Green Property REIT launch has come at right time
Launch of a real estate investment trust is good news for borrowers, the Government and Nama
Green Property announced the flotation of the first Irish REIT (real estate investment trust) last week. This is great news for the Irish property industry as it marks the continuing re-professionalisation of the commercial property sector following its invasion (and destruction) during the era of loose money from Anglo Bank and so on.
The Green REIT will start off without any actual property – which may be a disadvantage as it does not allow investors to examine the detail of an actual portfolio and the proposed management’s actual track record. But then in Ireland we have a “chicken and egg” situation because there are effectively no portfolios dwhich are available here for REITs, and it is extremely difficult to actually assemble a portfolio without having a chunk of money.
To date, Nama and IPUT are the only companies with an existing portfolio suitable for a REIT – and they don’t seem to be rushing into this space. Green is taking a sensible course in the circumstances.
As a proponent of REITS for many years, and as chairman of the REITS Forum (the voluntary group that advocated for the new legislation, at irishreits.ie) I welcome Green’s initiative which uses the new legislation enacted as part of the 2013 budget process.
The stated intention of the Green REIT is to mostly own commercial real estate in Dublin and this should be very attractive to both Irish overseas investors who can expect a dividend yield of over 6 per cent and participation in the anticipated recovery of Irish capital values. Green is projecting an overall capital and income return of 10 per cent to 15 per cent a year, when fully invested.
So what is a REIT? It is a normal limited company that gets a quote for its shares on a stock market. The REIT owns rental property and distributes 85 per cent of its net income to its shareholders but those shareholders only get taxed in the same way as if they owned the property directly (the “T” in REIT refers to the start of REIT in the USA over 40 years ago when they were actual trusts and not companies).
Before REITs, property companies and those owning properties through limited companies were hugely disadvantaged in that they paid tax twice on rental income.
The result of this was that there are no quoted property companies in Ireland and much property was owned directly by individuals which involved huge risks.
REITs are a way of enabling Joe Public to invest in professionally managed Irish property with limited liability just as if they were big guys or pension funds.
REITs are quite unlike the infamous or ubiquitous syndication vehicles that became so popular in Ireland in the noughties as a means of investing in property but which have lost Irish private investors so much of their wealth.
They are safer because REITs must own multiple properties to spread risk, cannot borrow more than 50 per cent of the value of the property, must be managed by competent professional property asset managers, are supervised by a stock exchange and are permitted to only do limited development.
They also must publish annual accounts, giving full disclosure. Had REITs been in existence during the noughties it is arguable that the banking crises might be a lot smaller and the fall in values a lot lower.