Bust and boom and bust again? O’Higgins has seen it all in the property game
PROPERTY has possibly more colourful characters than any other sector of the Irish economy. It can be a very macho world — where beating your rivals to a prize site can be as important as making a big profit.
One of Killian O’Higgins’ jobs is to try to temper some of those excesses and point clients in the right direction.
The Kildare native, managing director of WK Nowlan Real Estate Advisors (WKN) which is based in an office across from Dublin’s Grand Canal, was amazed by some of the risky investments made by Irish people at the height of the boom.
O’Higgins (56) took over the role around three years ago after stints in London and Hong Kong in senior roles at commercial real estate firm DTZ. Having been absent for many of the Irish property excesses in the 2000s, he has the benefit of an outsider’s view on the boom and bust.
“I learned about a particular deal that was happening in Brussels and I asked my Brussels colleagues about it, and they said, ‘Yes, there’s a local price, there’s a European price, there’s an international price, and then there’s an Irish price,’” he says.
Many people couldn’t understand how Irish people operating in faraway places had got so much money, he says.
“You got used to a couple of calls coming in from places like Bucharest. You were getting calls from very far-flung places, and you were asking yourself: why are people buying stuff in Bulgaria?”
While Irish investors had the appetite for risk, DTZ itself had concerns about Bulgaria at the time.
“We didn’t have an office in Bulgaria because of the whole issue of ‘Who are you dealing with and where is the money going?’ — it was too difficult. Somebody once asked me about investing in Bulgaria, and I just said, look, don’t. You have no background in Bulgaria, you have no understanding of the market. It’s a very tough market, and really if you’re going to invest in Bulgaria, be Bulgarian.”
He remembers seeing an Irish paper and feeling the market had reached the top.
“On the last Thursday of August in 2007, I pulled out two 32-page property supplements from a newspaper. And I said to my wife, ‘It’s now all on the market. Who’s going to be the buyer?’
“That was an ‘end’ moment where you say: right there are now issues, and the question is who are the people who are going to buy what’s on the market?”
O’Higgins took a career break for a couple of years after finishing a stint in Hong Kong in 2011.
He returned to Ireland at a time when the property market was a disaster zone.
He was interested in contributing his property experience to social housing projects, and ended up meeting property expert Bill Nowlan — the founder of WKN.
Nowlan was working on a social-housing project (and still is). He asked O’Higgins if he would look after WKN so that Nowlan could focus on the social-housing project. That was 2014 — not long after the property recovery had started to kick in, which he attributes to the Real Estate Investment Trust (REIT) legislation and the arrival of American funds.
“The reality was capital was the big missing thing — you will remember the talk about Nama having stable finance to get things done, because people were asking, ‘Who’s going to put money into Ireland, it’s just a basket case.’ You’ve got to give credit to people like Kennedy Wilson spotting it early on and saying that in fact there’s an awful lot of strengths there.
“Given the fact that I’ve been all around the world, one of the things you see about Irish people, wherever you meet them, is that they are very hard-working.
“It doesn’t matter whether you’re in Thailand, Japan or Ireland. When the markets go down, they go down too far. When they go up, they go up too far. The US funds in particular, they’ve seen this all around the world.”
The eldest of nine, O’Higgins did his Leaving Certificate aged 16 and then got a job as a trainee surveyor with Lisney. He had “no pretensions” about going to college in those days.
“My careers guidance teacher told me I was totally unsuited to go into auctioneering, and then I saw an ad from Lisney’s in January or February 1977.
“While guys I knew went to college and learned it, the beauty I had when they were finished three or four years later is that I’d actually had the practical experience.”
From there he went to Sherry Fitzgerald where he ended up with a primary focus on commercial property and eventually became managing director of the DTZ Sherry Fitzgerald joint venture. Then he joined DTZ where he worked in charge of markets in the EMEA and Asia-Pacific regions.
In his time he’s sold everything from motor-racing circuits to meat-rendering plants.
At WKN — one of his less fulfilling tasks is reminding people that the company is not Hibernia REIT — the property investment company run by Bill Nowlan’s son Kevin, a former Irish rugby international.
Nowlan Senior is on Hibernia’s board and spearheaded the movement to get REITs established in Irish law.
An avid reader and history buff, O’Higgins talks a mile a minute and moves from a story about the Chinese property market to a story about Chiang Kaishek, the former Chinese leader.
It’s clear he enjoys a good yarn and there’s plenty of scope for them in an industry so full of flamboyant characters.
“There’s an awful lot of focus around the industry on individuals because it is a very entrepreneurial, individual, business generally. Are they tough guys? Yes, because you have to be.
“It’s a competitive business, and look if you go to a building site, a lot of the guys in the construction industry came from that background, lifting bricks, lifting blocks, digging trenches.
“And they brought themselves up and built 10 and then 20, and then 100 (units). So it is a hard business - look over the past. Next year it’ll be 10 years in effect since the crash. Look over that period and see the attrition of that. You put yourself on the line for developments that may or may not happen.
“You’re taking big risks — other people may be taking risks with you but often it’s on a particular individual.”
Today the market seems buoyant and the cranes are back as a feature of the Dublin skyline. But most of them are working on offices rather than houses — earlier this week Cairn Homes’ boss Michael Stanley warned about what he called “an extraordinary imbalance” between commercial and residential development in Dublin city centre.
Are these offices actually going to be filled? Are we at a point where there’s a risk of overdoing it again, particularly with Brexit and Trump as major potential threats to the Irish economy?
It’s a time of great uncertainty - what has O’Higgins seen in the property market since the shock result in the British referendum last June?
“The biggest influence I’ve actually seen is the Brexit premium in Irish rents. The quoting levels increased,” he says.
“And I think some of that has been in anticipation. Now there is a very good demand for office accommodation, there is a lot under construction at the moment. And indications are that foreign direct investment and whatever comes out of Brexit should be able to take it up. But what is going to come out of Brexit, we don’t know. There are a number of people talking about potential office deals. We have seen no big office deal that you can say: that’s a Brexit deal, definitely.
“If you look at the office market, and you look at the deals that were done at the back end of last year... those deals were done in the early €50s (a square foot in rent). Strip out some of the incentives and you slip down below €50.
“Whereas the quoted rents have stretched well ahead of that. And I think you will meet some resistance from Brexiteers, shall we say, from some of the office rents. Because if you’re lifting out of Canary Wharf, rent isn’t the £120 or thereabouts you’re paying down in the West End, it’s about £45... if you look at a chart of rents, you will see Dublin is relatively expensive, compared to Frankfurt, Amsterdam and Brussels.”
He warns that Ireland must be careful not to price itself out of the market.
“It’s not all going to be about one thing, it’s not all about the price of offices.
“We just need to be careful that we don’t put people off on the basis that the overall package is too expensive.
“We need to be careful in the hotel area as well, in terms of tourism. Unfortunately there may be a bit of an Irish tendency to see the opportunity and try to price accordingly... there is a risk in these areas.
O’Higgins has seen a lot in his 40 years in the property industry. Asked when the next Irish bust is coming, he says crashes are always caused by supply.
“Inevitably, we will end up with more offices than we require at some stage. You’ve got a volume of construction that’s going on at the moment for delivery through 2018, 2019, 2020... that volume of construction is quite significant, there should be people out there to take it up, but how much more would you actually add to that? There’s quite a few people at the moment looking at that and saying we need to be careful.
“It’s only when people don’t arrive that you realise your prices are too high and it’s too late to get them back.”
‘When the markets go down, they go down too far. When they go up, they go up too far’