BOI to  return to development lending

Bank of Ireland has agreed to partly fund US private equity firm Kennedy Wilson’s development of 164 homes at Clancy Quay in Dublin 8. Kennedy Wilson recently submitted planning proposals for the site, which sits on 5.2 acres on the south bank of the Liffey in an area where rents have rocketed over the past year.

Approval is being sought for a mix of apartments and houses. The scheme already has 420 units but its completion was stalled by the credit crisis.

The bank lost billions on property lending when the global financial crisis hit in 2008, but has been persuaded back to the market after years of eschewing deals by spiralling demand for homes and commercial offices evident in Dublin, Galway and Cork.

Bank of Ireland has now funded at least six major property projects in the last 12 months, including the recent refinancing of €150m worth of short-term debt for the development of offices at Central Park. This is the first ever bank loan received by Green Reit, UK property guru Stephen Vernon’s real estate trust which owns 50pc of the Central Park site.

Other projects financed or part-financed by Bank of Ireland include the €22.5m construction of 192 student dorms at the former Montrose Hotel opposite UCD’s campus, the €16m redevelopment of the Burlington Hotel into a Hilton, and Kennedy Wilson’s acquisition of the 200-year-old Shelbourne Hotel through the acquisition of €111m loans connected to a consortium of developers led by Bernard McNamara.

The lender has also diverted staff from other activities to its property finance team in recent weeks, a spokesperson confirmed. The division is led by Paul McDonnell, who having held that role since 2006, has overseen lending to construction projects through both boom and bust.

Bank of Ireland is distinct from its peers in returning wholeheartedly to property lending. Permanent TSB and AIB have been far more cautious, sources said.

“Bank of Ireland is that little bit more aggressive, they got out of the traps first,” said Marie Hunt, head of research at CBRE. Barclays is also lending for construction purposes, she said.

But the norms for bank lending to property projects have changed, she added.

“They’re much more cautious than they were. The terms that were offered in the days of the Celtic Tiger are long gone. It’s now the norm to ask developers to provide 40pc of the money required.”

Bank of Ireland chief Richie Boucher confirmed that the high stake of equity it expects developers to contribute was an issue to construction lending when he appeared before the Oireachtas Joint Committee on Jobs, Enterprise and Innovation in April.

An influx of international banks and private equity fianciers also poses a challenge, Ms Hunt added.

“Domestic banks face more competition on property finance deals than ever before,” she said. “The likes of Deutsche Bank and Morgan Stanley are very keen to get involved in Irish property at the moment. But this also presents opportunities for Irish banks – we are seeing lots of consortiums coming together to lend. The overseas guys have the equity and the money but not the local expertise, so they’re looking for Irish partners.” Source” Sunday Indo Business