In this update, we review the key real estate developments in 2014, where the value of real estate transactions reached €4.5 billion, and the projections for the market in 2015.
Who are the Players?
In 2015, there is likely to be more sales, loan and assets, by NAMA, IBRC and financial institutions. NAMA has become a victim of its own success and is likely to wind down in 2015/6. Private equity buyers may decide to sell certain assets in 2015.
Purchasers: These can be divided into three categories - international (mainly US), Irish REITS and institutions. In 2014, the market, and particularly bidders, have become more sophisticated. Appetite for risk varies widely from the institutions prepared to pay a 4-5% yield for prime Dublin assets to private equity looking at yields in excess of 8-10%.
In late 2014, there were less bidders. This is likely to continue in 2015. International sovereign wealth funds may enter the market as a result of Ireland improving credit rating.
Residential Property is Very Much Part of Commercial Real Estate
Traditionally, Commercial Real Estate did not include residential property but this is no longer the case. We have acted on several portfolio sales of residential properties, including multiple blocks and also individual portfolio sales.
How was Real Estate Transacted in 2014?
On the sell side, the process is started many weeks or months before the data room goes live. Documents need to be collected and downloaded onto a project data site so that the process works smoothly once the data site goes live.
On the bidder side, instructions are often given in round 2 and there is then a 4-6 week turnaround for final bids. A bid accompanied by a signed or marked up contract will be required and/or a bidder will have a greater chance of success. Once contracts are signed, a QIAIF may be established to take the deed on closing.
We have significant project management expertise, which in 2014 included running and accessing data rooms and organising resourcing to meet tight project deadlines. Our Real Estate team works closely with our Banking, Funds and Tax teams on these projects.
In 2015, many of the larger portfolio sales are likely to continue to be transacted through the data room process. In 2014, more property, particularly single assets, was being sold “off the market” and this likely to continue in 2015.
Greater Emphasis in 2015 on Real Estate Asset Management
In a rising market, there is a potential to improve rent yields.
There is a two tier system in place. Bewley’s decision/upwardly only leases. Ban on upwardly only rent reviews comes into play on 28 February 2015.
Traditional Financing and Refinancing of Real Estate Likely to Increase
Debt levels on property are at an historically low level.
Loan to Own Transactions
Loan to Own transactions are more likely in 2015 - see our Litigation Update in this briefing, which discusses the recent O’Flynn case of the High Court.
There will be more examinerships in 2015. Lease repudiation or rent reductions may be the primary aim.
Use of Regulated Investment Structures
REITs, QIAIFs and s.110s are set to continue.