Ireland’s sovereign development fund is to partner with an Irish local authority for the redevelopment of a 10-acre area of land, building at least 50,000 sqft of new properties over the next two years.

The proposal to establish a partnership with the Ireland Strategic Investment Fund (ISIF) was signed off earlier this week by Kilkenny County Council (KCC).

Eugene O’Callaghan, director of the ISIF told IPE Real Estate that the joint venture was a “very interesting concept”

“We have the capacity to take risk that councils cannot,” he added.

“The proposed development would be consistent with our mandate to invest for a commercial return and to achieve a significant economic impact with our investment.

“The Kilkenny project could be a prototype for what we hope will be further investments in this space.”

The council, in the south-east of Ireland, owns the plots of land surrounding the historic St Francis Abbey and has been weighing up the site’s future since 2012, when it agreed to buy the 10.6-acre site housing a former brewery from multinational drinks company Diageo.

The National Treasury Management Agency (NTMA), which houses the €7.9bn ISIF, first approached the council in February last year to discuss the joint venture.

The venture will see the ISIF and council each provide €1.6m in equity funding towards the Kilkenny Abbey Quarter Development Partnership (AQDP), a limited liability partnership.

AQDP will hire a third-party manager to oversee the business, with a board comprising two representatives from each stakeholder, as well as an independent chairman, in charge of its supervision.

The partnership will take ownership of at least six plots accounting for 27% of the land, with the option of a further 13% of land being transferred if “substantial” development were to take place, a presentation prepared by the council said.

Separately, KCC plans to construct at least 60 residential units on a plot near the ones transferred to AQDP.

It emphasised that any development by the partnership would be entirely contingent on demand, and that it would not engage in speculative building.

“Loan finance for the development of individual proposals will be sourced by the partnership, most likely from the NTMA on commercial terms,” the presentation added.

The council is hoping the redevelopment will see the creation of a new quarter but has not yet settled on a final design, with a dozen options included in the master plan approved this week.

If, at the end of the second year of the partnership, construction has not got underway on at least 50,000 sqft of property, KCC would be allowed to take back the plots turned over to the partnership, as well as to terminate the partnership after three years, even if the minimum target is not met.

The partnership was agreed as the ISIF announced that it has would deploy €750m in capital over the coming year, investing in projects aimed at boosting the Irish economy.

Eugene O’Callaghan, director of the ISIF, said the fund had made “substantial progress” since its formal launch in December 2014.

“Investing in projects that deliver a commercial return means the fund’s resources are not depleted and the economic impact obtained can be renewed over time as investments are recycled.

“Between now and 2020, we will continue to identify suitable commercial investment opportunities that will deliver incremental economic impact.”

In real estate, the ISIF last year launched a residential property joint venture with KKR, providing debt to residential property developments.