A year ago, a truce was stuck between Ires Reit, the State’s largest private apartments owner, and a Canadian activist investor following a long battle over the strategic vision of the company.
The truce with Toronto-based Vision Capital, which had led a crusade for Ires to be sold or broken up, is due to formally come to an end at the Irish company’s annual general meeting (agm) in two weeks’ time.
There are reasons to believe, however, that it will extend beyond its agreed lifespan. Vision has cut its stake in the company from 5 per cent to 3.6 per cent in the past year. Fellow Canadian investor Capreit, which founded Ires 12 years ago, but had sided with Vision’s campaign, has sold its final 9.7 per cent stake.
And, crucially, the two nominees that Vision saw on to the Ires board – one-time chief operating officer of Canada’s CIBC Bank Richard Nesbitt and Amy Freedman, an investment banker turned corporate consultant – were part of a unanimous board conclusion last August, following a strategic review, that a sale or break-up of the company would not be in investors’ best interests.
While Ires’s board once resisted having Vision candidates being foisted on it, the company’s chief executive of one year, Eddie Byrne, says the two additions “have been really positive”.
I wanted to see if there was another roll of the dice in me
“Amy and Richard ask all the right questions, but they’re not asking questions with an agenda. They’re asking questions with the best interests of the business at heart,” says Byrne (58) in his first major interview in the role.
“People always ask me about the relationship [with Vision]. And my answer is: if those two directors are a proxy for that relationship, then it’s a very good one.”
Shares in Ires have rallied by more than a quarter from an all-time low of about 80 cent last November, helped by the removal of domestic political uncertainty following the general election, commercial property prices stabilising as central banks lower official borrowing costs, and a Government pledge to review the current rent caps system. But that has merely brought the stock back to around €1, where it was hovering a year ago – and well off the €1.26 at which Ires values its assets per share.
This is despite the fact that the group enjoys 99.4 per cent occupancy across its portfolio of 3,734 apartments in Dublin, and as demand for accommodation far outweighs supply.
The main thing hanging over the share price is the outcome of the Government’s review of rent controls – where rent increases are capped annually in rent pressure zones (RPZs) at the rate of inflation, or 2 per cent, whichever is lower. The expectation in property circles is that the review will be completed by the Oireachtas summer recess.
Industry figures and analysts say the cap is one of the main reasons why overseas private rental sector (PRS) investors have evaporated from the Irish market in recent years and apartment construction has slumped.
While the Housing Commission put forward the idea last year of a “reference rent” system being introduced, which would link rates to local properties of a similar quality, Byrne is not so sure.
“What does a reference-rate system actually mean in practice?” he asks. “I heard the chairman of the Housing Commission [John O’Connor] say recently that it would take two years or more to come up with a system of reference rents. You have reference rent regimes in other parts of Europe, but, as I understand them, they are really, really complicated.”
What about a doubling of the cap to 4 per cent, to where it stood between 2016 and mid-2021?
“What I will say is, when it was at that level, there was investment in apartment-building. Of course, interest rates were also lower at the time. But if you consider that pension funds are typically the types of investors that are ultimately behind PRS, an asset generating 4 per cent growth per annum is appealing,” he says.
“As a business, we don’t think we should get rid of rent pressure zones. We’re happy to operate in a regulated market. But it needs to balance resident and tenant protections with the need to encourage investment. If you don’t have that balance – and we don’t have it today – you can see what that does to supply.”
In recent years, Approved Housing Bodies (AHBs) and the Land Development Agency (LDA) have stepped in to address part of the gap in apartment building. However, they are focused on social and affordable accommodation.
“I think they’ve played a really important role in the past two or three years, because, if they weren’t in the market, there would have been zero apartment construction,” says Byrne. “They are the market now. But, let’s be honest, the level of demand is so high that the State can’t afford to fund all of the development that is needed.”
If you consider that pension funds are typically the types of investors that are ultimately behind PRS, an asset generating 4 per cent growth per annum is appealing
The strategic review conclusion statement last August said that the board “remains open-minded” about the possibility of a sale of the company or its assets in the future. Was that just a line to appease Vision and its nominees?
“Look, as a listed company, we’re for sale every day of the week. But I saw, at the outset, a huge opportunity to do something with the business,” Byrne says. “There is an opportunity for somebody to consolidate the market today – and to grow. And Ires is in a very unique position, I think, to be able to do that.”
As things stand, the Dublin PRS market is currently made up of about 125,000 units, with 100,000 of these held by small landlords, 90 per cent of whom own three units or less, according to Savills.
Ires estimates that up to 10 per cent of small landlords, many of whom purchased rental properties during the Celtic Tiger era, have been exiting the market each year in recent times, due to factors including restrictive tax treatment on rental income.
“Of the 25,000 units owned by institutional investors, I believe that at least half of these will have to trade [be sold] over the next few years, because they are in funds that are reaching the end of their life and have no choice but to sell.”
Ires, the last remaining real estate investment trust (Reit) of the four that floated in on the Dublin stock market following the 2008 property crash, doesn’t seem an obvious consolidator. It has had to sell units in recent years to ensure there was no risk of it breaching Irish Reit legislation that restricts debt to 50 per cent of total assets as the value of its portfolio declined amid rising rates. Its ability to build up cash for deals is also affected by law, which requires trusts to pay out 85 per cent of rental income by way of dividends.
We are looking at lots of different ways to create new revenue streams
It is also in no position to issue fresh equity to fund deals without diluting shareholders, given that its share price is trading at a deep discount.
However, Byrne reckons that if the rent controls are relaxed, the share price should rally. This would potentially open up the opportunity to raise equity. He says Ires would look to enter joint ventures with other firms to both develop and acquire apartment portfolios as they come to the market. Such deals could see Ires, as the operating partner, taking on, for example, 10-15 per cent stakes in projects.
“For our part, we would provide all of the property services, from development right through to managing and operating, and we would put in some equity alongside equity from the strategic partner,” he says.
A native of the south Dublin coastal village of Monkstown, Byrne took a year out after completing a commerce degree at University College Dublin in 1987 to work as a temporary official in AIB’s international corporate banking business, before studying for a Master’s at the UCD Smurfit School of Business.
Byrne joined Ulster Bank on a graduate training programme in 1989. He went on to work for Bank Brussels Lambert (now part of ING) and head the private banking business of Investec’s Irish branch between 2000 and 2003, before joining Anglo Irish Bank’s private banking business, reporting to the unit’s head, Tony Campbell.
When Campbell was asked by then incoming Anglo chief David Drumm in 2004 to head the bank’s North American business from Boston, he took Byrne – who was married with a young family at the time – with him as his head of lending. The North American business had about $1.5 billion of loans at the time, mainly out to institutional clients for commercial property deals. The unit had a rule where it could never have more than 15 per cent of its loans out for development projects, according to Byrne.
Unlike the Irish business, where borrowers often released equity in one project to raise debt for the next, the Boston unit was run along more the more cautious US market norms at the time. “The US market developed that way because of the previous savings and loans crisis there,” Byrne says, referring to the US banking crisis in the late 1980s and early 1990s.
Anglo’s $9.6 billion US commercial loan book would end up being sold to banking giants Wells Fargo, JP Morgan and private equity firm Lone Star, for a reported 80 cents on the dollar in 2011. By contrast, Anglo was forced to accept a 62 per cent discount on Irish and British loans transferred to the National Asset Management Agency (Nama) during the crisis.
Dallas-based Lone Star, which took on the non-performing part of the portfolio, hired Byrne to manage those loans. When the firm ventured into the Irish distressed loans market in 2012 with the purchase EBS’s former commercial property loan book – originally worth €675 million – it asked Byrne to head the local management business it set up, Hudson Advisors Ireland.
All told, Lone Star is understood to have invested €5 billion in Irish assets between 2012 and 2016, securing hundreds of acres of land banks in Adamstown, Portmarnock and Cherrywood in Dublin as part of this. These ended up being rolled into a development arm Lone Star set up in 2019, named Quintain Ireland, and co-led by Byrne and Michael Hynes.
Byrne left Quintain in late 2023. “The business was being prepared for sale at the time. I had no idea who the buyer was going to be, and I had to decide if I wanted to commit another five to seven years to the purchaser,” he recalls of his thinking at the time.
“I didn’t want to do that. I wanted to see if there was another roll of the dice in me.”
Lone Star would end up selling most of Quintain Ireland’s business last August to another US private equity firm, TPG. It has since been rebranded as Evara, and continues to be led by Hynes.
The Ires gig came up in late 2023 as the company’s then chief executive Margaret Sweeney announced that she was planning to retire. While it came at a time when the company was in the crosshairs of Vision, sources said that Sweeney had originally intended to step down a year earlier, but decided to stay longer to provide continuity after Ires moved the day-to-day management of its portfolio in-house in 2022.
Capreit previously held the asset and property management contract, which had earned it almost €50 million in fees over eight years.
You have reference rent regimes in other parts of Europe, but, as I understand them, they are really, really complicated
“To me, Ires was a unique business. It is the only property investment plc left in the market. We are fully internally managed, meaning we do everything, right down to fixing a tenant’s washing machine. Everyone else in this space in Ireland outsources that work,” he says.
“But I was also of the view at the time that the form of rent regulation that existed couldn’t last, because as a developer [at Quintain], I had seen demand for PRS schemes collapse.”
On the self-help front, Ires sold off 66 unwanted units last year, out of a total of 340 which it plans to sell over a number of years to recycle capital, including assets in properties that it does not control.
It has moved since the strategic review to raise additional revenues from its stock of 4,500 car park spaces, including commercial parking deals at its largest locations in Sandyford and Tallaght in Dublin. New residents moving into its departments are now being given a choice of taking a car park space with the unit. “But if you want the space, you’re going to have to pay for it,” Byrne says.
Ires is also doing more commercial leasing than in the past, with storage leasing in its basements, and car-sharing services in some of its locations.
“We are looking at lots of different ways to create new revenue streams,” Byrne says. “None of them are game-changers for our business, but they’re not inconsequential either.”
CV
Name: Eddie Byrne
Job: chief executive, Ires Reit
Lives: Rathmichael, Dublin 18
Family: Married to Tracy, they have four children, Sam, Christina, Charlie and Lily
Hobbies: Running, going to the gym, following rugby, playing golf, reading
Something you might expect: “I don’t have a lot of time to do all those pastimes I’ve listed.”
Something that might surprise: “Believe it or not, when I was younger, I had long blonde curly hair.”
