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Vulture funds pick and peck and they're not finished yet

The vultures arrived in Ireland after the crisis when they realised there was a lot of property up for grabs at knock down prices, writes Michael Byrne.

Michael Byrne

A NUMBER OF MASS evictions of tenants have recently hit the headlines. The plight of these tenants have brought home to many people a new aspect of the housing crisis: the role of ‘vulture funds’.

The narrow commercial priority of these firms and the fact that they are based in other countries also underlines the sheer injustice at stake. But these developments also make it more important than ever to understand the nature of ‘financial landlords’ and what it might mean for tenants.

‘Vulture funds’ is a term to describe hedge funds and private equity firms, companies that target countries and businesses in dire straits to make higher than normal profits.

The vultures arrived in Ireland after the crisis when they realised there was a lot of property up for grabs at knock down prices.

14/3/2016. Tenants To Lose Their Homes Over Vulture Funds The Cruise Park housing estate in Tyrellstown in West Dublin. Source: Eamonn Farrell

Moving in during the property crash 

Following the property crash, a lot of Irish property owners (e.g. developers) went bankrupt or into NAMA and the banking system itself went into freefall. All these players needed to offload their investments as quickly as possible. The banks did this either by moving their assets to NAMA or by selling them off to vulture funds. Either way it made little difference, as 90% of NAMA’s sale have been to vulture funds and similar firms.

When vultures ‘invest’ it can take two different forms. They can buy actual buildings that are being sold off cheap, usually by a receivers firm appointed by a bank or NAMA. Alternatively they can buy debt which is secured by a property or multiple properties (like the way a mortgage is secured by a house).

Because the developer or mortgage holder is in arrears with their loan repayments, vulture funds can buy debt to gain control of the underlying property. Buying debt is where most of the vulture activity has come into play.

The whole business strategy of vulture funds involves investing in risky situations, like during a property crisis. They take risks other investors wouldn’t take, but in compensation they want to make super profits and they want to do so quickly. They do this through aggressive strategies which can have very negative consequences for tenants, home owners and cities in general.

22/03/2016. Tyrellstown Protest - Davey House. Pic Tennants and supporters of residents of a housing estate in Tyrrelstown, north Dublin, who are facing eviction gathered. Source: Sam Boal

Vulture funds don’t care about their brand

In their business strategies the vultures have one key advantage: unlike banks they don’t need to maintain their brand image. If an Irish bank tried to evict thousands of families it would be very bad for business. The public would be angry at the injustice, but people are also unlikely to try to borrow from a bank that has a reputation for screwing over its borrowers.

Vulture funds, in contrast, don’t lend. In fact, they don’t perform any productive function in the real economy. If everyone in Ireland hates one particular vulture fund, it’s no skin of their nose.

About now you might be thinking, so why did the government not stop this? In fact, we need to dial our cynicism up a notch and ask, how did our government encourage this? The reality is that the institutions controlled by the government have played a key role in attracting vulture funds into Ireland.

NAMA set itself the objective of ‘attract[ing] international capital’(Section 53 Nama Annual Statement 2013) and its CEO Breandan McDonagh took the opportunity of an appearance before the Public Accounts Committee to champion the fact that ‘NAMA’s market activity and deleveraging have contributed to the strong inflows of foreign capital’. The IBRC were just as enthusiastic about selling to international funds.

14/3/2016. Tenants To Lose Their Homes Over Vulture Funds The Cruise Park housing estate in Tyrellstown in West Dublin, in which a large number of tenants have received notices to vacate their homes. Source: Eamonn Farrell

Rolling out the red carpet 

The Irish government has, moreover, rolled out the red carpet for the vultures, engaging in frequent meetings with the key players. It’s been reported that funds like Blackstone and Apollo have had meetings with senior civil servants at the Department of Finance and that Blackstone had a private meeting with the Taoiseach Enda Kenny in late 2011.

It’s also been reported that the Minister for Finance met with Lone Star capital three times and Apollo capital twice in 2013 and 2014. All in all, the department of finance met with vulture funds no less than 65 times in 2013 and 20143.

On 4 March 2015 the Department of Finance went further still in its efforts to facilitate vulture funds by organising a conference in which figures from the Irish property industry could ‘network’ with private equity firms and other global financial players.

Now that we are seeing the fallout of government policy, politicians will queue up to lament these unfortunate events, sympathise with the families and cry crocodile tears. But this is not a natural disaster, it is a policy decision. What would be more helpful is the immediate implementation of a suite of legislative and policy changes to protect the right to housing against the predatory strategies of the vulture funds.

22/03/2016. Tyrellstown Protest - Davey House. Pic Source: Sam Boal

These should include:

1) Stop the sale of debt secured by residential real estate on secondary debt markets (i.e. stop banks selling mortgages to third-parties), at least for the duration of the housing crisis

2) Remove ‘sale of property’ as grounds for the termination of a tenancy under the Residential Tenancies Act (2004) (already the norm in many countries)

3) Amend the Residential Tenancies Act so that receivers firms have the same obligations as landlords

4) Public agencies (i.e. NAMA) and financial institutions in receipt of public support not to sell housing or debt secured by housing to vulture funds/third parties

5) Change the tax system for distressed debt and other financial assets to penalise rather than promote speculation on distressed residential debt

6) Strengthen the Code of Conduct that protects mortgage holders and extend it to include all holders of mortgage credit.

In reality, it seems highly unlikely that any new government will tackle these issues of their own accord. As the housing crisis deepens and pressure continues to mount on the private rented sector in particular, the importance of tenants associations is increasingly clear.

As tenants we need to find ways to come together, make our voices heard and campaign for the policies we need if we are ever to really feel we can have a place to call home.

Michael Byrne is a researcher at the School of Social Policy, Social Work and Social Justice, UCD. He participates in the Dublin Tenants Association, a peer-support and advocacy group for tenants in the private rented sector. You can follow the group on Twitter @dublintenants

Read: ‘It was terrifying to be at the heart of an event the world was watching’>

About the author:

Michael Byrne

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