Vernon the contrarian testing his timing again
He steered Green Property to sell off its investments during the boom and now Stephen Vernon is back investing in Irish property
Stephen Vernon (left) and Pat Gunne of Green Property at the listing of Green REIT plc on the Irish Stock Exchange. Photograph: Eric Luke
When he led Green Property’s departure from the Irish Stock Exchange and into life as a private entity in 2002, Stephen Vernon did not believe he would ever return to the market with a public company.
But he is back, and so is Green, whose latest manifestation is as a real estate investment trust (REIT), which last week raised €310 million from mainly institutional investors and was yesterday admitted to the Irish Stock Exchange.
So, why the change of heart? Two things have combined to lure Vernon back. This year’s Finance Act included the tax framework required to establish REITs in the Republic. They’re a familiar creature on most stock exchanges but completely new to the Irish market. Green REIT plc is the first, although the soundings are that there will be more.
The next was a change in the commercial property environment. “We wanted to participate in what we think will be a very interesting real estate market,” Vernon told a conference at the venture’s launch this week. “The stasis of the last five years is beginning to lift, we are seeing liquidity re-emerging in the Irish market.” So he and his colleagues decided that it was time to begin investing again, albeit in a measured way.
Plenty of people agreed with them as the proposal got a far better response than even its promoters had hoped.
When they first announced their plans, Green REIT had a target of raising €200 million. Investors signed up for over €100 million more. The offer attracted a few interesting names from the capital markets. “Our shareholder base is as good as anything we could have dreamed of,” Vernon says.
New York-based Paulson & Co, whose founder, hedge fund manager, John Paulson, who spotted the burgeoning sub-prime mortgage crisis in 2007 and made $3 billion shorting them, has taken almost 13 per cent. Investec is in for the same amount. Threadneedle Investments, a UK fund responsible for £84 billion in assets and part of the much larger Ameriprise group, has taken 8 per cent. Other backers include Blackrock, GP Holdings and Zurich Life.
The management, including Vernon himself, has taken 10 per cent and is locked in for three years. The trust will work by combining investors’ cash with a low level of borrowing to buy commercial property, mainly offices but some industrial units, in areas where there is real demand, essentially central Dublin and possibly the Republic’s other cities.
Green REIT’s prospectus says that borrowings will come to 35 per cent of the cash raised, although it has the scope to increase that to 50 per cent. Vernon agrees that the back-of-the-envelope calculation, €310 million plus 35 per cent of itself, which is €140 million, equals €150 million, sounds about right.
He does not see a problem with borrowing money. “The banks are willing to lend,” he says. “Our intention is to take bank finance. My plan would be to issue bonds in the longer term and replace the bank debt with cash.”
The trust’s managers have set a target of investing the funds raised over 12 months. According to its prospectus, Green is already eyeing properties with an estimated value of €500 million. These are predominantly in Dublin, and include either multiple or single buildings.