have sourced €81m from Wells Fargo for the construction of a built-to-rent scheme in Dublin.

Ireland’s latest financing in the privately rented residential sector highlights lenders’ interest in the asset class, following a surge of investment activity to address the country’s housing shortage.

Wells Fargo has provided an €80.89 million credit facility to real estate firm Hines and Dutch pension fund investor APG Asset Management for their Cherrywood Town Centre build-to-rent development project in Dublin.

The facility will finance the first stage of the sponsors’ three-phase development, which is planned to deliver more than 1,200 fully serviced build-to-rent apartments over the next five years. Through the financing, Hines and APG are planning to deliver the first 384 apartments over the next three years.

Paul van Stiphout, senior portfolio manager at APG, said both Hines and APG received “various expressions of interest” from potential lenders and noted that the sponsors will secure future facility agreements in due course for upcoming phases of the scheme and other build-to-rent projects.

For her part, Wells Fargo’s Stacey Flor, co-head of origination for the bank’s UK & Ireland commercial real estate team, said the deal demonstrates the bank’s continued commitment to back the build-to-rent sector in both Ireland and the UK.

Debt providers have strong appetite for Ireland’s growing PRS sector, where the lack of large-scale institutionally-backed product has led to high competition to provide finance, Chiara Zuccon told Real Estate Capital this month.

According to the Irish government’s Project Ireland 2040 report, the country requires 25,000 houses per year for the next 20 years. By the end of 2018, however, only 14,400 houses were delivered, data from the Irish Central Statistics Office show.

Growing investment activity seen in the last few years shows investors are addressing the lack of housing supply in the Irish market. The country’s PRS sector saw €386.8 million of capital transacted in 2017 – a substantial increase on the €269.1 million transacted the previous year, according to Cushman & Wakefield.

In the first half of 2018, PRS accounted for 25 percent of the €1.85 million invested across commercial properties in Ireland, about double the level seen the previous year, CBRE’s data show.

The growth of PRS as an investment asset class has been driven by positive market fundamentals, according to Knight Frank. Dublin is undergoing a population boom, with the population set to increase by 292,400 – or 21.7 percent – between 2016 and 2040, according to the Economic and Social Research Institute (ESRI). In addition, tighter mortgage underwriting standards have seen bank lending fall to a fifth of what it was 10 years ago, resulting in a growing cohort of lifetime renters.

There has also been a cultural shift in attitudes towards renting in recognition of the flexibility it offers, with this demand particularly strong from young, internationally mobile professionals working in the tech and finance sectors.