COVID-19 Crisis – Impact on Real Estate Development in Ireland

Since the onset of the COVID-19 crisis, Activate Capital has been fully supportive of our customers, is operating as per normal, while adhering to public health restrictions and has had the opportunity to engage deeply with the marketplace.  It is very encouraging to see and learn from our customers’ proactive business leadership and management of a particularly challenging situation.

The pace at which the COVID-19 crisis has paralysed the global economy is unprecedented – sectors such as travel, leisure and hospitality were directly hit and are effectively frozen until various governments begin mitigating some of the lockdown measures in place at present.

Although the construction industry in Ireland was initially not directly impacted by the Irish Government containment measures imposed in mid-March, the industry came to a halt last Friday, when the Government extended its lockdown measures and ordered all non-essential activity across the state to cease for a period of at least two weeks.  The construction sector responded quickly, with a significant number of sites being secured and closed down over last weekend, with the remainder of sites closed since Monday.  Given that the spread of the virus, and the measures required to contain it, are beyond the control of developers, the sector is now rightly focussed on matters within their control, including but not limited to the following:

Appointment of Crisis Team – depending on the size of the organisation, Crisis Teams have been formed with the objective of mapping out the business impacts of site shutdown and the general COVID-19 crisis, together with implementing initiatives to mitigate those impacts.  Typically, one senior person in the organisation takes ownership of this project and convenes meetings (daily, if required) of key internal personnel.  Communication from this team to the wider employee group is pivotal at this uncertain time.

Health and Wellbeing – business leaders are acutely conscious of the wellbeing of their teams.  This is manifested through more frequent contact on a group and/or one-to-one basis in order to keep people apprised of updates, to allocate and share responsibilities and tasks and to give due recognition to challenges and achievements.

Cash Preservation – during this crisis, management teams recognise that it is important that liquidity of the business is maintained.  This may involve a belt and braces review of costs and preparation of a weekly cash flow forecast.

Seek Government Support – the Irish Government has acted with real momentum and deserves great credit.  It has created significant supports for those businesses that are experiencing difficulties since the onset of this crisis.  One of the significant supports is outlined here and offers companies a lifeline to keep employees in situ over the coming weeks.

Engaging with Key Stakeholders – this includes equity investors, general contractors, sub-contractors, prospective tenants, lenders and forward purchasers.  Transparency of information at a time of crisis is important in ensuring key stakeholders remain committed to specific projects.

Review of Legal Contracts – various legal contracts are undergoing review.  Many have time critical clauses and a legal review of same, together with the extent of force majeure clauses, is important so that developers can readily and clearly assess the impact of time delays on various aspects of a project.

Preparing for New Normal – there’s no doubt that this crisis will leave a mark on the Irish economy for some time and it’s important that businesses adequately prepare for the new normal that may emerge post-COVID-19.  Preparations may include some or all of the following:

• Supply Chains – the medium to long-term impact of COVID-19 on supply chains may be significant and, during this period of site closures, it is an opportune time to seek out a wider range of suppliers, perhaps ones that are located closer to home.
• Scheme Design & Planning – there may be design and planning projects that have been long fingered whilst production was ongoing.  Now may be an appropriate time to engage with design teams to progress such schematics, planning applications, etc. so that developments can be progressed through the development cycle whilst production is stalled.  This may include various re-designs / re-plannings that are required to those schemes that are already in production – we’re informed that the planning system is seeking to operate on a business as usual basis, albeit with a slightly longer public consultation period.
• Health & Safety – when sites re-open, it’s likely that incremental health & safety measures will be required to comply with HSE guidelines.  Developers are devoting time preparing for that scenario and seeking to mitigate productivity inefficiencies from such additional guidelines.
• Engage with CIF/IBEC – there’s no doubt that both serve their members well and are influential voices.  It’s important that the sector fully engages with these bodies in a bid to have sites open as soon as practicable and with clear health & safety guidelines that achieve the desired impact and are workable in the context of (generally) open air working areas.
• Prepare for Sites Reopening – while there is no clarity on when sites can be reopened, developers are putting in place plans that can be implemented within a short space of time, which will enable sites to be efficiently brought back into production.  Within the cash flow constraints of the business, there may be materials that can be sourced to be available, as required, when sites re-open; or there may be labour bottlenecks that can be resolved during this stand-down period.

COVID-19 has created material uncertainty for the real estate development community in Ireland, but we expect that the real economy will recover following the easing of restrictions when the virus is deemed to be under control.

There is no doubt that the macro drivers underpinning new housing demand such as population growth, historical undersupply, strong FDI and underlying employment growth remain.  As a significant lender to the development sector since 2015, Activate Capital is providing material support to our customers during this unprecedented time.  Since mid-March, we’ve deployed in excess of €10m to customers for working capital across numerous sites – in playing their part to control the spread of the virus, developers have closed all sites temporarily, but we’re confident that all schemes will re-open in due course and we look forward to supporting those customers for many years to come.