The Full Spectrum: Starwood, Green And Tetrarch Still Want To Put Money Into Dublin

Some of the biggest investors in Ireland since the financial crash are looking to invest more in Dublin, in spite of worries that some sectors of the city’s real estate market might be heading for an oversupply.

At Bisnow’s Dublin Workspace of the Future event Thursday, held at Hibernia REIT’s 1 Windmill Lane office scheme, directors from Starwood Capital, Green REIT and Tetrarch Capital outlined how they intend to make significant investments in a variety of sectors in Dublin, with a big focus on offices.

The key thing to note here is the range. The three investors represent both domestic and overseas capital, looking for returns ranging from core to opportunistic, investing in standing assets, development and debt, from both the listed and unlisted sectors.

“Our main challenge with our CBD assets is that they are 99.7% leased, so if our tenants want to grow how can we help them do that and where do we put them in the portfolio?” Starwood Capital Vice President Lorcain Egan said, discussing the performance of the firm’s 600K SF office portfolio. “As it stands we are doing a lot on the debt side. The fundamentals for Ireland are strong. We look at it relative to other European markets, and we are positively disposed towards Ireland and are looking to put more capital into the space.”

Despite concerns, there is demand to meet the supply coming in on hospitality and office, Egan said. And the fundamentals and economic drivers are there for continued success in offices.

“The demographic demand side is strong, the occupational demand from big tenants is strong — the market has changed in the last 10 years from being a 20K-40K SF leasing market to a 200K-300K SF leasing market and investors and developers are adapting to satisfy that kind of demand. We think we’re best placed to do that on the debt side.”

The one potential fly in the ointment worrying Egan is that Dublin might not be able to keep up with the pace of growth when it comes to helping companies attract workers.

“The one potential downside to that strong economic growth story is infrastructure and residential,” he said. “Is the government going to continue to build out the infrastructure to support these occupiers who are putting thousands of people on the ground and adding them to the workforce, and is the resi there to support that population growth?”

One of those very occupiers echoed this point on a later panel. “We’re a company that needs people who speak different languages, so we are looking to attract people from abroad to work for us and live here," Slack Regional Workplace Manager Ciaran Chaney said. “It is harder to do that if people can’t afford to rent an apartment.”

Green REIT Chief Investment Officer Caroline McCarthy said the company will be investing the €150M raised from the sale of the Westend retail park into its development pipeline, which comprises 300 acres of logistics land near Dublin Airport and 300K to 400K SF of potential office development at its Central Park business park.

McCarthy said the lack of debt in the market and the internationalisation of Dublin’s investor base, tenant roster and building quality meant that the market would not see any sudden shock in the near future. But she said the firm is not confident enough to put its money into secondary office buildings.

“I would love to be buying secondary assets, refurbishing them, leasing them up and putting them back on the market,” she said. “But a lot of the secondary assets in Dublin are compromised. You don’t have that many secondary buildings with high floor-to-ceiling heights that would allow you to put in the plant and machinery you need, so you end up with a hybrid where you have to have your ceilings exposed or you can’t have raised floors, and that feeds through to the type of tenant you’re going to get. You may get a tech tenant with a strong balance sheet who will sign a long lease at a good rent, but you may end up with a weaker tenant and that obviously feeds through to your valuation. It’s difficult to price those assets.”

But not all of the panel agreed. “We don’t share that view, but we have a different bias, we are looking opportunistically,” Tetrarch Capital Development Director James Byrne said. “One of the best deals we ever did was in the secondary market where we bought a creche building — nobody looked at that as being a decent office space.”

It didn't fit an institutional approach, but Tetrarch Capital looks at things differently and turned the property around.

“When you have a market where the occupancy levels of grade A space are where they are today then there has got to be an opportunity in secondary,” Byrne said. “If we see opportunities in the city centre we will try and take them, especially with the backdrop of infrastructure investment and the government’s 2040 plan, office demand in the city centre will continue to be strong, so if you can provide office space at half the price then that is definitely an opportunity.”

There is, it seems, something for everyone in the Dublin market at the moment.