Speaker 1: 0:10

Hello again, dear listener. Today I'm speaking with Chris Wilson. Chris is a financier, so he lends money to real estate developers to build things like housing. We discuss his career trajectory from working with RBS during the financial crisis to his move to Jefferies and the NAMA Project Eagle debacle to the founding of his current company, fairfield Real Estate Finance. I've known Chris for many years now and I really enjoyed talking to him. As an American, he has some very positive things to say about investing in Ireland, but he also does share his frustrations. I'm Rick Larkin and you are listening to the Build. Chris, thanks very much for coming in to visit us. Would you mind starting by introducing yourself, just telling us your name and what you do?

Speaker 2: 1:00

So I'm Chris Wilson. I'm the chief exec of a real estate lender, an alternative lender called Fairfield Real Estate Finance. It is Edinburgh based and operates in UK Ireland, spain and Portugal.

Speaker 1: 1:15

Can you explain? Just because a lot of our listeners are in the property industry, a lot of them aren't and a lot of the time I get asked questions, I get asked to explain things to people and I find it quite difficult because we're also very used to talking to property people who just know. Could you explain briefly what real estate debt finance is?

Speaker 2: 1:40

So the simplest explanation of what we do is we lend money secured by commercial properties, so, like your bank would provide you a mortgage for your house, we do essentially the same thing, but focused on commercial real estate. Our customers are property investors and developers for the most part. Developers for the most part, and we refer to them as sponsors, because the actual entity that borrows tends to be a company that's just set up for the transaction and just set up to buy the particular property and that and that you'll hear people talk on.

Speaker 1: 2:16

This is like spvs, right. So typically say, when we do something, we set up a project entity and that could be called anything xyz limited that actually borrows the money from you, but I'm the person who phoned you to ask you for the money and I'm the person who you'll phone if I don't pay it back yes, and, and so we'll put in, uh, some amount of money 60, 70 percent, uh and uh the sponsor, rick larkin or others, um, we'll put the rest of the money in.

Speaker 2: 2:44

Sometimes it's their own money, sometimes they're providing money on behalf of investors, and sometimes it's a combination more likely a combination.

Speaker 1: 2:52

And nowadays that is the dominant way of financing property development. Would you say that's fair in Europe?

Speaker 2: 2:59

Yeah, I mean there's very, very few people who build new properties without some form of financing. Sometimes they borrow a little bit, sometimes they borrow a lot. Sometimes, if you're a major REIT or institutional investor, you might have corporate facilities you can use. But generally property level financing is the way people develop properties.

Speaker 1: 3:21

And that's provided by people like yourself, more so than banks, the way it used to be.

Speaker 2: 3:28

Yeah, so you know, in Ireland, pre-financial crisis, the vast majority something like 98, 99% of money for real estate transactions, whether it was development or investment, came from banks. There were a few major banks. Not all of them are still operational. The ones that are operating are fairly conservative, and so that creates an opportunity for alternative lenders, backed by institutional investors, to come into the market and provide that gap and keep the market going forward.

Speaker 1: 4:02

Speaking of major banks, you worked for OrbeBS back in the day for a long time, more than 10 years. Is that right? Six years, six years. And that was in the US in.

Speaker 2: 4:15

No. So I got hired in London Okay, there are really two different versions of RBS. Okay, so there's RBS before the financial crisis, rbs at its height. So there's RBS before the financial crisis, rbs at its height. And I got hired in London to work in the real estate finance group in global banking and markets. So in a tiered bank where you have started retail branches and you go up to corporate lending and then, sorry, commercial lending and corporate lending and then up at the top is the global banking and markets.

Speaker 2: 4:46

It was at the time, I think, the most ambitious bank in Europe and perhaps in the world. The attitude of management was very much encompassed in its motto make it happen. And there were some. The bank was looking to grow. There was certainly some overzealous lending, but I think generally we kept our discipline around structuring and due diligence and documentation. Where things got out of control, it was a matter of quantity rather than quality. There were literally dozens of places in which you could borrow money against a real estate asset in the bank and they were happy for those different groups to compete, and so it was a massive and fairly uncontrolled real estate book across many, many different levels of the bank, and that's ultimately, I think, what led to its downfall.

Speaker 1: 5:53

Just because of the sheer scale of the lending that was going on.

Speaker 2: 5:55

Yeah, I got a call this was third quarter of 2007 from a friend and he mentioned, casually he was at Citibank. He mentioned casually that RBS had a casually, he was at Citibank. He mentioned casually that RBS had a bigger balance sheet than Citibank and I thought that's absolute nonsense. He doesn't know what he's talking about. Citibank's a massive global bank with a huge market cap. I looked it up and, sure enough, he was correct. We did have a larger balance sheet than Citibank, which which was no place for us to be, and that that was in the hundreds of billions, right, yes, yes, absurdly large balance sheet and part of that ambition that the bank had to be a major global player.

Speaker 1: 6:36

So where were the real bad sections of it then? I mean, because you know RBS had a unit here, ulster Bank and Ulster Bank bought First Active, which was formerly a building society, and was merged into it. I actually worked there when that was happening but I was, you know, basically an intern or just slightly a hair above an intern. And I remember going to because I worked in property finance. And I remember going to because I worked in property finance. I remember going to an internal thinking meeting or I don't know conference where all of the deal guys from real estate finance two and 300 million euros in Dublin for development assets just seemed incredible to me. And then when you look afterwards and say like the whole in Ulster Bank's balance sheet in Ireland versus its assets was enormous, right, like its loan losses were absolutely enormous.

Speaker 2: 7:52

I assume that that wasn't repeated at that percentage loss rate across all of the operations. No, I again, I think the quality was reasonable. I think the the losses you know there were losses and I think just that the size of the balance sheet meant that those losses were not sustainable.

Speaker 2: 7:59

Yeah, yeah, interesting times, no doubt when the crash was starting to happen? Were you still there when it was all and the plan was just to? I had been running Continental Europe and I had lots of employees. The plan was just to have a simple life as a lender again. Yeah, and then some of the senior guys left RBS in the US and I ended up co-heading the business from March 2008 until I left at the end of 09, which was the very dark days at the bank. Yeah, so not the simple life that you'd hoped for. No, it was very complicated. Once the government took over, which was September 2008, it really became both non-functional as an organization, but also very clear writing on the wall that the ambition of the bank was to become a domestic UK bank with maybe some operations to service UK clients, but no aspirations to be a global bank anymore.

Speaker 1: 9:13

And at the time it was, I think, was it the fifth biggest bank in the world at the time it may have been so.

Speaker 2: 9:19

They also had the ill-fated acquisition of ABN Amro in the midst of it, which without ABN Amro, one never knows, it which, you know, without ABN Amro one never knows. But that certainly put us over the edge. Yeah, straw, that broke the camel's back.

Speaker 1: 9:31

There's probably a lot of straws, yeah, the several hundred billion tons that broke the camel's back. So after you left RBS, then what did you do? Did you take some time to just look at?

Speaker 2: 9:43

the world. No, I did have a couple of months, but I jumped into an opportunity at Brookfield Asset Management, which is fairly well known these days Canadian asset manager Enormous group. Enormous group focused on real estate, infrastructure and renewable power and the Canadians had a three-month global financial crisis so they were very positive about the world. So I joined them to start and build up an advisory group in the US. They had a very strong Canadian advisory group and they wanted to take it global.

Speaker 1: 10:20

And then you from there went to start up Fairfield.

Speaker 2: 10:25

So there was an interim step. So at Brookfield one of the things we did, lots of things we did some debt placement, some debt advisory, restructuring type work. We also did some property sales and M&A. I got involved in a transaction with KSL, a group out of Denver, colorado, to buy Malmaison Hotels. They were actually buying it from a part of RBS who had control at that point, and we needed to arrange debt on that transaction. So Malmaison Hotels had 31 or 32 hotels in the UK, most of them not in London, and we went around the world looking for debt, okay, on a very good transaction, very easy to finance, uh, in theory, uh, and nobody was interested because the assets weren't in london. Uh, after sorting that out, the light bulb went off in my head and I said I do have to get back to the uk and try and lend again because there's a massive opportunity and how did that go down at home?

Speaker 2: 11:26

So not brilliantly. My wife we've been married for over 30 years. She doesn't like to fly, so the idea of me going back to Europe was not great, but she's managed through it. So initially I joined up with some of the guys who had left RBS and, at this time, had created a finance company called Jeffrey's Loan Corps. So they agreed to let me grab some of the balance sheet and create Jeffrey's Loan Corps Europe. That was March 2014. So we ran around mostly doing discounted payoff finance. So for the podcast listeners yeah, I was going to say you might want to explain that one Discounted payoff finance is where, say in the case of Ireland, a borrower's at NAMA.

Speaker 2: 12:10

Their loan gets sold to a fund, often derisively referred to as vulture funds, and that fund buys the loan at a big discount. They are looking to resolve the position quickly. They offer the borrower a smaller discount in order to clear his position and we come in as the lender to help facilitate that transaction. So we're working with borrowers to enable them to get their loans back and to restart their business.

Speaker 1: 12:43

Yeah, which is a kind of integral thing of every loan crisis I mean savings and loan crisis in the US. It would have happened there right a lot, and I think that, specifically as this relates to Ireland, that was seen as like almost a corrupt thing. Right Like NAMA weren't allowed to sell the loan to the original borrower. They were prevented from doing that by law, which always struck me as sort of a crazy like. If the original borrower was probably the person who's going to be willing to pay the most, why would you immediately delete your number one customer? But you and Jefferies did transactions in Ireland around about that time.

Speaker 2: 13:24

Yes, you and Jefferies did transactions in Ireland around about that time. Yes, so we did a lot of discounted pay off finance in that 2014 to 2016 time period. We initially arrived in Northern Ireland just after Project Eagle had been completed, right, and this was a very opportune moment. Lots of borrowers who now, after sitting in NAMA for seven, eight years, six, seven years, had the opportunity to resolve their situation in a way they weren't able to, as you mentioned, with NAMA.

Speaker 1: 13:57

Yeah, Just for people again who may not remember or know, project Eagle was a loan book that NAMA sold to a company called Cerberus and this loan book was all of NAMA's exposure to Northern Ireland. Yes, in one single transaction. Do you remember what size the loan book was? I don't remember.

Speaker 2: 14:16

I was not paying much attention when Project Eagle was first done, but I had a friend in Northern Ireland who said this would be a good time for you to come meet some people. Yeah for sure.

Speaker 1: 14:26

Um, it worked out very well, yeah, um, so any any particular stories from from that time that you?

Speaker 2: 14:33

yeah, so it was. Um, you know, we were involved probably in seven or eight resolutions out of that portfolio, probably by volume the most with any lender for Cerberus. The first one we did was a company called Kilmona, a borrower named Pat Kearney, and this was January 2015,. So relatively shortly after the transaction was completed. Pat was one of the top two or three exposures in that book. Like all the borrowers, he had personal guarantees which prevented him from continuing to do any new business. He was really stuck until he resolved his loans, and so we worked with Pat and his team. It was over 100 million pound transaction, over 145 separate assets involved underlying titles, and we had to do new due diligence and get ready. We completed that. It was quite a momentous occasion in Northern Ireland because it was the first resolution in that portfolio, so we had a celebration dinner.

Speaker 1: 15:46

So that was the very first one that, let's say, Cerberus got.

Speaker 2: 15:50

Yes, very first, and really marked a new era, a chance for the global financial crisis to start to be put behind in Northern Ireland. And so, at the celebration dinner after the transaction, the First minister attended, which was really a recognition that this was an important event for Northern Ireland. The borrower used his law firm that he'd used during NAMA, which was called Tuins you might want to Google that.

Speaker 2: 16:20

And everything seemed great and actually the transaction progressed very, very well. And everything seemed great and actually the transaction progressed very, very well. It was a huge success for us. About five months later, a gentleman who I'd never heard of named Mick Wallace stood up in the dial and made a statement regarding some portion of a fee that had been paid again that I wasn't aware of by Cerberus to law firms. Some portion of that fee was destined for politicians or political parties and this set off, rightly, a firestorm in Ireland and Northern Ireland.

Speaker 2: 16:54

People started to question whether there was some sort of underlying involvement of political actors in this transaction and created a bit of a vortex. So the combination of Cerberus, Tuins and the first minister all being, you know, tangentially involved in our transaction or actually, you know, in the case of Cerberus and Tuins, quite actively involved, the first minister was tangentially involved. The first minister was tangentially involved. That led to us being sort of drawn into this vortex where every single article in the Irish Times about this accusation for the next week and a half included it at the bottom that we had done the first resolution. It involved Tuins acting for the borrower, cerberus, the vendor, and that there had been this dinner. So finally, after a week and a half of these stories, I rang up the reporter and said you have to stop mentioning us in these articles. We had nothing to do with it. I was completely unaware, I wasn't even focused on.

Speaker 1: 18:00

Northern Ireland. Just remind me. I'm sorry for interrupting you. The allegation was that Cerberus had paid a fee.

Speaker 2: 18:10

So, going back and again, this is information I learned after the fact. So PIMCA was the original preferred bidder and they made a public statement that they were expected to make a 15 million euro payment. That's round numbers, um to uh, brown rudnick and two ins, two law firms, as a sort of finder fee, which is very strange for a widely marketed transaction, which, particularly to be paid to a law firm, would be, yes, unusual um. And then shortly thereafter, after making that announcement, they dropped out and Cerberus appeared as the preferred bidder and there was no mention of any payment until later on. But a payment had been made, initially to Brown Rudnick. Half of that payment had been passed on. Cerberus paid the finder's fee. Yes, and again, as we learned later on, two wins at about the same time we were using them to complete the transaction, or our borrowers using them to complete the transaction, I should say. They got the payment in and the managing partner passed the payment. Sorry, this was well. Before the payment came in, the managing partner attempted to pass the payment on to a Isle of man account not associated with the firm. The payment was called back and, about the same time as we were doing the transaction, the managing partner left the firm as fallout for this payment coming in and out, and this was a massive story.

Speaker 2: 19:48

But I pled my case with the Irish Times that we were really not one to be mentioned. Well, it was nothing really to do with you, right? No, but she said she was willing to exclude us provided I answered a few questions. And the big question she had was did it make a difference whether it was PIMCO or Cerberus as the ultimate buyer of the portfolio?

Speaker 2: 20:09

And the point I made to her, which is important in the context of this podcast, is that I don't know whether they would have acted significantly differently was getting done and that borrowers were able to resolve their positions, because the developers, who had personal guarantees, were unable to do further development without resolving their positions. And, as a country, northern Ireland faced an issue that you cannot attract investors into a country if you don't have high quality offices and high quality warehouses to put them in, and in order to have those things, you need developers. And you can't attract people and you retain your best workforce if you don't have houses and apartments for them to live in. The built environment, which is what developers produce and enhance, is critical to the economy and so that a resolution involving anybody Cerberus, pimco or another is really important, and that that was the story that wasn't being told in all this, and she accepted that opinion. I don't think she'd ever thought about it that way and we did get excluded from further articles, which was nice Until now.

Speaker 1: 21:25

I mean, it's an excellent point that you make and it's something that I think is probably still problematic. Right, because we are 10 years on from when all of that happened and we're still stuck in this sort of reductive debate about developers. Right, the words change. Right, it was vulture funds, then it was cuckoo funds. The whole idea is that or there seems to be this whole idea being pushed by certain fringe political elements and, to be fair, I think, a lot of people in the media that are perhaps just not aware of the context around what is being said. There's this idea being pushed that the private market has failed and so the private market needs to be replaced with the public one, when the reality is, in fact, the public policy failed, the private market is doing everything it can in every direction, as all private markets always do, because that's the whole point of them, but that the policy failures are not being corrected.

Speaker 1: 22:26

What do you think the main difficulty is for you? So you come in as a lender. You're obviously not going to give money to anybody. You're going to give money to developers who you believe in and projects that you believe in, but you're also only going to lend into a given market if you believe that that market on a macro basis is sound, right, it's got good fundamentals. So I mean you look at ireland now, you, because you lend across europe, right, we do, yeah, um, in fact, let's come back to that. Let's just go back to fairfield for a second, because I know we got sidetracked there talking about jeffries. So you came into fairfield. Were you there at the beginning of fairfield, or?

Speaker 2: 23:03

yeah, so, so, uh, after a couple of years of very actively lending as part of Jeffrey's Loan Court, doing some very good transactions, we basically blew through the allocation of balance sheet we were given. It was pretty clear we weren't going to get a whole lot more. There were literally three of us running around in Europe and about 60 people on the US side of us running around in Europe and about 60 people on the US side and we were using much more than our fair share of the balance sheet, and so we had the opportunity to look for another sponsor, and so, in May 2016, we found Oaktree, who's been our main backer since then, and we set up Fairfield with their support. The business has lent about 2.2 billion euros since then.

Speaker 2: 23:59

About 60% of that's been in Ireland, and Ireland's been a fabulous market for us and, at a macro level, I think Ireland's done a lot of things right, and one of the important points to keep in mind is that the issues with housing and the issues with infrastructure are problems of success and of economic growth. That doesn't absolve the government of their responsibility in not enabling housing to be built in the right way, but the economic success of Ireland has led to it being a place where Irish stay home rather than going abroad, and where people from other countries seek to come here to live and work because it's a very good environment and and you, you mean you're lending across Europe, not just in Ireland, so you get to see Ireland in the light of perhaps, other countries.

Speaker 1: 24:53

Do we have it any worse than anywhere else?

Speaker 2: 24:57

Um, I think the you know the aspects of the planning system. Um, aspects of government policy around housing do make it worse in Ireland than in other countries. Uk has a similarly complex and sometimes vexing planning system. I still think Ireland's worse yeah.

Speaker 1: 25:21

We're world champions when it comes to the planning system, I think.

Speaker 2: 25:24

Yes, and ultimately there's some amount of delusion in government thinking that if you require builders to build really high quality apartments with dual aspect and you know large footprints and lots of other requirements, that that will improve the housing stock for the average resident. And the reality is more of the above is what improves the housing stock, and particularly at the margins, people who are less able to afford housing are the losers of setting such a high bar for housing in Ireland.

Speaker 1: 26:04

Yeah, because they never get anywhere near us right.

Speaker 2: 26:06

Yes, and you know, the conversation with a typical cab driver as I come from the airport into the center of Dublin is about how their 25-year-old, who has a good job, can't move out of the house, and that is a severe political issue.

Speaker 1: 26:20

It's also a moral failing, because it's not like in the 1970s, when we didn't have any money, we didn't have the wherewithal to fix these problems, and the thing that annoys me about it is that we're choosing not to fix them in the service of certain sections of society or the certain, I think. Actually, a lot of the time it's it's the idea that doing what we want as a development community somehow benefits us, and I try to point out to people that actually the status quo benefits us. Right, because the barriers to entry are really high. It's a really difficult industry to get in, so there are no startups, right, there's no development startups. Um, and artificial constraints on supply are good for people that own things. Right, and a lot of the time people don't seem to understand that, like the policymakers may think they're making our job harder. So they are making it harder, but they're also making it in another sense, more profitable.

Speaker 1: 27:17

If you can hang in there, yes, when you are looking at a project, take us through. What are the things that are important to you. So I come into you and I say, hey, chris, I have this great site. You know it's half an acre, it's zoned Resi. I want to put this apartment building on it. What's your starting point to that?

Speaker 2: 27:39

So we don't tend to get involved in most situations prior to a planning consent. Okay, involved in most situations prior to a planning consent. So if you bring me your site I'll say that looks good, and please come back to me when you have your planning consent in place and I'm very interested in helping you. Then we do have some exposure to the planning system. So sometimes a borrower will acquire a property and he'll have a consent to build, say, 100 units of residential but he will have a plan to try and go in and get an additional 10 or 20 units approved and we'll work with them and say if you get that approval, we'll provide additional debt to enable that to be built. But that's limited exposure. But we're certainly well aware of the issues.

Speaker 2: 28:32

And where we do have exposure we see the ponderous nature of the system. So we have a shopping center that we were involved in financing in Bray. The sponsor went in for consent for 25 residential units in the upper floors and they had to go to Ambor Panola, the Planning Appeals Board, for that consent because they'd purchased the asset from the council on a development agreement complicated development agreement and that application, that appeal, essentially went in 12 and a half months ago for a long time. It had a date in july of last year on the website. Then it moved to date in august.

Speaker 1: 29:19

There's no date attached to it, but we still wait and that that's a tale now that is told every day. As to how long it can, it can take borplanova severely under-resourced, and then it had its own problems, which we're going to explore in a later episode, but the resources appear to be there. Now, aside from planning, what's the thing that restricts you the most? You obviously have criteria as to how much money you're going to lend, whether the person is like a reputable, experienced person, but aside from that, on a project level, what's the thing that tends to create the most difficulty for a lender in Ireland?

Speaker 2: 29:57

So you know, the general issue that we face is a viability question. So you know, the planning process rightly puts constraints on the nature of projects and they want certain aspects. But those, you know, those enhancements to the build, over and above what you know a developer would do, uh in in their uh based on their own ideas of of what's best, um have costs. And when you add uh, construction cost, inflation, relatively high interest rates to a project, Values have not moved very much and in some cases yields have pushed out. So values have gone the other way.

Speaker 2: 30:45

Viability is the major issue on development. We cannot fund a project even at a relatively low level of loan to value. We can't fund a project that is not profitable based on the underwriting. So we need to see that there is some level of profit in the project so that we know that the developer who we're backing will see the project through even if conditions deteriorate over the course. Something goes wrong, right? Yes, so that is the biggest obstacle we have and we look at a lot of projects that simply aren't viable at today's construction costs and today's interest rates.

Speaker 1: 31:25

Yeah, and has that disimproved in the last 12 months? Do you think?

Speaker 2: 31:31

It's sort of leveled out Over the last six months. It's sort of leveled out Over the last six months. It's sort of leveled out and our hope is that interest rates start to come down. Values sort of take into account construction costs and there haven't been a lot of projects started, which means supply is constrained going forward and that's across commercial as well as residential.

Speaker 2: 31:53

So hopefully it will level out and we'll we'll see viability improve that provides a little bit of support also to pricing right, that uh supply is not increased dramatically yes, yes, and, and you know, ultimately the, the solution to the housing crisis in ireland and anywhere else is all of the above Build more of every type of unit. And so you know, the government bodies having a view on the types of units they want to see, the mix of units they want to see, doesn't necessarily improve the housing stock in Dublin. Sometimes it actually goes against it. You know, at the most extreme, if we had all six bedroom houses being built in Dublin, then you'd have, you know, a return to the tenements, essentially because people would have to divide them up to make sense of the stock that's available. And so having lots of well-meaning but potentially misguided criteria affects viability, affects supply and moves the opposite way of where you need to be moving it certainly does.

Speaker 1: 33:09

I mean, there's one perfect example of that is the focus that Dun Laoghaire and Ratown have. For those who don't know, dublin's divided into four different council areas and Dun Laoghaire and Ratown kind of is the one where all the rich people live. They have a development plan that calls for like a very large proportion of three-bedroom apartments because they think, you know, they're family units and you need to have family. But of course, the reality is the families inland don't typically want to live in an apartment and so, okay, unless you force them to, they're not going to right. If they have alternatives and if they are earning a decent income, they do have alternatives, right, and they are. That alternative is to live somewhere else.

Speaker 1: 33:50

So the reality of what happens then is you have an apartment built that was designed for a family, so it's big, so then the cost of that apartment is higher. So what happens is that three people move into that apartment from three separate families and at the same time that this is going on, people are banning co-living, saying that co-living is a bad thing and that we should be providing better options for people. But they won't let you build a one bedroom apartments because they're, you know, considered for transient communities and are no good for developing communities and are no good for families. Yet you have a lot of single people. You have a lot of people who are divorced nowadays. You have a lot of people whose needs are for a one bedroom apartment.

Speaker 2: 34:31

You have a lot of people who are coming to Dublin to work from other countries, who have no idea what sort of timeframe they're working on, and so they don't want to get involved in acquiring a property. They want a rental and they want something simple.

Speaker 1: 34:45

Yeah, you know, they may not be bringing all their furniture and, and you know, clothing et cetera from from where they were based, based, yeah, I mean we get inquiries for people who want to know if they can have a fully like nice forks, plates, cups in the cupboard right, because they don't know, maybe it's a year, maybe it's five years, who knows? But the the policies that we have that are pushing the typology of units that we would like for the community that we would like the community that existed 30 years ago. All that's doing is driving up the cost for individuals, um, so that policymakers I don't know can sit back and feel like that they have some sort of moral high ground. Um, so there's a lot of there's a lot of contradictions and I've said a lot on this. That it's, I mean, it's a form of schizophrenia.

Speaker 1: 35:38

What is the next move for you with Fairfield? Do you, are you guys, in expansion mode? Would you like to? I mean, you said 60% of your lending that has been done in Ireland, which is great. Are you looking outward to say we'd like to do more in Europe? Would you like to do more in Ireland? Like, what's your plan?

Speaker 2: 35:58

Yeah, we're just really getting started in Spain and Portugal, so we have one loan, uh, in each country. Um, and you know we've done the the hard work of getting comfortable with the countries from a a legal and economic perspective. Um, we like the risk return of both markets, so we need to do more there. We're also looking to enhance the capital available to us, so we're in an exercise which will hopefully provide more capital and allow us to grow the business.

Speaker 1: 36:32

Has the market for that capital changed in the last sort of year, or is there still, like a huge desire from capital providers to put money into debt finance for real estate?

Speaker 2: 36:45

There's a very interesting thing going on among institutional investors. You know typically a lot of pensions insurance companies, sovereign wealth funds, liked core funds, core property funds, core property funds just for the ownership.

Speaker 2: 37:03

So core property funds. They buy high quality assets. These are offices, shopping centers, apartments, et cetera. They buy them with an expectation of a modest return but also a very consistent, safe return. So they're looking for quality locations. They're looking for quality assets. They're not looking to take on a lot of issues, so assets that need leasing or asset management, investment of any kind, they just want safe, stable assets. So this would be your buyer for your newly developed office building, your stabilized shopping center, your stabilized PRS rental scheme.

Speaker 2: 37:46

So they've had a fairly bad run over the last 10 years and you think about, in the shopping center world, it went from being a very attractive asset to being quite an out-of-favor asset and the values declined.

Speaker 2: 38:03

And now, more recently, offices went from being a very safe, stable asset that the no-brainer in real estate investing was buying a grade-A office in the center of a city like Dublin and yields on those have pushed out, meaning values have gone down. And so those core investors have not really seen the safe, stable returns they thought they were going to see, and a lot of them are now interested in real estate credit as an alternative for those safe, stable returns. So you know a little bit less risk because instead of being the equity in the first year of loss, you're the debt and so you're protected by the equity, and so we're seeing a lot of interest and that's good, and hopefully we can parlay that interest into an expanded balance sheet for Fairfield Of course, the heightened interest in debt comes at the cost of reduced interest in equity, and you need both right.

Speaker 2: 39:04

We need both and transactions have to make sense. But we're typically financing assets that are transitional in some stage in some nature. So it may be as simple as you know it's a property that needs some additional leasing, or it may be that there's a small project to be done, like a lobby refurb or energy efficiency measures, or it could be at the other end of the scale, could be a ground up development, and so you know that's a different investor set, not necessarily one that is facing as much of the same issues.

Speaker 1: 39:41

Yeah, Okay, I ask everybody who comes on about the magic wand, right? So if you could fix one thing but it has to be one thing, because when I ask some people, they start with one thing and then five minutes later they've really fixed 100 things. So what's your one?

Speaker 2: 39:56

thing. So, as you know, I'm a bit of a super fan of this podcast and I've listened to everybody's magic wand and I've thought a lot about this. And it is a very tough question Because you do have a. You know, you get an idea and then you think, well, maybe it's actually a bigger idea and it's a bigger idea and it's a bigger idea Plus.

Speaker 1: 40:17

the thing about ideas, isn't it?

Speaker 2: 40:19

And all of a sudden you're doing something that doesn't fit into the magic wand category. So I'm going to say my simplest level fix is Irish water. Every new development, particularly residential developments, particularly housing estates that get built, need to be connected to Irish water. And Irish water are notorious in the development community for being very hard to pin down on when they will connect you to the water. You cannot sell a house or an apartment that is not connected to the water system. This is entirely in the government's control. Irish Water is a government owned entity. They need to invest in doubling or troubling the staff to create connections. We've had numerous development facilities, development loans to single family housing estates where we're held up at the end. Buyers ready to buy Development completed, irish water connection not done for three months.

Speaker 2: 41:30

That is a lose-lose scenario. There's no value created in it. There's value lost because the developer holds on to the properties for a few more months. Our interest accrues. Yeah, right, when you're at peak debt too, right, when you're at peak debt. It is an easily solvable problem. It is one that could do a lot of good. The developer, when he's able to sell immediately, gets on to the next development. That's more houses. The buyers get to live in their new home. That's good for them. They're happy. They're selling their old home. That's more houses, all good for the system. No sense in why Irish water connections are such an issue. Yeah, there is no sense. I worked very hard to make it that one point.

Speaker 1: 42:19

There's the last part of what you're saying Well, we could spend a whole hour talking about Irish water and you know again, well-meaning Guys that work there are well-meaning, but the system has been designed like in a just cockamamie way. I mean, we used to be able to do this, right, we. In 2006, we were building 90 000 houses a year. There was no delays for connecting to water. Now we're building a third of that and we can't seem to.

Speaker 2: 42:43

I have no doubt that there's some skill involved. I don't think I would be able to connect a new development to, but they don't actually they don't actually do the connection.

Speaker 1: 42:51

I mean, this is the crazy thing about it. So a lot of the time these delays are driven by the need for them to inspect the work that's been done and the water is connected right. It's literally opening a valve and the developer is not allowed to do that. So it's not as though Irish water have to come out and do enormous amount of work and it's difficult to schedule it. A lot of the time that does happen in cases, but a lot of the time it is literally an inspection and turning a valve on and they don't have the staff and they don't have the resources and they don't have the resources for the infrastructure that's needed to provide the water. They don't have the resources to do the drainage infrastructure, to do sewage treatment.

Speaker 2: 43:29

So hopefully one of the relevant ministers is listening and this can be resolved. But that would have a huge impact for relatively minimal investment, yeah, and for us as a lender, you have to underwrite the project, so you have to make an assumption about how sales will go. Yeah, and we have to pad those assumptions for the unpredictability of Irish water connecting the new units to the system, and there's a cost to that. And again, if you're worried about projects being viable, if viability is an issue for creating new houses, having us assume three or six months of additional time for no particularly good reason, it affects that.

Speaker 1: 44:16

Yeah, there's absolutely no reason for it to be like that. Well, thank you for sticking to one thing. I know that was probably hard for you. It was very difficult. This year we're going to be very strict, because last year you were starting out and I wasn't really paying much attention. I was giving people too much rope. So it's a new regime now, a little bit more of an iron fist. Is there any other points that you had in your head or things that you feel like you need to say? You basically have an open mic.

Speaker 2: 44:47

You know, as I said, ireland has had tremendous success. What's happened here over the last 30 or 40 years is truly phenomenal and there are lots of lessons for other countries to learn from Ireland's success. But housing and infrastructure are today's problems and they will impact economic growth. They have probably already to some extent impacted economic growth. They have probably already to some extent impacted economic growth. The taxi driver whose son is living at home will one day decide to move to another country and because he can live on his own and the job he has will provide sufficient money to afford an apartment or a house in another country.

Speaker 2: 45:34

He can probably do that job from anywhere, and he might be able to do that job from anywhere, and so that's not good for the Irish economy, and the government has done very, very well in attracting companies here. But at some point these issues will come to the forefront. Those companies will make different decisions. Yeah, I'm going to take advantage of this and I'm going to add one more. At some point in last year's season last season there was a reference to an Atlantic article called Housing Broker Brains.

Speaker 1: 46:08

Yeah, that was the last episode. Actually Sean Keyes, the guy from the currency.

Speaker 2: 46:13

That is a really, really important article and I see it all the time in speaking with friends about housing, the concept being that, you know, in every other aspect of the economy, more units is thought to be good because it reduces prices, makes something more affordable. We've seen that with phones and computers and everything else all types of technology but somehow in housing, lots of people think that more units somehow is bad and governments feed into that sense. All of the above build lots. That is the solution to the housing crisis. Mark.

Speaker 1: 46:52

BLYTHINGTON JR. Yeah, OK, well, you heard it here first. Well, not first, I mean for the umpteenth time. You need to start getting those houses built and Chris is there to finance them for you with very generous debt packages, margins in the low 2%, 3%. Now, Chris, is it that?

Speaker 2: 47:08

is incorrect.

Speaker 1: 47:11

I'll let you get in touch with Chris and get the real margin and listen. Thanks very much. It's been great to have you on and I know that we've been batting back and forth about this for a while, but it's great to get it done in the end and I guess we'll leave it there.

Speaker 2: 47:25

Thank you for having me and thank you for doing this podcast. It's very important. Thanks a lot, Chris.