IRES Readies For First Investment Joint Ventures As Rent Reform Piques Interest In Ireland

Ireland's biggest residential landlord is looking to form joint ventures with other investors for the first time, as a way of tapping into what it believes will be a swathe of acquisition opportunities as up to 14,000 rented residential units become available for purchase over the next couple of years.

Buoyed by premiums on recent apartment sales and a gradually narrowing gap between its share price and net asset value, Irish Residential Properties REIT CEO Eddie Byrne told Bisnow the company can also capitalise on promised reforms to rent caps, which could encourage more international and domestic capital to come back into the Irish market. 

“We think there is an opportunity to raise capital as a strategic partner or operating partner for capital that wants to come into the Irish market,” said Byrne, whose firm has a circa €1.25B, 3,668-home portfolio.

Attracting that capital requires rent reform, specifically changes to rent caps, and this summer the new government made its first outline proposals on how it will address rent pressure zones, established in 2016 to protect renters from soaring costs.

Seeking to find a compromise to encourage residential development and investment while preventing rental growth overheating again, the government has put forward proposals that mean sitting Irish tenants will not face rent increases above the current 2% cap. However, in a change to current rules, landlords would be able to change the rents between tenancies from March 2026.

In addition, rents in newly built properties would no longer be capped at 2% annually but instead tied to the rate of inflation, which the Central Bank of Ireland forecasts at 2.1% next year and 1.4% in 2027.

“Inevitably, it’s a political compromise, as it’s a nil-sum game between investors and tenants. You can’t improve one’s lot without disimproving that of the other,” Technological University Dublin lecturer John McCartney told Bisnow. “Along with lower interest rates, it may do something to encourage development and investment. However, with the state such a big buyer, I expect pricing will remain very sharp.”

Likewise, Byrne warned that rent rate changes are not a panacea, citing changes to the planning and design standards as necessary to boost new supply. He said the market needs to see change implemented.

“Capital needs to see the legislation passed,” Byrne said. “That is probably in early 2026, and I think once it's in place, the opportunity to raise capital as a strategic partnership, or potentially on our balance sheet, and then to deploy that capital will really show itself."

If there's 100 basis points of viability gap in Ireland today — Irish yields are about 5% and European competitor cities are at about 4% — then the government changes might account for maybe 25 to 50 bps of that gap, Byrne said. 

To help raise its own equity, IRES REIT has trimmed costs and, thanks to that and increased revenues, has started to close the gap between its share value and NAV — its shares are up 25% so far this year. To raise capital, it pledged to sell 315 units over a three-to-five-year period and should reach 92 sales by the end of this year.

“We said we would deliver premiums of about 15% to 20% above the book values,” Byrne said. “We think we will deliver at least 25% and maybe a little more. So, we're happy with the pace and very happy with the proceeds.”

The next thing is for the opportunities to start presenting themselves, and IRES puts that opportunity at between 12,000 and 14,000 units for sale in the next 12 to 24 months as developers complete new schemes and investors begin to sell out. 

Before Byrne could chart a future direction for IRES, the company needed to get itself back on a firm footing following a public battle with an activist investor and a strategic review.

That meant setting out a clear plan of action that addressed the company’s estate and structures while lobbying the government to create more favourable terms for the residential market as a whole.

“We came up with a set of actions, including increasing revenues outside of the rent cap across our real estate footprint, which is about 4.5M SF,” Byrne said. “We weren't really sweating that as much as we could. For example, our residential car parking revenue is now up about 40% year-on-year.”

IRES saw a 9.5% jump in adjusted earnings to €16M in the first half. Turnover dipped 0.4% to €42.6M in the six months to the end of June, primarily related to the disposal of apartments this year. Occupancy is 99.4% and total rental income last year was €85M, producing a profit of more than €30M.

“The other thing that we did was refinance, and so now we have no debt maturing before 2027 and the average maturity date is around four and a half years,” Byrne said. “From a P&L perspective, and now a balance sheet perspective, the business is in a really strong position.”

Byrne has clear disposals criteria, notably if IRES does not have control of an asset’s management company and therefore the budget. It is selling units individually to home occupiers, hence the premium achieved and the extended sale period for the target 315 units.

“With that, we are paying down debt, and we used some of the proceeds to do the share buyback and we're accumulating capital, which we will now start to look at reinvesting in small blocks,” Byrne said. “By early next year, we'll be in the market to buy a block or blocks, ideally somewhere close to where we have operations.”

For IRES, the target properties usually come without basement car parking or amenities, making them cheaper to build and run, generally in suburban locations with more affordable rents.

“They hit a sweet spot for us,” Byrne said. “Today, our average rent is just north of €1,800 a month for a two-bed, and we would like to see ourselves in that affordable space, where we think there will be significant opportunities.”