State agency commits €25m to help small developers fund new housing

The Ireland Strategic Investment Fund (ISIF) will commit one-third of the funding to a new €75 million investment vehicle targeting smaller property developers who are struggling to access debt financing for projects.

The initiative, managed by Man GPM Aalto, part of UK fund manager Man Group, is aimed at delivering 330 new homes and supporting 1,000 construction jobs, according to ISIF, a State agency that replaced the National Pensions Reserve Fund in 2010.

This follows on from ISIF’s investments in other vehicles – Activate Capital and Ardstone Residential Partnership – that are aimed at providing residential development funding to larger builders.

The Man-run fund is aimed at providing between €1 million and €10 million to individual projects of up to 50 homes.

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“ISIF has committed over €526 million to building more homes in Ireland and this is a significant addition to our portfolio, that further demonstrates our ability to improve the supply of new housing,” a spokesman for ISIF said.

“Smaller developments have a major role to play in improving supply – particularly in cities where it is essential to make the most of opportunities that small sites can provide.”

Catalyst

ISIF estimates its €25 million in funding will act as a catalyst for up to €115 million in new development activity.

The Economic and Social Research Institute (ESRI) estimates that home completions will rise to 24,000 this year from 19,500 in 2017, well short of the 35,000 to 40,000 new homes many economists estimate is needed to cope with demand.

The ESRI data is based off electricity connections, which is widely viewed to be an unreliable measure that overestimates the number of completions.

House price inflation was running at 11.6 per cent in November amid the supply shortfall, according to the latest figures from the Central Statistics Office. However, banks, chastened by the property crash, typically only provide between 60 per cent and 65 per cent of total development costs for viable, "shovel-ready" projects.

While the terms of the new Man-run fund is not immediately clear, the ISIF-backed Activate Capital fund, set up in 2015 and managed by private equity group KKR, provides senior debt for up to 90 per cent of development costs to larger, experienced companies.