ANALYSIS: Irish lending market plays catch-up

Momentum is picking up in the Irish lending market as international players rejoin the fray and bad bank NAMA continues to offload non-performing loans.

The Irish lending market has been slower to recover than its German and UK counterparts, with loan volumes still low, although the market has started to bounce back, according to Colliers. ‘A lot of lenders are still very picky,’ said Richard Bielenberg, divisional director of investment and development land at Colliers in Dublin. ‘They’re talking a good game but that doesn’t always translate to a lot of lending.’
Active lenders in Ireland include bailed-out Bank of Ireland and Allied Irish Banks (AIB).

AIB declined to provide lending figures, although a spokesman for the bank said that ‘AIB is very much open for business and we have the capacity, either solely or through syndicates, to participate at all deal levels.’

According to Paul McDonnell, head of the property finance group at Bank of Ireland, the bank has been ‘very active’ in financing both international inward investment and domestic players. ‘It is a much healthier lending environment than it was a couple of years ago. There is good liquidity in the market and we’re also seeing alternative lenders enter the market.’ He declined to provide lending figures. Private money is also teaming up with local money to finance deals, Bielenberg said. ‘It’s not uncommon these days for local lenders to provide 80% of financing, with local private money chipping in for the remaining 20%,’ he said.

International lenders
International lenders are also coming back into the fray, according to John Moran, CEO of JLL in Dublin. ‘Until 18 to 24 months ago, it was particularly hard to get any financing,’ he said. ‘The Bank of Ireland stole the march back into the market. Since then, Irish banks have been followed quite aggressively by international lenders such as Deka and Morgan Stanley.’

Irish investors accounted for 58% of deals in the second quarter, with overseas investors bagging the remaining 42%, according to JLL. Dublin witnessed €1.7 bn of deals in the first half of the year, down fractionally on €1.8 bn in the same period last year, according to JLL, which is forecasting up to €3.5 bn in deals this year.

Loan margins are now tightening on the back of growing demand. ‘For a core office loan in Dublin at around 65% LTV, we are now looking at a loan margin of around 150 bps, compared to 250 bps to 300 bps a year ago’, Moran said. There were around €15 bn in loan sales in Ireland last year, according to Moran. In addition to sales coming out of NAMA, UK lenders Lloyds and RBS also sold loan portfolios.
Alternative players

Alternative lenders are also starting to eye Ireland, notably Dublin. In early September, Allianz Real Estate entered the Irish debt market by providing a loan for the acquisition of a portfolio of 11 office buildings and one residential property by Starwood Property Trust. Morgan Stanley arranged a total loan of around €300 mln with Allianz companies providing around €150 mln.

The assets have a combined GLA of about 55,800 m2 and are located in Dublin’s city centre. ‘We decided to enter the Irish lending market because we saw an attractive opportunity to do so,’ said Roland Fuchs, head of European real estate finance at Allianz Real Estate. ‘Assets have been reasonably re-priced since the financial crisis. In addition, potential rental growth may further support loan structures,’ he added.

Like in other European markets, Allianz will lend on offices, retail and logistics properties in Ireland because those are also the properties that it invests in on the equity side. ‘We’re a pure senior lender though, so we are not interested in distressed loans or secondary loans. The minimum loan size that we will underwrite is €100 mln and we don’t have an upper limit,’ said Fuchs.
Allianz Real Estate’s debt investment portfolio currently totals €3.5 bn in Europe across 10 countries including Germany, France, the UK, Spain, the Netherlands and Ireland. ‘We don’t have a country target or budget – we take it where it comes,’ said Fuchs.

NAMA disposals
For those looking to enter the loan market via the acquisition of existing loan portfolios, Ireland’s ‘bad bank’ NAMA has a number in the offing. It is currently in the process of selling Project Arrow, a portfolio of mainly non-performing loans with a par value of more than €7.2 bn, according to those who track the market. Due to the fact that many of the loans are non-performing, the portfolio may sell for as little as €1 bn, according to those who track the market. Even then, it would still mark one of the biggest real-estate related sales in Ireland.

‘Project Arrow’ comprises around 400 debtor connections with loans secured against a large number of regionally located assets. Project Arrow is secured by around 96% Irish real estate and 3% UK real estate. The 2,402 underlying properties comprise 39% residential assets, 35% commercial properties, 24% land and development and 2% hotels and leisure facilities. Goldman Sachs is believed to be bidding jointly with US specialist investor CarVal Investors. Apollo Real Estate and Cerberus are also believed to be on the shortlist, with final bids due soon, according to those who track the market. The deal is expected to close by the end of the year.

US bargain hunters
Cerberus is not new to the Irish market – last year, it acquired NAMA’s Northern Irish loan book for around €1.6 bn. The portfolio had a book value of €5.7 bn. Also, in July, Lloyds Banking Group sold commercial loans in Ireland to a group of buyers including Goldman Sachs, Bank of Ireland and CarVal for about €1.2 bn. Project Jewel, so-called because the portfolio includes the ‘crown jewel’ - the 1.3 mln square feet Dundrum Town Centre - is also being offloaded by NAMA. Final bids are due in mid-September. Hines, Hammerson, Colony Capital and Allianz are expected to be among the bidders, according to market sources. Allianz and Hines declined to comment. The other companies could not be reached for comment.

NAMA is also in the process of offloading further real estate loans acquired during the financial crisis. A spokesman told PropertyEU that the bank ‘is on track this year to redeem €5.5 bn of senior debt. This will mean that 73% of senior debt will have been redeemed by the end of the year,’ he said. NAMA currently expects to repay all of its €30.2 bn senior debt in full by the end of 2018. To date, 64% has already been repaid, with a target of 80% by the end of 2016. NAMA intends to redeem its €1.6 bn sub debt by March 2020, the spokesman added.

Sara Seddon Kilbinger
Correspondent German-speaking countries