German investment fund buys Capitol development in Cork city for €45m

September 7, 2017

The €45.6m purchase of the John Cleary Developments’ Capitol development in Cork city by a German pension fund “is a major confidence boost for the city” and a positive omen for new development, according to Goodbody investment analyst Colm Lauder.

The strong arrival of Real I.S. to the Cork property investment scene is notable, adds Mr Lauder, as it’s just the second listed vehicle to secure a strong investment in the city, at a reported 5.5% yield.

It followed the €58m sale of John Cleary’s One Albert Quay last year to Green REIT, and is of major significance as Cork is set to see a swathe of new office development which may also find international investment buyers once built and let.

The sale also buoys up JCD as it prepares to go on site for a new 46,000 sq ft office block at 85 South Mall, to be built by PJ Hegartys.

Confirming the deal with Real I.S., a JCD spokesperson said: “We believe this is an important endorsement for the commercial property market in Cork to have an international institutional investor such as Real I.S. invest in the city. Cork has proven itself to be an attractive location for both occupiers and investors and is a viable alternative to Dublin and other markets.”

Real I.S. has more than €5.5 billion under management and started to acquire Irish investments only two years ago — its €45.6m purchase of the 8,500 sq m Capitol building brings its Irish spend to date to just over €300m.

Real I.S. initially acquired Beaux Lane House in Dublin in 2015, followed up with 2 Harbourmaster Place in late 2016 and in March of this year acquired the former Irish Times building on Dublin’s Fleet Street off-market, from Kennedy Wilson, for €50m.

The €45.6m Cork deal was brokered by Isobel O’Regan of Savills, Cork for JCD, and Cushman & Wakefield acted for Real I.S.

Confirming its move also into the Cork market, Real I.S. board member Joel Schenk said it “enables our investors to benefit from the sustained economic recovery of the Irish market and is well suited to the investment strategy of the individual fund whose portfolio is set to diversify further.”

Mr Schenk said Real I.S had moved into Ireland due to “its very high market transparency, its good country rating and high level of competitiveness”.

According to Goodbody’s Colm Lauder “the positive soundings from the German investment manager show that when quality buildings are available in Cork, investment will follow. The transaction shows that prime assets outside of Dublin have a risk/return profile that is attractive to core investors. It is very much a case of “build it and they will come” and is a positive omen for new development.”

“This transaction is important for Ireland’s second city not only given the recent concentration of activity in Dublin, but given the fact that European core investors now consider Cork an attractive investment location,” added Mr Lauder.

The highly-regarded real estate investment analyst said recent transactional evidence was beginning to show that international investor activity was now looking beyond Dublin for new opportunities.

This second listed vehicle investment purchase in Cork city was also notable in that it provides important comparable evidence for Green REIT’s valuation of One Albert Quay. Goodbody said they understood the mixed-used Capitol investment represented a 5.5 % return to its German fund buyers.

The Capitol building, on Patrick Street and Grand Parade was completed several months ago, after JCD acquired the key 0.75 acre site two years ago for €6m: it had been assembled in the mid 2000s by developer Joe O’Donovan at a cost of €60m.

Built by BAM, the property is close to fully let with one floor of offices still available. It has retailers HomeSense and Lifestyle Sports, the Oyster bar/restaurant is now also complete and let to Dublin publican Alan Clancy, and office occupiers include Facebook/Oculus, Huawei and Alien Vault.

The office rent for Facebook’s 14,500 sq ft was about €32 per square foot (€344 psm), as Cork prime office rents now hit €323 psm, close to half that of comparable buildings in Dublin which now are at €619 psm. With Cork yields at 5.5%, it offers an attractive risk premium over Dublin prime office yields at 4.65%, according to Goodbody.

Having commercial space at almost half the cost of Dublin, plus a strong talent pool was driving positive momentum in Cork, said JCD, claiming Cork “has become a top tier FDI location with technology companies such as Apple, Dell EMC and VMWare all having significant operations in Cork, as well as Johnson Controls’ global headquarters at One Albert Quay.

“In addition, there has been an emergence of a world-class cyber security cluster in Cork with companies such as McAfee, FireEye, Malwarebytes, AlienVault and Cylance.”

Irish Examiner, Tommy Barker 07/09/2017