The Sunday Times 14 June

Date 14 June 2015 Page 5

Copyright NLA Media Access. For internal use only. Not for reproduction.

CAIRN-DOSPIRITApair of ambitious businessmen are takingon a daunting taskbringing the goodtimes back to the nations homebuilding,writes SamanthaMcCaughren

Apair of ambitious businessmen are taking

Michael Stanley, AlanMcIntosh and 20 staff from Cairn Homeswere still on a flight to the UKwhen theircompany floated on the London stockexchangeat8amlastWednesday.Unawarehowthefirsthouroftradinghadgone,they

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rushedtoswitchontheirphoneswhentheplane landed.It was good news. After 18 months of

preparation, the listingwent off without ahitch. Cairn Homes, the first Irish home-builder to take a stock market listing innearly 20 years, raised more than 400min funds. Its shares closed the day up 5%.Stanley, Cairns co-founder and chief

executive, led his group to the Londonstock exchange and on to a low-key cele-bratory lunch. There wasnt a fanfare,he said. Were very conscious that this isonly the first baby step for our business.A d i j



An even more momentous day is justaround the corner for Stanley, a second-generationhousebuilder.Months aheadofschedule, Cairn will begin selling its firsthomes at Parkside, off the Malahide Roadin north Dublin, withinweeks.We have had way over 300 inquiries

with no advertising, said Stanley.Youve probably never heard of it.Theoriginalplanwasto launchParkside

in September but Cairn is feeling confi-dent. About 30 houses are fully completeand will be sold in a soft launch.Eventually, there will be 450 three- andfour-bed homes in the development.For Stanley and McIntosh, a Scottish

financier who has co-founded severalpublic companies, the early response toParkside is a proof of concept. Cairnsentire business proposition is based on thestructural imbalance between supplyand demand in the housingmarket.There can be no doubt about the

demand. Since the property bust, how-ever,supplyhasbecomeaseriousproblem.In2006,attheheightofthebuildingboom,93,419 houses were built in Ireland. Lastyear, just over 11,000were built.Hubert Fitzpatrick, director of the

Construction Industry Federation (CIF),expects 12,000 to be built this year. Heestimates the country will need20,000-25,000 new homes a year in themedium-term,mainly in the Dublin area.Traditionally, when demand outstrips

supply, investors quickly see an opportu-nity to turn a profit. In Irelandsbombed-outbuildingsector,however,therecovery in the rate of housebuilding hasbeen sluggish, at best.Manybuildershavegonebustorare still

dealing with legacy debts. Even the onesthatarestillstandingarebeinghinderedbythe lack of bank debt for development.By and large, banks will make 60% of

the development finance available and thebalance must come from equity, saidFitzpatrick. In the boom years, bankswould have lent 100% of those funds.In2007,banksinIrelandhad10.2bnin

construction loans outstanding. That wasdown to 1.8bn in 2014.Togetbackbuilding,Stanley,asurvivor

of the bust, knew he needed to take anew approach.

BUILDING is in Michael Stanleys blood.His father and uncle set up ShannonHomes, a large housebuilder, with FrankFahy, another builder, in the 1960s. As ab h S l ld d hi

boy, the young Stanley would spend hisweekends on construction sites.In 2005, theStanleysdemergedStanley

Holdings from Shannon Homes with thecompaniessplittingtheirassets, includingdevelopment sites. Over the next twoyears, Stanley Holdings built 450 homes.Inmid-2007, though, justat thepeakof

the market, it decided to cut its exposureand sold a large chunk of its land bank. Itwould prove awisemove.Stanley had done property develop-

ment in Dublin and London through theCoastland Partnership, but also had non-construction experience in plastics,healthcare and energy. About two yearsago, he felt the timewas right for a returnto development.Itbecameveryapparenttomewewere

seeingan improvingeconomy inDublin,

said Stanley. Home building, however,was at pre-1970s levels.Demographics suggested a looming

crisis. We have a very young populationand a very high birth rate, said Stanley.Rents are approaching peak and ifwe aregoing to sustain this [economic] recoverywe do needmore homes.About 18 months ago, Stanley was

introducedtoMcIntosh,afortuitousintro-duction.Apolishedbusinessmanwhogoesby the name Mac, he co-founded andfloated companies including PunchTaverns and Spirit Group in the UK.Married to an Irish woman, McIntosh

hasownedahome inDublin formore than10 years.Mulling over the funding optionsfor a post-recession housebuilder, hequickly convinced Stanley that a publiclistingwould be the best option.What he proposedwas the direct oppo-

siteof themajorityofpre-bustdevelopers,whose companieshadminimal equity andthinly-spreadmanagement.Wefeltwhatwas needed was a very well governedcompany, which was equity-led ratherthan debt-led, saidMcIntosh.It proved to be a difficult journey.

Stanley has spent about 80% of his timeoverseas in the past six months, pushingCairns plan to investors in London, NewYork and Boston.Last November, they began drumming

up support from institutional investors inLondon and New York in earnest. Weneeded to make sure they bought into theIrish recovery story, which is a veryimportant part of this, Stanley said.There was an awareness among inves-

torsofthesuccessfulflotationofIrishcom-mercialproperty funds inrecentyears,but

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some required education in terms of theneed for housing, saidMcIntosh. Gettinginternational support was just one strand

THE ATMOSPHERE ON SITEIS GREAT THESE AREPEOPLE DOING WHATTHEY LOVE WHO HAVENTBEEN ABLE TO DO IT FORSEVEN OR EIGHT YEARSof the strategy they also had to developan active construction company.It conditionally acquired five sites

ahead of the flotation, and is alreadybuildingon the50-acreParkside site andasite in Killiney in south Dublin. Construc-tion on another site, in Navan, Co Meath,will start before the end of the year.ThefivesiteswillcostCairnabout60m

and have a combined gross developmentvalue of 366m. It has just spent40mona site in Rathgar, Dublin, is in exclusivenegotiations on three further sites and isconsideringnine others. Eight of those arein Dublin and one is in Cork.The sites bought so far were acquired

with finance from McIntoshs investmentvehicle,EmeraldInvestmentPartners,andsome funding from Stanley. The assetswere then backed into Cairn.After paying 15.1m in fees and under-

writing expenses, the company will havenet proceeds of 385m to invest in thebusiness.Asapubliccompany, itwillneedmomentum in order to satisfy investors,say analysts. I want to see them gettingsitesingoodlocations,atgoodprices,saidone analyst. I want to see a steady newsflow over the next sixmonths.A frustration for Stanley and other

developersisthefactthatsubstantial tractsof land remain in the hands of banks andNama, the state bad bank. You have thisunnaturally high proportion of residentialland in a lot of caseswith planning per-missionwhichisntinthehandsofhomebuilders, said Stanley.The difficulty in acquiring sites hasnt

gone unnoticed by analysts coveringC i W h l d k ff i

Cairn. We see the land market suffering

from a similar supply/demand imbalanceas the housing market, ie shortage ofsupply, saidColin Sheridan, an analyst atstockbroker Davy in Dublin.Stanley and McIntosh admit there are

otherchallengesfacingthebusiness.Theseinclude the availability of mortgage creditfollowingnewlending rules introducedbythe Central Bank last year.Other potential headwinds include the

growing body of environmental legislationand building regulations. Following thePriory Hall debacle, where apartmentresidentshad tobeevacuatedandrehousedby Dublin city council, new regulationswere brought in to try and protect homebuyers from substandard buildings.The new regulations are by and large

untested, said Ronan Lyons, a professorof economics at Trinity College Dublin.Very few people have built to the newregulations yet.Lyons said there are fears the new

standards will increase costs to the pointthey stifle construction. It you talk to theinternational players, who have thefinancetobuildhere,theysaythenumbersdont stack up, he said.Its 1,000 [total building cost] per sq

metre in Belfast and some German cities.Its 2,000 per sqmetre in Dublin. Some-thing has gonewrong there.HecreditedtheCairnfoundersforput-

ting theirmoneywhere theirmouths areand leading the way for new home-builders. Stanley and McIntosh areconfident that theirmodel of getting gooddeals on land and forging a reputation as ahigh-quality home builder will work.They hope to scale up output to 1,000

houses a year. If all the deals they haveunder discussion come through, they willhave enough land for nearly 3,900 homes,with gross development value of 1.8bn.That should be enough for starters.

THEParksidehousesaregoingtobepricedin the mid 300,000s, but the specifica-tions will reflect homes of a much highervalue, saidStanley.Weredoing full brickfacades, high specification kitchens,were offering appliances included andflooring packs.Were going to provide almost a

walk-in package that people havent seenbefore. We are so conscious of building areputation for Cairn that inmanywayswehave to go beyond the requirements.With the IPO out of theway, he plans to

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be a regular presence on Parkside. LastSaturday, there were 90 constructionworkers on the site. The atmosphere onsite isreallygreat,saidStanley.Thesearepeoplewho lovewhat they do and haventbeen able to do it for seven or eight years.They include Cairns chief operating

officer, LiamOBrien, a former director ofdevelopment at Menolly Homes, whichwent intoNama. Liam is like the guywhogot the train set for Christmas, saidStanley. Hes smiling ear to ear.Stanleyharksback to thebuildersof the

past, such as Crampton, which becameknown for quality housing. If I have anambition, its that people will talk aboutCairn Homes in the same way they speakaboutsomeofthosecompanieswhichbuilthomes in the 1940s, 50s and 60s.



Alan McIntosh, left,and Michael Stanley

are aiming high

The Sunday Times 14 June

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