"The market is overbought," said Rogier Quirijns, who helps oversee $49 billion of assets at Cohen & Steers, including shares in Hibernia REIT. "This is not a bubble, just some overheating."
In the wake of the crash, Irish commercial property values fell two-thirds between 2007 and 2012, while yields rose to 7.5 per cent from 3.75 per cent. The lower prices and Ireland's improving economy encouraged investors from Elena Baturina, one of Russia's richest woman, to Donald Trump to scour Ireland for deals, picking up offices, castles, golf courses and hotels.
Buyers spent about 939 million euros on Irish commercial real estate in the first quarter, almost as much as they paid during the four years through 2012 combined, according to CBRE Group.
Last week, Blackstone Group agreed to buy a portfolio with a par value of 1.8 billion euros from McDonagh's organisation, the National Asset Management Agency.
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Michael McAteer, a partner in corporate recovery and reorganisation at Grant Thornton LLP in Dublin, was last year hired by a bank to sell a portfolio of real estate and loans with a value of about 70 million euros.
"When we opened all of the envelopes, we counted 1.7 billion euros of cash bids on the table," he said, declining to name the eventual buyer.
Commercial real estate prices rose 5 per cent in the first quarter, according to Investment Property Databank. The yield on the best Dublin offices fell to 5 per cent in May from 6.5 per cent a year earlier.
While this is similar to Amsterdam, Oslo and Helsinki, those cities are "more stable with better rental growth prospects," Quirijns said. Dublin yields should be closer to those of cities such as Rome and Barcelona, which are over 6 per cent, he said.
Irish yields are now around their historical average, according to CBRE. McDonagh last week told a Dublin conference he would be concerned if yields continue to fall.
"Yields have compressed hugely," said McDonagh, who is selling off 72 billion euros of toxic real estate assets the agency purged from the Irish banking system in 2009. "Dublin is not London."
About 14 per cent of Dublin office space remains vacant. While office rents have risen by a third since 2011, they're still about 45 per cent below peak levels in 2006.
Green REIT and Hibernia REIT Plc, a smaller competitor, have dropped in Dublin trading this year, paring 2013's gains.
As prices rise and yields drop, investors might be rattled by the possibility of REITs not producing the kind of returns they pictured last year, according to Eamonn Hughes, an analyst at Goodbody Stockbrokers in Dublin, who has buy ratings on Green and Hibernia shares.
Dublin, Ireland. Photo / Thinkstock
Shares in Green jumped 31 per cent last year after their initial public offering in July. The company, which sold another batch of shares last month, has slid 12 per cent this year. Hibernia is down 10 per cent this year.
"Whilst Ireland recovered first, others are following," Hughes said. "After some initial euphoria toward the end of last year, investor expectations for the REITs have been more subdued."
Green and Hibernia have raised at total of about 1.1 billion euros since July from investors including some of the world's biggest money managers. Paulson, Franklin Resources and Pacific Investment Management are among Green's biggest investors. Hedge fund billionaires Soros and Louis Moore Bacon are backing Hibernia.
Hibernia last week agreed to buy two offices, with tenants including Goldman Sachs Group, in Dublin's city centre, in a deal which valued the buildings at 60 million euros.
On Tuesday, the company agreed to spend 16 million euros on another batch of properties in the capital. Most of Hibernia's purchases have been negotiated with sellers in "off-market" transactions, rather than through auctions.
"It's much better just focusing on deals that you know you're going to get done, rather than getting involved in competitive processes where it may get to a price that you just don't think is realistic," said Kevin Nowlan, Hibernia's chief executive officer.
The two REITs have spent about 560 million euros on properties so far, mostly around Dublin, according to company filings. A third company, Irish Residential Properties REIT Plc, raised 200 million euros in an initial public offering last month.
"Everyone would be foolish to say they had no concerns. You don't want this thing to get overheated," Green Chairman Gary Kennedy said after the investor meeting. He said he has "no major concerns" at the moment.
"A lot of good things are happening," he said.
Ireland's economy, which shrank in 2013, will grow 1.9 per cent this year and 2.2 per cent in 2015, the Organization for Economic Cooperation and Development said. Many investors are betting that a recovering economy will boost rents, raising yields.
"It'll be hard to make bad investments in Irish real estate at this point in the cycle," said Michael Shaoul, chairman of Marketfield Asset Management LLC, which owns shares in Green and Hibernia. "Timing tends to be everything."
O'Rourke, the Green REIT shareholder, agrees even after his losses on lenders including Bank of Ireland Plc and Anglo Irish Bank in the crash. The Irish index of financial stocks, the ISEF, is still 98 per cent below its 2007 peak.
O'Rourke, wearing a tweed jacket over his checked shirt, described himself as a small shareholder and described the Green investment as a chance to "dip my toe" into property.
"What about all the American companies flooding in here buying it, have they got it wrong?" he said. "No. It's on the up. I wouldn't be investing otherwise."
- Bloomberg
