BUSINESS

Central Bank of Ireland raises red flags over possible crash of commercial real estate

Watchdog fears potential liquidity crisis and fire sales in Covid-hit market
Retail property values were declining before the onset of the pandemic
Retail property values were declining before the onset of the pandemic
BRIAN LAWLESS

Irish real estate funds (Irefs) have been placed on watch by the Central Bank of Ireland amid concerns that an investor exodus could trigger a liquidity crisis, forcing a fire sale of commercial real estate into a market where values are already under pressure because of the coronavirus crisis.

The financial watchdog is also concerned that a property crash could cause some funds to breach the terms of their loan agreements, putting more than €6.5bn at risk in a worst-case scenario.

A deep-dive survey of the sector ordered by Gabriel Makhlouf, shortly after becoming the Central Bank governor last year, shows that global investment funds own €23bn of Irish property — more than 40% of the national stock of commercial real estate.

These funds typically