Treasury is holding all the keys

Published on 12 August, 2007. By John Reynolds

Appropriately enough, Richard Barrett, the joint founder of property development giant Treasury Holdings, has got the builders in.

We chat in a boardroom in the company’s opulent offices in Ballsbridge, the heart of upmarket Dublin 4. “We believe in leaving a place better than we found it,” he says, as the builders get to work on putting decking outside the lower ground floor of the office. It’ll be cosy drinks and barbecues on the deck all round for the lucky staff working here. The interior of the building looks and feels like a five-star hotel.

According to one rich list, Barrett and Treasury’s other founder, Johnny Ronan are worth about €313m each. “Our little successes are private and our little failures are private,” he says, declining to elaborate on the company’s overall value or profit figures, but later adding: “I wouldn’t really get out of bed for a profit of less than 20 per cent. If our projects are interesting and good, then they often do better than we forecasted on paper.”

Treasury’s ever-expanding global empire includes London’s iconic Battersea Power Station and a swathe of properties in the Chinese megalopolis of Shanghai. Treasury also built some of Dublin’s newest developments, such as Spencer Dock, Grand Canal Dock, Vodafone’s offices in Leopardstown and the Ritz Carlton hotel in Powerscourt, Co. Wicklow. Ronan is a former chartered accountant and Barrett – a former barrister and economist – developed his interest in property law, finance and taxation at the same rapid pace and more keenly than one of his company’s properties.

“China sleeps. When it awakens the whole world will tremble,” is the phrase, coined by Napoleon, that greets visitors to the website of China Real Estate Opportunities, which Treasury successfully floated last month, raising about €390m on London’s AIM. Barrett peppers our conversation with historical references, and he’s clearly very well read. “We take a long-term perspective on our investments in China and over the last 13 years, Shanghai’s annual GDP growth has been 13 per cent on average. The Chinese Yuan was devalued after the Asian economic crisis, so because Westerners cannot acquire the currency speculatively, we’re creating and buying assets to benefit from the rise in currency values,” he says.

Barrett has just recruited a new managing director in China. Richard Davis, the former head of Macquarie, the Australian investment bank, has over ten years’ experience there – longer than anyone else in the real estate business. “The Aussies were in China a lot earlier than the Europeans and the Americans, so they have a better handle on things than we do,” Barrett adds.

Experience counts for a lot when negotiating the tough world of business in China, with its notion of guanchxi, where business revolves around relationships, rather than deals. “If you had a house and your best friend made an offer for it, but then someone you didn’t know offered you €10,000 more, here in the West, you’d probably sell to the stranger. But in China, you’d sell to your friend,” says Barrett. You need time to form relationships, whether with partners of the company or with local authorities. If you do that, you can get good deals, but you might be expected to acquire a stake in a Western company on their behalf or with some other kind of favour.”

Relationships are something that Treasury clearly excels at. The Taoiseach travelled to Shanghai in 2005 for the signing of its €1.2bn deal there, and the company is used to working with local authorities, rail companies and a whole host of other interested parties on all of its developments, whether in Dublin, London or Shanghai.

“In the 1800s China and India were responsible for half of all world trade, but that collapsed when the borders were closed during the Maoist revolution between 1949 and 1989. Now they’re in the process of regaining their position. In 1929, for instance, the most valuable acre of ground in the world was the home of the Shanghai bond market. Now the Shanghai stock exchange has a greater daily turnover than Hong Kong and Tokyo combined.”

Barrett compares some aspects of China’s re-emerging economic might to Ireland and numerous other countries, where governments were initially reluctant to give up their control over certain aspects of the economy, such as banks and State-owned companies. “Sometimes there are conditions laid down to foreign investors. You might have to create a certain amount of jobs in an urban area by bringing people from rural areas, for example. The Chinese government has tried to stabilise property prices by intervening in the market for social purposes, but this happened in different ways in Ireland and other Western countries in the past.”

Treasury has also braved Russia with two large projects underway in St. Petersburg. “China has 100 cities with populations larger than all of Ireland though, so really we have no need to look outside it for the time being. We have a different team and of course there’s a different political system in Russia. Relationships aren’t as important there as they are in China,” he says. It’s likely to be another long-term venture for the company. “Many of our developments in Dublin’s docklands weren’t occupied until ten years after they were built and some are still 12 or 14 years away from completion. So that’s nearly 25 years in total.”

Despite such long timeframes, Barrett doesn’t seem too concerned by the risk of markets crashing wherever it has invested. It can adjust the mix of developments – between residential, commercial and retail – to suit the economic circumstances, or it can slow or speed up the pace of building. The company integrates key infrastructure into all its developments; in the case of its Dublin’s docklands, the Luas, new bridges and Dart stations add value to both the properties and the surrounding area as a whole. “Any site with these characteristics will do well, regardless of the wider economy or the property market,” Barrett says.

At the moment, the Irish property market is “just readjusting itself. July and August tend to be quiet, anaemic months anyway. There’s been excessive market exuberance because of the rush for yield. The key is not to get stuck on the wrong end of the market when there’s a cyclical readjustment and when risk is being re-priced.” His expert analysis is that the fallout in the US from sub-prime mortgage lending is unlikely to be felt in Ireland in any way, because the banks don’t have any sub-prime exposure here. Irish banks’ new business figures for mortgages don’t look too good, so that might have an effect on their overall book. They might also be exposed to investments in development land for residential use, but they’re not heavily exposed to that risk. If anything, the banks might adjust their exposure.

With such an interest in history, Barrett must be quietly pleased that so much of London is becoming a valuable offshoot of the growing Irish property empire. Treasury bought Battersea Power Station and its surrounding lands from the Hwang family at the end of last year for €595m. “We hope to integrate some environmental measures from our Chongming eco-city in Shanghai. Battersea will be mixed use and well served by public transport. We’re also extending the walk along the South Bank cultural quarter. There also needs to be an affordable element because London will die if key public service workers like nurses, police officers and teachers can’t afford to live there.

“The Power Station is an icon, so it’ll stay there, but we have an Uruguayan architect working on a masterplan for the development and eventually hope to bring in Irish architects to design certain buildings. There’s a Conservative mayor in the borough of Wandsworth there, but the mayor of London is a Labour candidate, so we have to negotiate with both of them, which is a challenge,” he says.

All this negotiating means that Barrett and his staff learn from their experience in different countries and can bring the knowledge back and apply it to other ones. “Our people work in China, Britain, Ireland and Russia. They enjoy that and find it interesting.” Although Barrett and Ronan have been approached to sell the company, they prefer to prosper by selling off individual developments and focus on diversifying the company’s interests in these territories.

Clearly their empire hasn’t finished growing.

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