The bank’s property team manages a €1.5bn European portfolio for clients who have amassed fortunes in Ireland’s boom. The UK, Paris, Brussels and Stockholm are its favourite markets
Ireland’s ‘Celtic Tiger’ years were a time of extraordinary wealth accumulation, making the country the second wealthiest out of the eight leading OECD nations. Over the past decade, Irish households’ net wealth has risen 350% and the country now boasts 30,000 millionaires.
Bank of Ireland Private Banking set up a property team four years ago to capture some of this wealth and has amassed €1.5bn of European assets under management. But it has ambitions to do more and take its entire portfolio’s value to €5bn by 2009, of which at least €4bn will be held in Europe.
Wealth preservation is Bank of Ireland Private Banking’s main aim, but it is looking to carry out more adventurous projects as its clients’ appetite for risk has increased. As a consequence, it will now invest in a range of projects, from those that will return from 7% to 9.5%, to more opportunistic deals that will bring returns of more than 15%.
“Two years ago, clients’ return expectations were mostly core, but lots of them are getting comfortable with property investment,” says senior acquisitions manager Hilary Fitzgibbon. “We are seeing enormous appetite from clients for investments generating higher returns. There is no longer such a thing as buying property and waiting for yields to compress. You have to look at ways to increase value. We are looking to rental growth and asset management.”
Bank of Ireland Private Banking would only undertake a development deal with a partner, however. Fitzgibbon adds: “We won’t say no to any location if we want to work with a particular company. We have specific ideas of where we want to invest but always leave a window open for a joint venture.” The business is looking at London, the UK, Paris and Brussels and is set to complete its first development deal soon.
In September the bank paid €185m for Victoria Quarter Shopping Arcade in Leeds, which it sees as a big asset management opportunity. Fitzgibbon says she plans to buy back some tenants’ leases and reconfigure some units. “We wouldn’t have looked at a scheme like this three years ago,” she adds.
The 20-strong property team is split into acquisitions, transaction management and asset management units. It invests either through collective vehicles for groups or by deals for individual clients. Clients invest between €500,000 and €25m each. The bank completes deals first, then contacts clients so they can choose whether to invest.
Wealth preservation the priority
“We structure deals in a way that enables clients to preserve wealth for themselves and their future generations,” Fitzgibbon says. This wealth preservation drive makes the business cautious about where it invests.
Its favourite markets are the UK, Paris and Stockholm. It is also a “huge fan” of Brussels, which it considers one of Europe’s most steady markets. Bank of Ireland Private Banking has done eight deals in the city, including buying the IT Tower in the Avenue Louise area, in a deal reflecting a 6.25% yield. “You won’t make massive returns overnight in Belgium, but you’ll make a little bit every year,” says Fitzgibbon.
She also sees potential in the Netherlands through rental growth and is exploring Scandinavian countries. The property team also began operating out of the bank’s London Queen Street office last month, to broaden the type of UK investments it makes. Peter Hewetson, former PRICOA head of acquisitions, will lead the London-based acquisitions team as head of property acquisitions for the company.
Bank of Ireland Private Banking’s recent purchase of Stuten 12 in Stockholm’s central business district caused some raised eyebrows as the country’s first sub-5% deal, at a 4.8% yield. Fitzgibbon says: “People consider our acquisition prices aggressive, but within six months of doing a deal the market opens up and people are paying lower yields than we paid. We need to be aggressive to tease out the best products.”
Fitzgibbon says the typical loan-to-value ratio on the bank’s deals is between 60% and 80%, and it is rare for that ratio to reach 85%. She adds: “If borrowing costs rise further we’ll have to put more equity into our deals.”
The bank’s aggressive approach wasn’t enough to prevent a French SIIC from beating it to a recent deal in Lyon, where an asset owned by DB Real Estate went for a 5.5% yield. Fitzgibbon says the business is finding it hard to invest in France as it cannot offer the tax concessions SIICs offer to vendors.
“Seeing the gradual convergence between London and the UK regions, we knew it was only a matter of time before that happened in France,” says Fitzgibbon. “There is still a positive yield gap between Paris and Lyon and it has good market fundamentals. If we’d got in 12 months ago it would have been fantastic — we could have benefited from yield compression. We are still trying to invest in Lyon but it’s a very difficult market unless you are really aggressive.”
The business has not invested in Eastern Europe, where countries score low on its economic screening tests, which research economic growth prospects, transparency and risk. It prefers Asia, as it believes that “going where economic growth hasn’t happened isn’t for us”, and has just completed its first Asian deal, buying an 11% stake in the Seoul International Financial Centre in Seoul, South Korea.
Bank of Ireland Private Banking also considers “the ABC of property fundamentals” for a deal and looks for a prime location and specifications, low vacancy rates and strong tenant demand. Such basics may come in handy as rising borrowing costs put pressure on returns. “We are concentrating on the fundamentals more and more and see our future returns coming from rental growth, rather than projected gearing,” says Fitzgibbon.
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