This year’s Society of Chartered Surveyors Ireland Annual Conference focused on how property and construction can support increased domestic and foreign investment. ANN-MARIE HARDIMAN reports.
An impressive array of local and international speakers, ably marshalled by Chairman John Bowman, used the new half-day format to excellent effect, outlining Government policy and private enterprise solutions to Ireland’s current property woes.
Society President Roland O’Connell highlighted the Society’s policy recommendations to Government, many of which were implemented in last year’s Budget. He reiterated the Society’s support for a commercial property price register and a register of State- and semi-State-owned property, emphasising the need for transparency and better data in properly planning development. He thanked the sponsors for their ongoing support, and the delegates for taking time out of their working day to attend.
The Government perspective
The first speaker of the morning was Brian Hayes TD, Minister of State at the Department of Public Expenditure and Reform and the OPW, who addressed the topic of public built environment expenditure. Renting and maintaining office space is the Government’s largest overhead after pay and pensions, so there is an urgent need to increase efficiencies, beginning with a comprehensive audit of the State’s property portfolio. Reductions in staff numbers in the public service have reduced the amount of accommodation needed, and Minister Hayes stated that his Department has already reduced the State’s rent bill from €131m in 2011 to €112m in 2012. It is planned that the bill will be below €100m by 2015 and will stay below this figure. The OPW plans to bring a property management plan to Government, which would define space norms and fit-out standards for office accommodation, favouring an open plan approach, and incentivising departments to rationalise their space, improve management, and increase energy efficiency. If necessary, they plan to use powers to direct departments to vacate or occupy property, possibly moving some functions out of Dublin city centre.
He also spoke of plans to dispose of surplus assets, e.g., transferring closed Garda stations to the HSE or to community groups, or selling them if the market improves.
Frank Conlon, IDA Midlands Regional Manager and Head of Property, addressed delegates on meeting property and construction needs to facilitate foreign direct investment (FDI). He pointed out that with the decline in manufacturing, growth in recent years has been in serviced offices. Ireland already has established hubs in ICT, pharmaceuticals and medical devices, which gives us an advantage over competitors in that we have core competencies in serving their complex property needs. He spoke also about developments in services such as clean technology, broadband access and cloud computing, all of which will be crucial in the future. The IDA has developed Gateway Business Parks in strategic sites around the country, which are intended to offer open door solutions to incoming companies. This has involved significant investment, and partnership with the property and construction industries. There is also a growing requirement for data centres, with an estimated 12m sq ft of space required in Europe by 2015, and a world shortage of space forecast by 2020. The IDA is very conscious of this, and Dublin is already host to major players in data management.
The presentation ended with a brief discussion of the challenges ahead, including continued economic recovery, enhanced competitiveness, and gaps in the market for high quality office solutions. Funding is of course likely to remain an issue, but the IDA is on track to hit its targets for this year, despite the tough climate.
The REIT approach?
Robert Fowlds, Head of Real Estate IB at JP Morgan Cazenove, tackled the hot topic of real estate investment trusts (REITs).
A REIT is a tax designation for a corporate entity investing in real estate. Robert discussed the way that REITs work internationally, describing them as very tax efficient, subject to specific regulations. REITs began in the United States in the 1960s, and arrived in Europe in 2003. The UK has had REITs since 2007, and there is now a huge and well-established market. Factors such as varying tax systems and borrowing costs between countries will affect property yields for REITs, and Robert emphasised that Government support is crucial to their successful development. The UK Government, for example, is very pro-REIT, offering tax-free status to UK REITs and abolishing the 2% conversion charge.
Robert outlined the case for Irish REITs (I-REITs), saying that they could form a new source of equity capital, access to broader capital markets and could increase liquidity. He pointed out that there are many challenges, not least the current state of the economy, as well as management and corporate governance issues.
To achieve a successful REIT IPO, he listed the following: management; an attractive portfolio; sound governance; and, investor education. He strongly recommended the adoption of private REITs and flexible ownership structures allowing international REIT ownership for Ireland, stating that I-REITs could be a credible source of permanent equity capital.
After coffee break, Angela Keegan, MD of gold sponsors myhome.ie, gave a short presentation on the residential property market. She described how modest improvements in the economy and employment levels are hinting at a more positive outlook and this, coupled with continuing low interest rates, will hopefully assist the recovery of the residential property market. The PSRA property register has brought transparency to the market, and there is also evidence of more transactions; in fact, in certain areas stock availability is becoming an issue. Finance is still crucial, with cash buyers making up a significant percentage of the market. While asking prices in Dublin are rising, prices in rural areas are taking longer to recover, and concerns about property tax persist.
Looking after renters
Joshua Kahr of Kahr Real Estate in New York gave a US perspective on large-scale residential property investment. He gave a brief overview of the regulations around residential renting in the US, and said that professional property management is not heavily regulated. He discussed the reasons why people in the US might choose to rent property, the concept of the ‘renter by choice’, and said that finance was often not the deciding factor, and in fact in cities like New York renters fall into all income categories. Flexibility in a country where people tend to move around was another factor.
Kahr Real Estate buys, renovates and rents apartment buildings in low-income areas in New York City. The company’s finance comes from high net worth individual investors. Joshua described how the company operates, vetting tenants before signing leases and making the most of available public data to do so.
He talked about the elements that are vital to the smooth running of a property management business. Skilled tradesmen on staff are a must to keep up with ongoing maintenance and repairs. A live-in superintendent to do minor repairs, manage the property and keep the management company informed of issues arising is also very helpful. In conclusion, he said that in order to run a successful business, property managers needed to know “enough about everything” – finance, maintenance, tax, law and regulation – and have a good sense of humour!
The Australian perspective
Patrick Tuttle, Group MD and CEO of Pepper Home Loans, gave an international perspective on the Irish mortgage market. The largest non-bank mortgage lender in Australia, Pepper recently acquired GE Capital’s Irish mortgage business, and plans to bring its financial services, and corporate real estate advisory and asset management expertise to the Irish market. He pointed out some differences between the Irish situation and that of Australia, where there is far less unemployment, no tracker mortgages, and far fewer mortgages at 90+ days’ arrears (<1%). Pepper plans to bring its arrears management skills to its Irish loan book. He felt that banks have been very slow to act on Ireland’s enormous arrears and negative equity problem. Innovative methods to deal with these problems are on the way, but there has been a lack of investment by banks in mortgage collection and recovery. He spoke about the need to balance borrower and lender needs, and praised the new personal insolvency laws as possibly offering solutions. Pepper plans to bring new strategies to the Irish market that have been successfully implemented in the UK and Australia, to keep borrowers in their homes where possible, although repossessions may be necessary in some cases. The company is optimistic about the Irish economy and property industry, and hopes to expand in the long run, even moving back into mortgage lending.
The bigger picture
The final speaker of the morning was Secretary General at the Department of Finance John Moran, who spoke about the prospects for property and construction in Ireland. He spoke about the upcoming Budget, and encouraged the Society and all interest groups to come to his Department with ideas and submissions. He exhorted delegates to take a global view of the industry’s future prospects, using the PIVOT Dublin project, which presents Dublin as an international design hub, as an exemplar.
He suggested Ireland as a base for construction-related activities worldwide: architecture and design, construction, and service/management. He offered a broad view of the property sector as being about more than “just buildings”.
He also discussed building the idea of Ireland as a centre of property financing excellence, pointing out the interconnections and broader impact of construction and design innovation. He emphasised the need for a clear vision for the construction and property sector in the future. On the subject of REITs, he said that submissions to Government about them need to set them in context as a pillar of the overall property sector. His staff are analysing REITs at the moment, and “this may be the year to do it”.
He finished his presentation by saying that the Government needs ideas as to how we can achieve the aim of making Ireland, and Dublin in particular, an international hub for construction and design. Over a business networking lunch, a new innovation at this year’s conference, delegates were able to meet colleagues from around the country, discuss the conference (and the burning issues of the day) and listen to an uplifting presentation from John Lonergan, former governor of Mountjoy Prison, and experienced speaker on education and humanitarian issues.