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Archive for September 5th, 2011

“Foreign investor capital has hardly featured in the last ten years in the Irish commercial property market and in 2010 only about €75m was invested by foreign investors – a welcome development but hardly significant. The peak in terms of commercial investment transactions was €3 billion in 2006 – all involving domestic investors and a lifetime ago in terms of where the property market and the banking system are now”  NAMA chairman and CEO speaking in May 2011

Take a look at the attached press release from a company many of you won’t have heard about before, Europa Capital LLP. It has just bought a shopping centre in the capital of Bulgaria, Sofia. By-the-by the seller was a venture between GE Real Estate and Derek Quinlan’s old company, Avestus; Avestus has been retained to manage the asset, but Europa paid over €100m for the 254,000 sq ft shopping centre which also incorporates an additional 112,000 sq ft of offices. Europa is a real estate investment fund; in other words, it raises money from investors and invests that money in real estate which it manages itself or through others, generates a return from rents, managing tenants and perhaps some development which enhances the value of the asset; it may sell the asset at a later date and in addition to the income earned throughout its ownership, the company hopefully generates a profit on the disposal. It is UK-based and no doubt its capital has many national sources especially as it is a company within the Rockefeller Group, which is US-based.

Nothing exceptional about the above transaction at all; Europa has invested an overall total of €7bn in property in emerging markets and so-called Eastern Europe. Bulgariais familiar to many of us as a holiday destination and a place where some of us bought apartments during the mania of the past decade. It’s a former communist country of just over 7m people but a GDP which is just one fifth of ours; we’d call it a “poor” country. There’s a perception that it is still a bit of a gangster state which might be unfair but it is a fact that Transparency International ranks it as the 73rd least corrupt country in the world, compared with our own ranking of 14. It still has its own currency, the lev.

Again, nothing exceptional about the above transaction at all, it’s just €100m in a EU investment market likely to be worth €100bn in 2011; what is exceptional is the fact that Ireland, a country we would like to think is “advanced” and in the euro area with a highly stable political environment for almost a century. We are a small open economy, and despite the blips with our universities tending to slip and our OECD/Pisa rating showing some disappointing results, we are regarded as reasonably well-educated, with a decent infrastructure, an attractive corporate tax environment and home to some of the world’s most-respected brands. Last year, we captured 40% of non-EU foreign direct investment in the entire 27-country EU; by comparisonBulgaria gets less than 0.5%.

Okay we have had a shock in the past three years with our GDP declining more than 10% after the partial-collapse of the property and banking sectors. But we have a stabilising economy, a balance of trade (exports less imports) surplus, unemployment although elevated hasn’t really changed in the past year, inflation below 3%. We are one of three EU recipients of a bailout, but are generally regarded as the most likely to exit the aid programme sooner rather than later.

So why are international property funds not prepared to invest in Irish property? Indeed why have international property funds largely avoided the country during most of the past decade, as claimed by NAMA above? You might think our current woes are a deterrent but for most of the 2000s, we were held out as a model economy with high growth, budget surpluses (taxation less government expenditure); yet international property investment was not forthcoming.

As a country we don’t seem to actively market property investment opportunities, by which I mean neither the IDA or the NTMA make presentations to overseas potential investors. But although a national agency might promote and facilitate investment, shouldn’t potential investors be able to find this country on their own? We do have many of the world’s biggest property service companies and agents with established presences in Ireland – CB Richard Ellis, Cushman and Wakefield (Lisney), Jones Lang LaSalle, Colliers International, DTZ (Sherry Fitzgerald), Knight Frank, Savills – they’re all here but none of them are brokering significant foreign investment. Why is that?

Given the decimation of the usual domestic sources of investment, the general depression in lending to the property sector and the fact that with  NAMA and the banks we have elevated levels of supply, now more than ever we need international investment.

Part 2 of this entry will aim to provide a response to this mystery (and by the way, this is not a general invitation to focus a debate on imminent Upward Only Rent Review changes which will be awarded a feature blogpost when the heads of the bill are published)

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