Finance Ireland, the State's largest non-bank retail lender, is planning to refinance about €200 million of commercial property loans in international bond markets in the first half of 2019, according to market sources.
The company, led by former Irish Permanent chief executive Billy Kane, entered commercial property lending in 2015 and has subsequently built up a €250 million portfolio, funded by money extended by British banking giant HSBC.
Market sources said Finance Ireland plans to refinance most of this book through a securitisation deal, subject to favourable market conditions. This involves bonds being issued to international investors, who would receive interest payments financed by income from the portfolio.
It would mark the second Irish-linked commercial mortgage-backed securitisation (CMBS) transaction since the property crash. Deutsche Bank managed a CMBS deal in 2015, backed by income from Irish assets.
A spokesman for Finance Ireland declined to comment on the securitisation plans.
Mr Kane told The Irish Times in an interview in November that Finance Ireland's total loans are set to top €1 billion for the first time by the end of 2018, with about half of the portfolio comprised of car lending through its First Auto Finance unit, funded by London-based merchant bank Close Brothers.
Finance Ireland is also involved in small business loans and agri-finance and plans to enter the mortgage market next year, having announced in October that it has agreed to buy Pepper Money’s €200 million home loans portfolio and platform. UK asset manager M&G Investments will fund Finance Ireland’s mortgage business.
About 80 per cent of commercial property loans Finance Ireland agreed in 2015 and 2016 were to individuals and companies that were looking at the time to refinance debt with private equity and hedge funds that acquired Irish loans from banks during the crisis. However, most of its current business is with customers seeking to buy assets, including multi-family residential units, warehousing, retail property or hotels, Mr Kane said in the interview.
Finance Ireland can fund commercial property deals of up to €10 million and currently permits itself to have as much as €15 million out to an individual borrower. The unit’s average loan size is now about €3 million.
Mr Kane predicted in November that some parts of the commercial real-estate market were “coming to the end of the life cycle”.
“We’re not in the large office space in Dublin, but I think that’s probably peaked,” he said. “We deal with professional landlords, guys who understand value and are coming in and buying stuff that needs refurbishing. We think there’s a way to go with that.”
Goodbody Stockbrokers analysts estimate that investors in the Dublin office market have generated a cumulative total return of about 160 per cent over the past six years, driven mainly by researching property prices between 2013 and 2015, following the crash. However, with the market having since stabilised, rental income is estimated to have accounted for half of investors’ total returns in 2018, according to the analysts.