Make hay while the sun shines might be a good personal motto right now for Iput’s chief executive Niall Gaffney.
On his watch, the Irish property fund has lined up a handful of big-ticket office developments in Dublin that could prove nicely timed to meet peak demand, as the economic recovery gathers pace.
Gaffney used the recession to restructure the old lady of the Irish investment industry, drawing in €800 million in new funds and using the money to purchase tired properties in prime locations that were ripe for development at a time when most investors wouldn’t touch Ireland.
Closer to home, his urban farming roots allow him to kick back with his family in their semi-rural setting in Westmanstown, Co Dublin.
“I redeveloped my granddad’s homestead,” he explains. “It’s a very small farm, just five acres. It’s like living in the countryside but on the edge of the city. We’re just a few minutes from the Phoenix Park yet we’re looking at farmland . . . at [the neighbour’s] sheep. My wife jokes that I never left home.
“I’d be fond of the farming way of life. We have to arrange to get hay made every year so my kid’s birthday is always associated with the round bales being made. We have big ranches each side of us and they come in and sort the hay every year. The kids have a bit of craic with it and it keeps them grounded. It’s nice to have a break from the city.”
Gaffney runs Iput plc, one of Ireland’s largest and longest established commercial real estate investment funds, albeit one which has traditionally been a little media shy.
Established as a unit trust in 1967, open only to tax-exempt Irish institutional investors, Iput transformed itself into a regulated property fund in January 2014.
It is now regulated by the Central Bank of Ireland as a QIAIF (qualifying investor alternative investment fund) and as an internally managed fund (AIFM) under EU regulations 2013.
This is a long-winded way of saying that it is now open for business with overseas institutions. This manifested itself in September 2014, when German financial services group Allianz committed to invest €140 million in Iput as it searches for attractive yields for clients at a time when interest rates globally are on the floor. “We used the opportunity of the recession to reinvent the fund . . . [and make it] far more transparent and liquid,” Gaffney says.
Allianz joined an eclectic mix of shareholders that includes Trinity College, the pension schemes of Diageo, Eir and ESB, clients of Davy and Goodbody stockbrokers, and CBRE Global Investors. One quarter of its investors are now located abroad.
The Allianz money took Iput’s fund to €1.2 billion. It has since increased in value to €1.7 billion, with Gaffney confidently predicting that it will go to €2.1 billion by the end of the first quarter of 2016.
Its focus is entirely on Dublin, predominantly on offices in the “central business district”, but it also has some industrial and retail investments on the fringe of the city. It is a 25 per cent shareholder in the Pavilions shopping centre in Swords.
It made the headlines this week when The Irish Times revealed its letting with blue-chip global consulting group Accenture, at 7 Hanover Quay, the former European headquarters of Facebook, at €55 a square foot.
Yesterday, it launched 10 Molesworth Street, better known to Irish people as home to the Passport Office. It was acquired by Iput in 2013 for just under €17 million and will be demolished to make way for a high-end 115,000sq ft office block, with a development spend of €40 million.
“We’ve increased it in size by about 60 per cent,” Gaffney says. “Handmade bricks, Portland stone, double-height reception area. It will be one of the few buildings in the city centre with a courtyard garden, significant level of balconies.”
According to Gaffney, the Freemasons next door have been “very co-operative” with its plans but he wouldn’t say if there were any funny handshakes involved.
“It’s going to be a stunning place,” he purrs. “This will set a new standard. This hasn’t been done before in terms of quality of spend. It’s a building we’re going to hold for the long term.”
It will be ready in the summer of 2017, with Gaffney predicting some frothy rents.
“We’ll be pitching this at about €65 per square foot into the market because of the quality of what we’re going to produce,” he says confidently.
This would be quite a coup given that commercial rents peaked at about €60 a square foot in the bubble years.
These projects need to be carefully managed, which is why Iput recently hired Tom Costello as a consultant. He is a former managing director of construction group Sisk, leaving the company in 2012 following a review of the business.
“We’ve established a construction management division in here. Tom is an industry beast and has helped us leverage our position in the marketplace. People need to understand that we get our hands dirty here.”
Iput is also refurbishing 47-49 St Stephen’s Green, which recently had a fancy black hoarding placed on the front of the property.
“This will be very similar to what you see [in Mayfair], marble floors, limestone walls, expensive wood finishes. We’ve done a deal already with one tenant [Royal London] to take a floor at €55 a square foot. That building when it’s finished and let would be worth €35 million.”
Iput has owned the property for seven years and is spending €8 million on its refurbishment. Again, it’s a saucy rental price but Gaffney believes it is justified.
“You’re in the right location. There’s a war on talent now [for employers]. Staff want to be beside pubs, restaurants, shops, public transport. It’s also the fact that it’s one of the few buildings left.”
This is all marketing guff, of course. There’s always another building to be developed in a way that we could never have previously imagined. If there wasn’t, groups like Iput would be out of business.
Other developments
Other developments include the former offices of the EU on the corner of Dawson Street and Molesworth Street, where it hopes to get permission to put a “new skin” on the building. Gaffney hopes to have it ready by the spring of 2017 following a development costing €9 million.
It also has plans for Fitzwilton House, which will be demolished for a major development with planning permission likely to be lodged in December. “It’s going to be a gateway to the old city,” Gaffney says in another bout of hyperbole.
There’s been a lot of chatter recently about another bubble beginning to emerge in Irish commercial real estate, fed by rents nudging up to their boom levels. Gaffney is relaxed.
“For 2015, ’16, ’17 and ’18, we see good prospects for the Dublin office market,” he says. “A lot of talk is overstated to suit a particular narrative.
“What we see is an acute lack of development finance, an acute lack of capacity in the system. Any development that takes place is going to require a lot of equity and a lot of collateral. That is one of the security valves on the threat of oversupply. We don’t see that same speculative bubble emerging.
“Demand at the moment is outstripping supply,” he adds, “and will do in my view for the next three years. We don’t see oversupply in the market for some time.”
It’s not all been honey and jam since Gaffney took over as chief executive in 2007. At the time of the property slump in 2008, Iput’s fund had a value of €1 billion. Some 65 per cent of its value was wiped by the crash.
Gaffney describes the period as a “big challenge”.
Iput is unlisted in spite of the plc tag in its name. This makes it highly illiquid and if investors want their money back, the fund has to sell property, unless it is sitting on cash.
“In 2008, there was no turnover in the market. The longest period we had a redemption request for was 18 months,” he says. Between 2008 and 2010, Iput traded almost 15 per cent of its stock in the secondary market. “Major pension funds would have bought those shares.”
Importantly, the fund continued to pay its quarterly dividend throughout the recession – in fact it has never missed a payment. In the most recent quarter, it returned €21 million to investors and its yield is running at about 5.3 per cent.
“The capital losses we suffered were temporary,” Gaffney says. “Between 2012 and 2015 our fund has grown in value by €1.2 billion. Of that, €800 million is new capital and €400 million is a return in capital values. It gives you a sense of the turn in the market.”
Projected income
The turnaround in Iput’s business is reflected in the fact that it is projecting rental income this year of €85 million, compared with €45 million three years ago.
Its vacancy rate is a skinny 1.4 per cent and it has seven projects under way, with new office developments amounting to 165,000 sq ft.
Looking to the future, Gaffney puts the “investable” property market in Dublin at between €50 billion and €60 billion and wants Iput to have a 5 per cent share of the pie.
“So that’s €2.5 billion to €3 billion,” he says. “At the moment, we’re €1.7 billion. We see ourselves being €2 billion very quickly because we have share subscriptions in that order to take us there . . . and at the €2.5 billion to €3 billion range within 24 months.
“At that level, we’d see ourselves as a relevant option for global institutional investors that want long-term exposure to one of the more sophisticated real estate markets in Europe.”
Given Iput's solid record, you wouldn't bet against Gaffney or Iput reaching this goal. After all, he knows a thing of two about making hay while the sun shines. CV Name: Niall Gaffney Job: chief executive Iput plc Age: 43
Family: married with three children Lives: Westmanstown, Co Dublin
Hobbies: loves hurling and runs in the Phoenix Park at weekends and in St Stephen’s Green midweek. “It keeps me sane.” Something we might expect: His job requires him to travel a lot to meet overseas investors
Something that might surprise: He can drive a tractor, a legacy of his grandfather having a small farm in Lucan. Gaffney also managed Lucan Sarsfield’s minor hurling team to their first county title in 2005, having played under age himself for Dublin.
Name: Niall Gaffney Job: chief executive Iput plc Age: 43
Family: married with three children Lives: Westmanstown, Co Dublin
Hobbies: loves hurling and runs in the Phoenix Park at weekends and in St Stephen’s Green midweek. “It keeps me sane.” Something we might expect: His job requires him to travel a lot to meet overseas investors
Something that might surprise: He can drive a tractor, a legacy of his grandfather having a small farm in Lucan. Gaffney also managed Lucan Sarsfield’s minor hurling team to their first county title in 2005, having played under age himself for Dublin.
