| As happens in every recession, most commercial | | | | quality of the building, its tenants and its location. |
| tenants continue to pay their rents regularly and, | | | | The advantage of buying now ahead of the |
| while there is some tenant distress, particularly in | | | | turnaround is that one can pick and choose from |
| the retail area, most rent recovery is still in | | | | a good variety of properties that can be found |
| excess of 95 per cent in good commercial | | | | by careful searching. One has to be selective. It's |
| portfolios. | | | | not for the faint-hearted and does have some |
| This is in contrast to the flow of dividends where | | | | risk. Many of the vendors will be forced sellers |
| almost all public companies have cancelled or cut | | | | having acquired at a far higher price and they, or |
| their dividend leaving many investors with serious | | | | their banks, will be in distress. |
| cash flow problems. Such corporate dividends are | | | | Investment won't be focusing solely on new |
| likely to remain absent or cut for some | | | | buildings. Many buildings were built in the last few |
| considerable time. | | | | years by nouveau property developers who got |
| But, historically in commercial property, rents get | | | | funds from equally inexperienced bankers and |
| paid in recessions. During the very worst of the | | | | without an in-depth knowledge of the property |
| last three recessions in Ireland, rent recovery | | | | market. Those new generation developers often |
| never dropped below 92 per cent in the portfolios | | | | ignored the rules of location, building quality and |
| that I was managing. | | | | tenant need. They were driven by the |
| Those investors who are now invested in low | | | | mathematics of high volumes of floor space and |
| geared, or no geared, well chosen property are | | | | achieving planning permission quickly. The product |
| happy campers as their quarterly cheques come | | | | of much of their activities will remain empty and |
| through the letter box in spite of the current | | | | forlorn for a long time. |
| economic and investment conflagration. The fact | | | | The same thing happened all around the world. My |
| that property valuations may have fallen does not | | | | first experience of it was in Brussels in 1973 and |
| affect rental income. Those with significant | | | | 10 years later in the US where the phrase "see |
| leverage have banking problems but not property | | | | through buildings" was invented to describe |
| problems. | | | | unpartitioned office buildings in off-beat locations |
| While I was a serious critic of the frenzied buying | | | | that became the tombstones of bad property |
| at unsustainably high price levels during the period | | | | and banking judgement. We have our share of |
| of madness after 2006, I'm of the view that we | | | | "see through buildings" now. |
| are now beginning to see good buying | | | | Over the next year or so in Ireland my firm will |
| opportunities emerging in Ireland. But the focus | | | | be looking for mainly dull properties in excellent |
| now must be on income and not on short, or | | | | locations let at affordable rents to viable tenants |
| even medium term, capital appreciation. The next | | | | and with generous car-parking. |
| five years or so will be about income and | | | | We will only buy those buildings that business |
| collecting rents. | | | | tenants will want to occupy. The service charges |
| The IPD index of commercial property shows | | | | of such buildings will be low and the buildings will be |
| that values have fallen by just 37 per cent since | | | | capable of being managed efficiently. In general, |
| the peak in 2007 and values are still going | | | | they will not be skinned high-tech shiny edifices |
| downwards. But there will be a bottom and that it | | | | with big service charges and undividable floor |
| is not far off. | | | | plates. |
| That buying opportunity will last while the banks | | | | The yields expected will be in the order of 7.5 to |
| are closed or almost closed for significant lending. | | | | 8.5 per cent and clients may have to accept the |
| Those investors who can take advantage of this | | | | odd rental void but we will be applying our long |
| buying window will be the wise ones who sold in | | | | years of property management experience to |
| 2006 and onwards, and have held their cash | | | | getting and keeping our customers. When did you |
| awaiting the re-emergence of common sense in | | | | last hear a landlord refer to his tenant as a |
| the market. | | | | customer? We are at the start of a new era in |
| However, purchasing for clients in the current high | | | | property in Ireland and it will be all about rental |
| risk environment will be focused. That focus will | | | | income, good tenant relationships and fair values. |
| be on the cash-generating capacity of any building | | | | Just as 2005 onward was a period to be out of |
| that is recommended to a client. It will be on the | | | | the market - 2009 is a time to review that |
| nature and strength of the cash flow emanating | | | | position. |
| from a given building. It will also focus on the | | | | |