David Browne– 15 February 2013
Last year saw an increased appetite among investors for residential block sales, particularly in the prime Dublin areas.
This appetite has been fuelled by the delayed release of stock, the relatively low number of transactions and a renewed awareness that the number of prime residential assets that can be purchased in their entirety is limited.
The capital gains exemption has also encouraged buyers looking to invest in Irish residential stock over the medium to long-term.
Three distinct buyer groups have emerged: domestic buyers, professional property investors/pension funds and international funds.
Domestic buyers look to avail of low capital values with potentially high yields and are generally looking to invest private funds in the region of €1-3m.
Not only are they taking advantage of prices which are below replacement cost but they are also banking on short-term rent increases and long-term capital recovery.
Such domestic buyers are funding block purchases with significant cash reserves and are even willing to take on problem cases, where there are potential issues relating to structure or fire and compliance irregularities, as they believe they can add value to the asset by fixing problems.
An example would be the 31-unit Auburn Lodge, Killiney, which we sold unfinished to an Irish buyer.
Professional property investors and pension funds prefer properties with strong yields in strong locations. These buyers require gross yields in the region of 7-10pc-plus and have a preference for fully-let and completed developments.
These buyers are coming from far and wide and we are currently meeting with investment groups from the US, UK, Russia, Germany and the Middle East.
Despite the current climate, foreign buyers see Ireland as a strong investment opportunity due to its highly educated and English speaking workforce, young population and excellent international corporate presence.
They are, however, looking for value and yields must be at levels greater than they can achieve in other parts of Europe that are in a more robust economic state.
These buyers seek assets in the region of €5-10m.
Abbey Glen, Cabinteely, Dublin 18 is an example, consisting of 44 units producing €420,000 a year, it sold for in excess of the asking price to an international buyer.
The third buyer group are international funds seeking assets with capital values of €10m-plus.
They want prime assets in prime locations and will pay a premium for assets that are sold in their entirety as they can control their costs.
Examples of recent sales at this level include Park Lodge, NCR, D7, (62 units producing €820,000 per annum) which we sold for in excess of €9m.
Other agents sold Sandford Lodge, Ranelagh, D6, with 119 units producing €2.08m per annum and The Alliance Building, D4, which consists of 210 units producing €3.38m per annum.
Gross yields achieved ranged from 7.2-8.5pc.
The variables in relation to the achievable price will depend on the location of the asset, its proximity to local amenities and public transport, the current condition of the asset, whether it requires additional capital invested prior to income being produced, and how much information is available to the buyer at the time of sale.
The outlook for 2013 is a lot more positive than in recent years due to a number of key factors such as the increase in lending, the shortage of new homes coming on stream, Dublin house prices bottoming out and improved buyer sentiment in general.
As vendors see the advantage of transacting with a single buyer, these market trends will see continued and strengthened demand for block disposals.