Extracting value from a tough market: How TWM is navigating the commercial property turmoil

Tom Lyons, Chief Executive, The Currency

TWM founders Seán O’Neill and Michele Jackson. Photo: Bryan Meade
New working and shopping patterns plus higher interest rates have altered the commercial property equation, but agents TWM say there are plenty of cash investors. Founders Seán O’Neill and Michele Jackson explain uncertainty gives their firm an edge.

There are nine cranes visible from the rooftop of commercial property agent TWM’s office at Fleming’s Place, Dublin 4. Further on, a huge piling is drilling foundations for another new office building and clattering as it pushes its way into the ground of a site along the Grand Canal.

For a city facing rising interest rates, construction cost inflation, and jitters in the tech sector, there is little sign of it. Seán O’Neill leads the way back into the boardroom of TWM followed by his co-founder Michele Jackson and closes the glass door. Over the next hour, we cover a lot of ground. O’Neill and Jackson are engaging interviewees, answering every question as they see it.

Retail and value

Between them, O’Neill and Jackson have 40 years of experience in the Irish market. They both cut their teeth in property during the Celtic Tiger and came through the financial crash and into the recovery. They both worked in senior roles with DTZ FitzGerald (today Cushman & Wakefield) before co-founding TWM in 2014. They’ve been hardened by starting their business in the post-crash commercial property market and it is independently owned. 

I start by asking O’Neill about the retail market as I’ve seen their name actively advising both buyers and sellers. “We think the retail market is good value. We think rents are probably at a base level now and yields are still quite high, so it is an attractive plan, particularly for private investors and even debt investors,” O’Neill said.

TWM advised Urban Green Private on its acquisition of Bridgewater Shopping Centre in Arklow two years ago as well as its purchase in February of Douglas Village Shopping Centre in Cork for €23 million. The firm is currently selling Arthurs Quay Shopping Centre in Limerick. 

“There is a big development and regeneration play in Limerick city centre, which Arthurs Quay could be the centrepiece of,” O’Neill said. “We’ve just launched it on the market for our client and we’re getting a lot of enquiries to get access to the data room. But it’s early days so we will see who is really there.”

O’Neill said after years in the doldrums, Dublin’s main shopping streets were again showing value. “A year or two ago, when we were talking about Grafton Street, we just didn’t know where the rents were going to settle,” O’Neill said. “There have probably been about seven or eight new lettings on Grafton Street so rents have settled” – about €450 a sq ft, he added

The return of record store HMV to Grafton Street in the old A Wear building is another sign of confidence. “Rents have settled and yields have risen, so you are probably about 5.25 per cent. That is a good historical level to buy in, so for a family purchasing from a wealth protection point of view, Grafton Street and Henry Street are good buys,” O’Neill said.

“There are a lot of private and family investors who have cash built up in their businesses who want to invest it.”

Seán O’Neill

Jackson said demand for regional retail parks remained strong. “Possibly we haven’t heard of the buyer before as often the buyer is from the county. They have a core business and now they want to manage and diversify their wealth.” 

“There are a lot of private and family investors who have cash built up in their businesses who want to invest it,” O’Neill said. Tenants who wanted to own their offices or logistic parks were a significant source of buyers. “Smaller investors are selling logistics centres and industrial offices and in quite a significant portion of cases they are selling to their tenants,” O’Neill said. “Many landlords want to sell so there is a big opportunity for business owners to buy it. It can be an opportunity for a company owner to buy their building and put in their pension, or maybe in the future do a sale and leaseback. We’ve seen that happening across sectors retail, industrial and offices.”

Interest rates and ESG

Higher interest rates are impacting commercial property significantly. “This is the elephant in the room and obviously has had an impact on values. Values have fallen and are in flux at present. It has pretty much halted investment by debt buyers, who find it hard to make the figures work based on current yields and debt rates,” O’Neill said.

“The market feels a bit like 2013 again where opportunities are beginning to emerge. We are finding that there are plenty of cash buyers out there with a demand for property. These vary from high-net-worth families seeking trophy assets to secure income, to opportunistic cash buyers, to businesses buying their own premises. There is plenty of money in the economy.” 

“A new source of buyers is people who have exited their business,” O’Neill said. “They have always been there but the level of business exit is getting bigger. Traditionally, you have had private investors with, say, €5 million to €20 million to invest in property but now, there is a cohort of investors who can trade at over €50 million. Some private investors are now competing with institutional investors.”

TWM is also seeking international investors’ interest in commercial property. “The French institutions like Ireland and have had good experiences here. They are usually after yield and acquire smaller lot sizes although the likes of Corum (Asset Management), who were one of the first here, are significantly increasing the lot sizes they acquire,” Jackson said. “They all acquire assets all around the country and are not just focussed on Dublin. Other buyers are Canadian, German, Spanish, Dutch and UK.”

“There is a bit of a perfect storm for sites without planning.”

Michele Jackson

Developers who debt-funded sites without planning permission are coming under pressure, O’Neill warned. “There is a bit of a perfect storm for sites without planning. If there is planning, at least there is the potential to build. When (commercial property price) values have fallen, that is multiplied in terms of site values. What is happening is developers are getting to the end of a three- to five-year loan. So not only are they facing higher interest rates but their loan-to-value is also under pressure. Developers are being asked to put more money in to keep loan-to-values down.”

“A lack of debt,  falling end-use values and build cost inflation have made viability and funding extremely challenging,” Jackson added. “The result is falling land prices and where sites are debt-financed, this is causing issues.”

Jackson said that even if new lettings were slow, there was still a lot of activity for agents renegotiating existing arrangements. “The office stats don’t count lease regears,” she said. “They don’t pick up when a tenant looks around and decides to stay in the same location.” She said TWM recently acted for two institutional landlords in their negotiations with Citco, a global hedge fund manager. “We did a 55,000 sq ft officer re-gear in the IFSC,” Jackson said. “There were two landlords, one tenant, two buildings so there was a lot to bridge to close that deal.” 

Tenants, Jackson said, were increasingly concerned with ESG and finding greener buildings, but they were balancing this against having access to good public transport. “There is a real focus on ESG but it is broader than just looking at a building’s green credentials,” she said. “Offices in the IFSC are a good example. Public transport is phenomenal. Would you prefer an A-rated building where 200-odd people have to drive every day or a B2-rated building where they can come in on the train?”

“If you look at other countries there is a focus on refurbishing existing buildings to make them greener,” Jackson said. “Demolishing a building and starting again from scratch isn’t always the greenest solution.”

Property as a contact sport

TWM employs 15 people and is split evenly between men and women. “We have an equal culture,” Jackson said. “It is not about balloons on Women’s Day. We have big firm systems and big firm clients but it is a people business. Property is a contact sport.” It is an experienced team that includes Ken Noble, a former director of Aramark Property who previously led the team in charge of the management of the €3.7 billion Irish Life Property Portfolio, as well as Patricia Ward, a former director with Cushman & Wakefield.

TWM is actively promoting its brand with O’Neill presenting a regular property podcast. His most recent guest was Anne-Marie Shalloe, group commercial asset manager at An Post, who gave insights into the semi-state’s plans for the future and focus on sustainability. TWM is acting for the state agency in sourcing a new state-of-the-art 500,000 sq ft logistics hub.

“ESG is extremely important for An Post,” O’Neill said. “We have a number of developers and institutions who are vying to get them as tenants.” He said TWM was finding ESG to be a big factor in industrial units where it wasn’t before. “What we are seeing now is if you want to sell your investment to an institutional investor, you have to tick the ESG box,” he said. “It is a factor, too, in the cost of debt. Investors are looking for pathways to making their portfolios greener,” Jackson added.

How does TWM see its own future, often competing against overseas-owned firms? “We are small and very agile,” O’Neill responded. “We do well in a market like this one where you have to roll up your sleeves to get deals done.” 

“A key thing for us is trust,” Jackson said. “We have been through the crash, Brexit and the pandemic so we know how to be creative and innovative and find solutions for our clients.”

“The challenge is different for all agents. We really like this type of nuanced market which has many sub-markets.  Knowledge, expertise and integrity are key,” she added. “A very buoyant market means that the value added by agents is limited. We find that this (tougher) market suits TWM,” O’Neill said. “We can source opportunities and find value-add angles for our clients.”