Tyrrelstown plight: Big finance in a shell-shocked house market
Irish residents had little reason to fear contact with hedge funds before property crash
Cruise Park Drive, Tyrrelstown (above). There are three main ways that Irish homeowners and renters may come under the sphere of influence a foreign fund: it becomes your landlord, it becomes your mortgage lender, or, as happened with many Tyrrelstown residents, it becomes your landlord’s lender. Photograph: Nick Bradshaw
The plight of the 40 Tyrrelstown families who have been told to find new homes, not long after their landlord’s loans were bought by the Wall Street giant Goldman Sachs, has brought into sharp focus the burgeoning influence of big US financial institutions on the Irish residential property market.
Irish residents, whether tenants or homeowners, had little reason to fear contact with foreign hedge funds and investment banks such as Goldman, Lone Star or Oaktree Capital before the 2008 property crash.
Since then, property loan and asset sales by Irish-based banks created a plum market opportunity for foreign institutions, including some so-called vulture funds and also professional property companies.
In the last two years, the yawning chasm which has opened up between the supply of homes and the growing demand has turned that plum market opportunity into a feeding frenzy. Irish homeowners and renters need to be wary about which of the institutions involved are likely to bite.
Some have long-term interests in the property business. Others are in the financial engineering business for short-term gains.
There are three main ways that Irish homeowners and renters may come under the sphere of influence a foreign fund: it becomes your landlord, it becomes your mortgage lender, or, as happened with Tyrrelstown, it becomes your landlord’s lender.
In the rental market, major property investors including Kennedy Wilson, Marathon Asset Management and stock-market-listed investment trusts, such as Ires REIT, have bought at least 6,000 apartments and homes in the Dublin area, according to market estimates.
Ires, which was originally established as part of a Canadian property company before it listed on the Dublin stock market in 2014, is the largest of these entities, with about 2,100 homes, including at the Beacon South Quarter in Sandyford and the Laurels in Tallaght.
Its latest financial report to shareholders highlights how it is exploiting the “significant supply/demand imbalance” to make profits.
Kennedy Wilson, which is linked to a property company run by US tycoon Bill McMorrow, owns more than 700 apartments in Dublin, including some at the Gasworks and also Clancy Quay near Islandbridge.
While real estate investment trusts (REITs) and specialist property companies have brought a new professionalism to the rental market, concerns have been raised over their influence on prices in certain parts of the city.
Other opportunistic entrants into the rental market include Marathon Asset Management, a New York hedge fund whose core skill is distressed assets.
For homeowners, especially those who have fallen behind in repayments, the influence of foreign funds is potentially greater than for renters. This is due to the volume of loan portfolio sales by exiting banks such as IBRC, Danske and Lloyds.
Latest figures from the Central Bank show one in 20 mortgages in this country, or more than 47,400 loans worth €4.6 billion, are held by so-called non-bank lenders, mainly investment funds.
Half of these mortgages are in arrears for 90 days or more, and roughly half of this portion are in arrears for more than two years. It is these homeowners who are considered most vulnerable to the actions of so-called vulture funds.
Investors in this part of the market include the Texan fund Lone Star, whose founder, John Grayken, was the subject of a searing Forbes profile this month due to his ruthless business practices.
Oaktree Capital, CarVal and Apollo have also snapped up portfolios of homeloans. None are regulated in the same way as ordinary mortgage lenders, who must adhere to codes when dealing with customers.
Most of them employ regulated agents to act on their behalf, although it is sometimes the funds that call the shots.
Pepper, which acts as an agent for Goldman Sachs and manages its interest in the Tyrrelstown portfolio, is the most prominent of these servicing agents.