Funding first ushers new chapter for Irish multifamily

Lauren Parr reports on a ground-breaking deal for Tristan Capital Partners in the Irish market.

Tristan Capital Partners’s €72.5 million forward funding of a 197-unit prime residential block in south Dublin marks a first for the young Irish multimulfamily sector. The deal by Tristan and its minority partner SW3 to acquire the 181,000 sq ft Neptune building, under development by Cosgrave Property Group, is the first purpose built rental property to be sold in advance of completion.

Until now, activity has been dominated by the acquisition of existing stock from NAMA as well as banks at low replacement costs. The likes of Kennedy Wilson and Canadian-backed REIT Ires have subsequently worked on converting the assets, which were designed for sale, to rented apartments.

A variety of lenders, from local and overseas banks to insurance companies, have been willing to finance stabilised multifamily product for well know sponsers, which is keenly priced relative to commercial property. Funding of Kennedy Wilson’s portfolio of 3,000 apartment in Dublin city centre and close suburbs has come from a combination of equity and corporate level debt, plus loans from MetLife and Deutsche Bank.

Ires’s purchases, including the Marker Residences in the docks area and Kings Court in the city, have been funded by a €130 million loan secured from Barclays.

Pre-crisis opportunities dwindle

A big change in the past 12 months as the cycle has progressed further is that there are fewer pre-crisis buildings to buy. Pricing for good existing stock has come in in the three years since the recovery started, with net yields at 4.5-5 per cent.

“The future is about building to rent”, Peter Collins, chief operating officer of Kennedy Wilson Europe.

Despite a growing population very little has been built in the last eight years, amounting to a housing crisis in Dublin. The city is projected to expand by as much as 20 per cent over the next 15 years, according to figures from the Central Statistics Office. An estimated 12,000 new homes are required annually to keep pace, yet less than one quarter of that total was built last year.

Brian Moran
Brian Moran

The current supply/demand deficit renders the build-to-rent market “hugely attractive”, in Brian Moran’s view, Hines’s senior managing director in Dublin. Furthermore, he estimates 20-25 per cent of existing multi-family stock is technically obsolete by design standards.

There is significant scope for large-scale professional landlords to increase market share over the coming five to ten years since they currently manage less than 10,000 of Ireland’s up to 200,000 rental units. “We see that happening through development primarily”, Moran says.

Additional units have been built beside existing residential blocks, like the 166 apartments Kennedy Wilson has just delivered at its Vantage scheme in Central Park. “On the development side most people are focused on Irish banks to do that, which see the risk profile on leasing to be quite limited”, says Collins.

Build-to-rent still embryonic

The development of purpose built rental projects is at an embryonic stage, however. Even as the Irish housing market has started to recover and capital begun to build again, apartment prices haven’t returned to a level that makes sense for a lot of developers. VAT of 13.5 per cent on new homes (compared to zero in the UK) and high construction costs have also impeded the viability of development.

This has been compounded by what one investor calls “over enthusiasm” by Dublin’s city council to boost apartment standards with regard to minimum size. The situation has recently improved, with apartment codes adjusted down by the government in line with the rest of Europe. By consequence, plans are being prepared for pure multi family developments for the first time.

Hines is about to start building 4,500 residential units as part of a new town it is developing at Cherrywood, south of Dublin. It plans to bring in long term, fixed-rate capital to “build that out” says Moran, having met with half a dozen large European institutional investors.

The forecast for the Irish PRS market looks favourable, in large part owing to the government’s supportive approach. New policy is about to be published on build-to-rent properties, signalling an intention to get housing stock moving again. Guidance will soon be issued to local authorities on facilitating and promoting the sector, providing reassurance that it will be an important focus in the next few years.

Active land management policy to encourage the development of housing by bringing in vacant land tax from 2018, also bodes well. “This will be a great catalyst for getting large land banks in mid town or close to the CBD that have been languishing with NAMA into the market place for people like us”, Moran says.

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