Property prices are rising again and this time Ireland’s lawyers are confident it is no bubble, while talk of an early wind-up for Nama hints at austerity’s end
Ireland’s ‘bad bank’, the National Asset Management Agency (Nama) was controversial when it was set up in December 2009, but just under four years down the line the body has managed to generate significant amounts of cash for Ireland’s economy. Its latest accounts show it has produced €21bn (£17bn) since inception, remains profitable and is smashing bond redemption targets.
Nama was supposed to be in existence for a decade, but with half its €30m senior bonds projected to be redeemed by 2020, it could well be wound up before that time is up.
Whether or not this happens before the general election in 2016 is debatable. The present coalition government of Taoiseach Enda Kenny – which brings together his Fine Gael party with Labour – took a reasonably heavy hit in last month’s European and local elections.
Commentators widely interpreted the message from the voters as a cry that they have had a bellyful of austerity, so it would be helpful politically for the governing parties to claim a big win by packing up Nama before throwing their MPs on the mercy of the polls.
Discussions over Nama’s future come against the backdrop of talk of a bubble in the property market. Residential property prices have risen steadily since June last year and were 8.5 per cent higher in April 2014 than in April 2013. In Dublin prices started rising in January 2013, and by April this year were 17.7 per cent higher than 12 months earlier.
Nevertheless, with the residential property index sitting at 67 against a base level of 100 in January 2005, lawyers say talk of a bubble is wholly premature – there is plenty of ground still to make up.
And there is less concern over the commercial market.
“Our property team is not only extremely busy, but busy in relation to big deals,” claims Brian O’Gorman, managing partner at Arthur Cox.
Lawyers cite a range of recent deals to back this up. One of the biggest was last month’s Project Tower sale, which saw Nama dispose of a portfolio of loans on assets not just in Ireland but also across the UK and Germany, with the star of the show being the 17-storey mixed-use Elysian Tower in Cork. The portfolio is reported to have a face value of €1.8bn, with US private equity house Blackstone picking it up for €1.1bn – nearly a 40 per cent discount.
“Having gone through the recession,” comments William Fry commercial property partner Karen Sheil, “I can say that it’s far better to be a property lawyer in Ireland now than it was four years ago. We’re back to the days where we have contract signings and completion meetings, which were things that weren’t really happening during the recession when a lot of people were simply doing due diligence work for Nama.”
Funds work remains strong
If property lawyers are celebrating a revival, funds specialists smugly point out that their sector rode out the Irish recession relatively unaffected. The market in domiciled and non-domiciled funds under administration in Ireland dipped only slightly during the downturn – in 2009 – otherwise continuing its impressive growth trajectory of the past 10 years.
“That field has had a terrific run despite the crisis,” confirms McCann FitzGerald chairman John Cronin.
William Fry funds partner Cormac Commins adds that Ireland’s history in the funds industry has paid off.
“The reasons investment managers and large financial institutions came to Ireland to establish funds 20 years ago were the same then as they are today, Commins says. “We have a robust regulatory system, and the common law system is an attraction for US funds and institutions looking to dip their toes into the European market to establish products they can then passport and sell on a pan-European basis.”
Ireland’s funds industry has prospered on the back of EU legislation such as the Undertakings for Collective Investment in Transferable Securities (Ucits) directive, now on its fifth iteration, as well as its own fund structures such as the Qualifying Investor Fund for institutional investors. Some say the more recent EU directive on alternative investment fund managers (AIFMD) has also created work, with a few funds redomiciling from offshore jurisdictions and other managers choosing parallel Irish structures to run alongside their offshore funds.
Andrew Bates, partner and head of the financial services department at Dillon Eustace, agrees the Irish funds market in general terms survived the downturn well, although he points out that some investors and asset managers have survived better than others.
However, lawyers specialising in funds work have broadened their practices during the crisis. For example, in the early days, new fund formation was replaced with work dealing with Lehman-related claims, Madoff-related litigation and a variety of issues around portfolio illiquidity.
“When some confidence began to return, funds lawyers began to pick up mandates from investment funds active in the non-performing/distressed asset space,” explains Bates.
He says the introduction of regulation such as AIFMD has also created “huge volumes” of work for funds lawyers.
But, as Commins points out, Ireland is currently preparing more funds legislation designed to reinforce the country’s position as “a nimble jurisdiction” for the funds environment. Lawyers hope legislation creating the Irish Collective Asset-management Vehicle (Icav) will be implemented before the end of the year.
Much of the Irish company law and accounting rules presently applying to plc-structured collective investment schemes will not apply to Icavs. Also, Icavs will not be subject to further developments in EU and Irish company law, resulting, predict lawyers, in lower administrative costs.
Another crucial benefit is that the US taxman will class Icavs in a more favourable light. The Internal Revenue in Washington presently views existing listed funds as corporations, resulting in potential two-layered taxation, one at the corporate level where the income is earned and another at the shareholder level when distributions are made.
Bates is keenly anticipating implementation of the legislation, pointing out that the creation of corporate fund structures outside the Irish Companies Acts will have a range of benefits.
He says: “Not only will [that structure] avoid the full rigours of the Irish Companies Acts – which are more applicable to trading companies than to fund vehicles – and therefore will benefit from reduced administrative obligations and costs, but the Icav should also be able to ‘check the box’ to be treated as a partnership or disregarded entity for US federal tax purposes and therefore facilitate investment by US taxable investors, or US taxable and tax-exempt investors in a master-feeder fund structure.
“That will be good for fund managers and sponsors, and it will be good for investors as it should drive down the operating costs of the structures and business.”
Meanwhile, M&A and corporate finance work areas are also exhibiting signs of health. On the M&A side, until the last six months or so, corporate was dominated by crisis-related firesales. Now, says Cronin, “we’re seeing good old-fashioned, healthy M&A work”.
Bananas are probably one of the least likely icons of the Emerald Isle, but the world’s most popular fruit has taken a front seat in the jurisdiction’s economic recovery. In March, US food company Chiquita, which produces millions of the yellow fruit each year globally, announced a $1bn (£600m) merger with Irish fruit producer Fyffes. The announcement sent Fyffes shares rocketing by more than 40 per cent on the Dublin stock exchange.
The transaction is still to complete but the merged company is likely to be listed in New York and headquartered in Dublin.
Real estate investment trusts (REITs) have also boosted Irish law firm corporate finance departments in the past year. IPOs for the Green REIT and the Hibernia REIT raised about €425m and slightly less than €400m respectively.
“They’re old-fashioned IPOs,” says Cronin, “but they relate to a sector that has been under some stress in the past few years. The interesting thing about them is that we reckon two-thirds of the investors are North American. If they’re looking at Irish real estate, that’s a pretty healthy investor base.”
The return of non-distressed work to both the property and corporate finance markets has translated into a feelgood factor at Irish law firms.
“We’re extremely busy across all practice areas, and I have the feeling our main competitors are as well,” says Arthur Cox’s O’Gorman. “There are good flows of work all round.”
He claims that buoyancy is reflected in recruitment levels across the top-tier players. Arthur Cox’s graduate recruitment has hit 40 a year, surpassing pre-crisis peaks of 35 and well above the depths of the recession, when the firm reined in its trainee intake to 25 annually.
Likewise, McCann FitzGerald claims to have boosted its training numbers by 25 per cent, while William Fry’s property department alone has grown by six lawyers in the past 18 months. More broadly, law firms report that finance, banking, investment and, of course, funds specialist lawyers are in considerable demand.
Meanwhile, The Lawyer European 100 2014 shows that lawyer numbers remained static or rose between 2012 and 2013 at all of Ireland’s largest firms. Turnover figures for Mason Hayes & Curran, the only firm to provide them, showed an 8 per cent rise, to €48m from €44.4m in 2012.
That was on the back of a much stronger second half than the first six months, so if things continue this way 2014 should be the best year for Ireland’s lawyers for a while.
Key figures: Republic of Ireland
Life expectancy at birth: 81
Source: World Bank, Central Statistics Office