The arrival of “vulture funds” in the Irish property market means an increased likelihood of people being evicted from their homes, according to a report published today.
The funds that have bought into the Irish commercial and residential property market, mostly by way of buying loans from State-owned institutions, will want to see “big yields” on their investments, which in practice means “squeezing debtors hard”.
The report entitled, From Puerto Rico to the Dublin Docklands, Vulture Funds and Debt in Ireland and the Global South, by the Debt and Development Coalition Ireland (DDCI), said that while there is little research yet available on the effect of vulture fund involvement in the European property market, research from the US indicates an increased likelihood of people being thrown out of their homes.
DDCI is a coalition of Irish development, faith-based and solidarity groups concerned about the effects of debt on developing countries. It is chaired by Sorley McCaughey, advocacy and policy officer with Christian Aid. The report was written by Dr Michael Byrne of the UCD School of Social Justice.
Distressed debt
Hedge funds or private equity funds that invest in distressed debt – vulture funds – originally invested in sovereign debt but since the financial crisis in 2008 have moved into buying loans linked to the property market in the US and Europe.
The Irish Government, according to the report, has "wholeheartedly embraced vulture funds" and their entry into the Irish market could not have occurred were it not for two major public banking institutions, the National Asset Management Agency (Nama), and the Irish Bank Resolution Corporation (IBRC).
Nama is the public entity that acted as Ireland’s bad bank for property loans issued by Irish banks, while the IBRC, which is now in liquidation, took over the collapsed Anglo Irish Bank and Irish Nationwide.
Locals priced out
The report says that these two institutions sold assets under time pressure and did so at high discounts. Because the loans were sold in large “bundles” or portfolios, local investors were priced out. The two institutions “sell big, they sell quick, and they sell cheap”, according to the report.
“This created a context which not only favoured vulture funds, in a sense it meant that only vulture funds had the financial fire power required to play this extremely high stakes game.” The fact that the Irish financial system is in crisis means it was very hard or impossible for domestic actors to obtain credit to invest in Irish real estate.
The creation of a direct link between Irish property and the international financial system, via the vulture funds, exposes the Irish economy and society to the possibility of “sharp shocks” caused by events very much outside the control of the Irish political or regulatory system, according to the report.
Global vulture funds, most of them US-based, are snapping up distressed debt linked to European property, most especially in the UK, Ireland and Spain. Global groups such as Cerberus, Lone Star Capital, and Blackstone, are among the top investors here.
