Real Estate Alliance

REAL ESTATE ALLIANCE SEES MASSIVE 30% INCREASE IN THE FIRST-TIME COMMERCIAL INVESTOR MARKET

IT IS the fastest-growing phenomenon in the property market - the arrival of the first-time commercial investor. Investing alone, or in small syndicates made up of families, friends or work colleagues, the recruits now account in some areas for between 35 and 40% of all commercial sales for Real Estate Alliance members.

The market is very strong and more and more people are realising that returns on commercial property are greater than on residential in the long term, making them a very attractive alternative to traditional pension funds. Banks, too, are more enthusiastic about lending money for commercial investment.

High street retail is the most-desired type of property for over half the buyers, followed by development or agricultural land, then leisure and industrial sites. Also, investors from Dublin and major urban centres are targeting rural high streets to secure the most desirable retail properties.

"Small investors generally look to spend from €500,000 to €2,500,000 on a sole basis but would look to partner with business associates or informal syndicates for purchases up to €5 to €7m,"says Aine Myler, boardmember of Real Estate Alliance�s commercial committee.

Ms Myler, of Cumisky Auctioneers Real Estate Alliance, Balbriggan and Baggot Street, says the investor market is "very buoyant", driven by the release of equity in existing properties and the easier availability of mortgage product such as interest-only loans.

"A lot of people are sticking with one financial institution, which will allow them to gear their borrowing up to a certain percentage - say 80%," she explains. "So, if they have a property in the portfolio which has a loan-to-value ratio of, say, 50%, the additional equity from this can be used to leverage the purchase of another property, maybe to 95%, while still keeping within the 80% gearing across all properties in the portfolio.

"Interest-only loans are particularly popular to counteract the initial costs of purchase, including stamp duty, fees and VAT, as many small investors prefer to carry the VAT cost, taking the property out of the VAT net and making subsequent lettings far simpler.

"The strong preference is for retail investments, as this sector of the market has outperformed all others in the past few years. In percentage terms, about 80% of commercial investors are looking for primarily retail, but any good investment let to a good covenant with no break clauses within the first 10 years of ownership is being actively targeted."

The average yields on retail property are 5%, compared with office space (5.5%), industrial (6.5-7%) and residential (2.5-3%).

These investors are not confining themselves to the capital either. Eoin Dillon, of Eoin Dillon and Associates Real Estate Alliance in Nenagh, Co. Tipperary, is just one of the regional agents who has noticed a new trend emerging nationally.

"The type of investor is radically changing," says Mr Dillon. "Gone are the days when private investors can compete and acquire the traditional commercial property investment.

"Traditionally, retail investments were limited to the main shopping streets - Grafton Street, Henry Street, etc - and the major shopping centres, where properties were let to blue-chip tenants on long-term leases.

"Today, these type of investments, if they do come up for sale, are limited to the large-scale investor such as pension funds, with most that are offered for sale being sold off market or to a select number of potential buyers. Very few private investors have been able to secure these type investments over the past number of years and, frustrated by the lack of good-quality investments, they are actively looking outside the normal channels."

In recent years, that frequently meant the UK, where yields are typically higher by between one and 2% and where there is a far greater supply of investments at relatively small lot sizes, between Stg�500,000 and �1m.

"Lately, due to falling UK economic and consumer confidence, many of these investors are looking to mainland and Eastern Europe, while others are vigorously seeking investment opportunities at home," Mr Dillon says.

The typical investors coming through his door are couples over 40 planning their retirements. Most have relatively small mortgages on their family homes and are releasing some of the equity to fund the purchase of their first commercial investments.

One of the options is to buy into one of the property funds operated by the main banks. These give good diversification and liquidity and allow the small investor to take part for as little as €50,000 - but they tend to incur high management fees and expenses.

Many people prefer to manage their own commercial investments or - the other main trend emerging - join up with others to form purchasing syndicates.

These can often be family members, friends, work colleagues or groups put together, or facilitated by, their local estate agent, accountant or solicitor. By syndicating, these smaller investors are able to acquire larger-scale property investments with a better yield and diversify the risk.

Regardless of the type of investor, Real Estate Alliance members are noting a considerable amount of investors from Dublin and other major urban centres. They are actively making inquiries not just about properties already on the books, but are identifying properties on their wish lists and asking the local agent to approach the property owner to see if he or she is willing to sell. These properties tend to be located on the main streets of the regional towns and comprise retail units at ground floor level, with offices or restaurant use at first floor level.

Real Estate Alliance members are confident that the demand in the investment market will continue to strengthen as all the economic indicators show further improvements in consumer spending and employment, and growth in the US and eurozone economies.

- ENDS -

NOTE TO EDITORS

Real Estate Alliance is a strategic marketing alliance comprising some of the country�s best-established auctioneers and estate agents. Our key focus is on locally-owned and established estate agents. With one quarter of the alliance�s firms in business for more than a century, and with an existing IAVI president & five IAVI past presidents among the group�s members, the alliance is characterised by the established strength of its membership. In addition, membership is only open to firms led by members of the Irish Auctioneers & Valuers Institute or the Society of Chartered Surveyors.

Clients of REA members benefit from:

Real Advice

- Because member firms are locally-rooted and independently owned, they have first-hand market knowledge that ensures clients make only the best-informed real estate decisions.

Real Commitment

- Member firms are well established, leading local businesses built on delivering the best results for their clients.

Real Service

- Our member firms have the detailed understanding of the local property issues facing clients to ensure that they provide a superior range of client services.

Real Professionalism

- As Ireland\'s highest-qualified property professionals, REA sales staff are members of the IAVI or the SCS, the representative bodies for Ireland\'s top property professionals.

Real Confidence

- IAVI members complete far more property transactions than any other professional group. Our member firms harness this transaction volume to seize opportunities and speed the transaction process for you.

Real Coverage

- With more than 400 professional staff in 40 offices located nationwide, our member firms can provide the best real estate advice locally and nationwide.