Dublin development torch passes to New Generation

When he arrived on the property market five years ago at the trough of the recession, New Generation Homes founder Greg Kavanagh attracted plenty of attention. He was just 25 and, with most developers in hock to the National Asset Management Agency, his company appeared to be the only one doing anything of substance in a moribund industry.

Led by Kavanagh and its chief executive, Pat Crean, the company has spent more than €300 million mopping up development sites in Dublin. Now, in what many see as the real test of its strategy, not to mention its mettle, it is shifting focus from property deals to construction.

It proposes to build more than 1,000 homes and some offices at locations dotted around Dublin. Some of its big projects include plans for 340 homes on the Naas Road, 350 units in Cabra and 200 apartments in Harold’s Cross.

South docklands site

It is weeks away from seeking planning permission from

Dublin City Council

for a €250 million complex, made up of 400,000sq ft (37,161sq m) of offices and 200 apartments on a site on Lime Street. It will occupy part of the waterfront, at Lime Street and East Hanover Street in the city’s south docks area, close to the Grand Canal Theatre. Crean believes the offices could house up to 5,000 jobs.

“It is a unique site and we are very excited about it,” he says.

Kavanagh adds that the company has had a number of approaches from potential tenants. “That is unusual before you get planning permission,” he says.

Neither will identify those who have expressed interest, but the location is close to Facebook’s offices and within hailing distance of Google’s base on Barrow Street, so there is a possibility that at least one big multinational is looking at the project as a possible home. The site is in a strategic development zone, which should in theory help the planning process.

The company is now selling from some of its early developments. The highest- profile of these is Rathmichael, where it launched the city’s first post-recession “millionaire” houses. Buyers have paid an average of €1.25 million for 10 of these. Just one is left. Houses and apartments in Rathfarnham and Coolock are set to follow them to the market.

While this will generate some cash, sources estimate that, taken together, the construction bill for New Generation’s overall plans will be more than €2 billion, on top of its previous €300 million outlay. It is unlikely to spend all that at once. Even when things go smoothly, planning and building can take four years and the company’s projects are all different stages. Nevertheless, getting the group to its next phase will be costly.

New Generation’s sole backer is London-based M&G Investments, which is providing cash for both the group’s building and site-buying activities from a 10-year fund. Last September, the investment manager had charge of €335 billion of its clients’ wealth, made up of the usual mix of shares, fixed-income, property and cash.

It is a division of US pension fund Prudential, whose European assets it manages. London investment bank Moelis & Company recruited M&G for New Generation two years ago. The story goes that Crean's and Kavanagh's presentation impressed the directors enough to convince them to stump up the cash.

New Generation borrows the money for its projects from its investor. The loans are secured with a general debenture over the company and a first charge over the assets whose development the cash is funding. This is typical of the security used by property companies and gives M&G the right to appoint a receiver over the company and its properties if it is not repaid.

Along with that, independent restructuring specialist Paul Horn chairs a board that scrutinises the company's plans. The other members include New Generation's chief operating officer, Silvia Shiliashka, who is a former director of Moelis, and Crean and Kavanagh.

Lower interest rates

In its early days, before its current lender came on board, the group was paying about 15 per cent interest on the money it was borrowing. However, at that time it was buying property whose value multiplied over a relatively short time as the economy regained momentum, giving it ample cover for the cost of its funds. The rates it is paying M&G are understood to be far lower.

The investment manager is the latest in a line of funds and individuals that have rowed in behind New Generation. US fund Starwood joined forces with it on a project to build 148 houses in Barrington’s Tower, Cabinteely, in south Dublin, on a site bought for €8 million. They parted company and the property went on the market.

British billionaire John Beckwith’s Pacific Investments was involved with New Generation in a site at Killiney in south Dublin, until the two had a well-publicised split last March. Beckwith’s son Piers subsequently said the parting was “not very amicable”.

Pacific, Piers Beckwith and New Generation were named in a High Court action taken by Shannon Valley Plant Hire over €1 million owed in relation to work done on the project. That case was subsequently settled.

Both the Killiney and Cabinteely sites were sold to Cairn Homes, the housebuilder that floated in 2015. Killiney Hill Developments Ltd, set up for the venture with the Beckwith family, and of which Piers Beckwith and Kavanagh were once directors, has been in liquidation since December. This is a housekeeping exercise, as it no longer has any assets or business.

Crean says that from his company’s perspective there was no bad blood involved in its relationship with either Starwood or the Beckwiths. He says the splits were simply part of New Generation’s “natural evolution” from having a number of backers to having a single partner funding all its activities.

He says the same applies to its relationship with other investors, such as Pat McDonagh, the software millionaire and Riverdeep founder. New Generation worked with him on a development in at Aiken’s Village in Stepaside, Dublin.

New Generation has also found itself involved in litigation. Ciaran Larkin's Kinvara Homes went to the High court in a row over €2.5 million in fees. Another individual, Paul Doyle, sued a number of Kavanagh companies, Fairtrade Building and Construction and Amaethon Developments. Both these cases have been settled.

A third action, taken by Orchard Homes against Kavanagh and a number of his companies for money the plaintiff says is due to it, was up for mention in the High Court earlier this week. That is scheduled for a full hearing later this year. New Generation and its director have already said they plan to defend the matter vigorously. Beyond that the group will not comment on it as it is an ongoing case.

More recently it clashed with South Dublin County Council over plans for an estate of 54 houses at Finnstown Lodge, close to Adamstown. An Bord Pleanála refused permission on the grounds that the development should contain 124 houses. Ironically, New Generation subsidiary Crekav originally wanted to build 119 homes there but reduced that following consultations with the council.

The company initially came back with a proposal for 74 units but a vote by councillors for a tree-preservation order at the site complicated matters and forced a further reduction. It must now literally go back to the drawing board. The development is likely to be delayed for a further 18 months to two years, notwithstanding that it took about two years to get to the planning application stage in the first place.

It looks like New Generation is set to face many of the same old problems. New Generation Homes: Key projects

CARRIGLEE, NAAS ROAD Three hundred and forty apartments close to the Luas that connects Tallaght and Citywest with central Dublin.

CABRA Three hundred and fifty new homes at the old CIÉ site on Dublin's northside.

HAROLD'S CROSS More than 200 homes on at Mount Argus on Dublin's southside.

SOUTH DUBLIN DOCKS Four hundred square feet of offices and 200 apartments on Lime Street and East Hanover Street. RAHENY More than 100 houses and 270 apartments at St Anne's Park on Dublin's northside.