Property investor

From Dublin to New York, families with long experience of the property market are the ones who will survive the recession, writes JACK FAGAN

IN EITHER a property boom or bust there are strange parallels between one country and another. Although there is not the remotest comparison between property values in New York and Dublin, both cities have long standing investors and developers who have survived many crashes. The two cities also have young, fast-moving players who grabbed most of the action during the lengthy boom but are now in deep trouble.

At the height of the property market, the Dursts, the Rudins, the Roses, the LeFraks and other members of New York’s royal real estate families were treated “like slow-moving dinosaurs on the verge of extinction”, according to the New York Times.

Although they had spent more than five decades carving their names into the New York skyline, the families were outbid and sometimes outmanoeuvred by the newer, flashier speculators and investors who swaggered down Manhattan streets buying one skyscraper after another at record-setting prices.

But now that some of the record-breakers are desperately trying to fend off lenders or teetering on the edge of bankruptcy, these families are looking like wise veterans. They are in good financial shape and eager to do deals. They do not necessarily take pleasure in the downfall of the upstarts, but they do relish the fact that, as one older player said:“Now, we’re the only ones breathing.”

Dublin also has its long-established property families who have capitalised on bulky portfolios over the years and added to them only when the time – and the price – was right. They seldom competed with the newer players for the overvalued development sites and weren’t tempted to buy investment properties once yields fell below 6 or 7 per cent.

The O’Flaherty, Magnier, McManus, Cotter, Kenny, Esses, Enoch, Newman, and Roden families – to mention but a few – can hardly be compared to the New York property families but they have managed to build up substantial portfolios that are well insulated from the present storm. What distinguishes most of the Irish families from the new generation of traders and developers is that they buy property but seldom sell. They usually have relatively low levels of debt on their buildings and tend to opt for a small number of projects every economic cycle rather than go on a binge.

That privilege was left to a few dozen developers who competed furiously for sites in cities and towns up and down the country. Many of those sites have since lost between 60 and 80 per cent of their value and, with the toxic debts destined for Nama, it is questionable whether many of the insolvent promoters solely relying on development sites will ever recover sufficiently to resume a development role in the property industry. Those who raised mezzanine finance to fund the purchase of the sites might have a better chance of surviving if they had the foresight to have included a “get out” clause in their legal agreements.

Either way, many of these sites are now being offered for sale quietly to cash-rich developers and investors by banks and receivers concerned about the lengthy valuation procedures being followed by Nama. The whole exercise could take years to unravel and put many of the developers out of business. In the meantime the long-established property families who have the necessary cash to buy high quality, distressed property investments at steep discounts are waiting in the wings, but have found little of interest so far.

Ireland’s preoccupation with property over the past decade was not confined to dodgy development sites. No, the nouveau riche also pumped a huge fortune into the UK investment market simply because there weren’t enough opportunities to do so at home.

For example, in 2005 the Irish spent €3.2bn in the UK investment market as compared to €2bn at home. A year later the UK spend had reached a whopping €5bn.

Oh boy, did we know how to blow a fortune.