New wave of building to be welcomed
That is a progressive move which reflects maturing capital markets in Ireland. It may also contain the seeds to address the chronic housing shortage affecting the country.
I should start with a related fact. My employer acted as the stockbroker for one Irish property real estate investment trust (REIT) in the past two years and one house-builder to raise equity finance for their expansion plans. We raised large amounts of capital for them to invest in commercial property and housing across Ireland. This may colour your views on the argument set out below, although I strongly believe in its merits.
Before the global financial crisis of 2008, commercial property in the Irish economy was owned and financed by companies and entities that had very limited public scrutiny. Special purpose vehicles and private corporations that had to file nominal annual returns tended to dominate the property market.
These entities tended to carry high levels of borrowings that made them vulnerable if a banking crisis surfaced. When the banking system capsized, leveraged businesses and particularly property-related companies suffered hugely.
As the crisis unfolded, policymakers wanted to find mechanisms to kickstart the economy — property investment was a key objective. A group of experts, aided and abetted by forward-looking civil servants and politicians, designed and implemented legislation that ignited the commercial property market.
By introducing REIT legislation, the authorities delivered a structure that attracted investors to vehicles that had capped borrowing levels and minimum dividend payout formulas. Those guidelines were also attached to a demand that the REITs committed to full disclosure of their financial strategy, business models, and actual results.
The result of this innovation was to unleash a wave of new, conservatively financed companies that attracted large amounts of investment from global asset managers, pension funds, and insurance companies in support of REITs in Ireland.
Green, Hibernia, IRES, and KWE were subsequently established to grow and invest. These four, combined, today have stock market values of over €3bn and are actively building and developing properties in various centres that have clear beneficial effects on employment. If you would like to explore their finances and business models each publishes regular detailed investor updates on their websites for all to see. That is a profoundly different perspective on commercial property investing in Ireland relative to the status quo before 2008.
This phenomenon is also spilling over to the housebuilding market. A new company — Cairn — was set up on the stock exchange last summer. It has attracted investors who have committed over €490m in equity finance to the company. It is now busy shaping a footprint that will allow it produce a targeted 1,000 houses per year in Ireland when up to speed.
For such a critical part of the economy, it is surely healthy and progressive to have an increasing share of property exposed to public scrutiny instead of being hidden behind curtains of privacy and inaccessible financial statements.
It would be reassuring to believe these seismic shifts in how property is financed can now be reflected in the way our political system evolves. A unique opportunity exists to bring a level of openness and transparency to work in the Dáil that advances, rather than holds back, a flourishing economy. That will take imagination, bravery, and intelligence but holds out the promise of unlocking mechanisms that help us attack failings in health, housing, and infrastructure.
The Dáil passed legislation that triggered the REIT phenomenon to recover commercial property in Ireland. Surely it has the nous to make further and bolder moves to tackle even bigger problems.
