Social Developer
The Sunday Business Post, 4th March 2007He has hopped islands and lobbied Caribbean governments for telecoms magnate Denis O’Brien, headed a major British music marketing company, launched an upmarket restaurant in Dublin and even flogged BMWs for one of the country’s largest car dealerships.
For the last five years, however, Peter McCarthy has been earning his corporate stripes in the property sector. As chief executive and co-founder of the Thornsett Group, the 40-year-old businessman has been busy building one of the largest providers of social and affordable housing in the country.
Since entering the Irish market in 2002, the Thornsett Group has completed eight development projects and is working on another 12. Most of those have been social and affordable housing projects – state-backed schemes that help low and middle-income earners get on the property ladder.
The group has built up a significant business in Belgium and has amassed a property portfolio, in the Benelux country, with a gross development value of almost €110 million.
McCarthy acknowledges that he had little, if any, experience of the property market before joining the Thornsett Group. However, he said his previous business ventures had taught him a thing or two about heading a company.
Over the past 15 years, he has established his own restaurant, Cooper’s in Malahide, worked as a sales manager with Joe Duffy Motors in Dublin and had a stint as a general manager with Esat.
He was chief operating officer of Music Matrix, a British technology company that raised more than €20 million in funding, before being recruited in 2001 by Denis O’Brien to work for Digicel, O’Brien’s Caribbean telecoms company.
“My experience is in business, not property,” said McCarthy, “but you learn quickly. You have to get on with things and get things done. Besides, my partners have a wealth of experience between them.”
Those partners are the Longford-born brothers, Gerard and Denis Cunningham.
The brothers moved to Britain 20 years ago and have amassed multimillion euro fortunes from their London property business.
Their company, the Thornsett Group, initially started out as a building firm, but gradually moved into property development.
The company has specialised in developing social and affordable projects in conjunction with local authorities in Britain.
Five years ago, McCarthy teamed up with the two brothers to establish the Thornsett Group in Ireland. The three men had been friends for a while, and decided it was a good time to go into business together.
The company operates as a separate entity from the London firm and controls all of the developments in Ireland and Belgium. The three founders each own a third of the business, which is managed by McCarthy on a day-to-day basis.
“The guys suggested then that we should look at social and affordable housing in Ireland – not the sexiest thing in the world, but a good business nonetheless,” he said. “I wanted to come home from the Caribbean and it was a great opportunity for me.”
The Cunningham brothers had become involved in the social and affordable housing market in Britain in the late 1980s. The private property market was on its knees, but affordable housing was booming.
The change of strategy allowed the company to survive and prosper.
According to McCarthy, his company is laying the groundwork for when the Irish property bubble begins to deflate.
Rather than pursue a short-term profit, he said Thornsett was playing the long game.
“History has shown, in Britain, that, whenever the private market grinds to a halt, social and affordable housing takes off,” he said.
“I don’t think the market is going to collapse, but it will have to adapt and it is going to become a slower market. We are well poised, with our experience, to take advantage of this because there will still be a huge demand for social housing and affordable housing.”
In addition to having built up relationships with the local authorities, McCarthy said the group had a solid understanding of the affordable housing market. To date, Thornsett has developed about 270 social and affordable units and worked on a range of schemes across the country.
“Social and affordable housing requires a huge amount of patience and I am not sure if a lot of the developers would have that patience. It is the formal processes that you have to go through. There is a huge, huge process of approval,” he said.
Just one of the group’s projects to date has been in Dublin.
Instead, it has tended to work on small projects in towns such as Mountmellick and Emo in Co Laois, and Cappaghwhite in Co Tipperary.
McCarthy said the group subcontracted out the construction and architectural work on each project, preferring to act as project manager.
Frequently, he said, the company entered into a joint venture with a local builder to work on a scheme.
As well as social housing, Thornsett has carried out a number of private developments and is working on a major development in Delvin, Co Westmeath, where it owns a 28-acre site.
“We don’t want to put all our eggs in the one basket. I would prefer to spread risk around. If you run into planning difficulties on one big site, your whole cash flow can grind to a halt,” McCarthy said.
Over the past 18 months, the group’s Belgian expansion has occupied much of McCarthy’s time. He was introduced to the country by a friend and immediately liked what he saw.
Site values were a lot cheaper than in Ireland, and construction costs were relatively low. Also, a lot of land changes hands off-market, which, according to McCarthy, ensures that Thornsett never becomes embroiled in a bidding war.
Most importantly, however, there is a dearth of new developments in the country’s major city, Brussels. Despite Brussels having a population of almost two million people, fewer than 6,000 new homes were built in 2005.
“There has been a steady increase in the Belgium market over the last seven years and we think it has a lot of potential,” he said.
“So we set up an office at the start of last year. A lot of Irish developers have hopped in and out of Brussels, but it is only when you have an office on the ground that people have respect for you over there.”
Thornsett’s first project in Brussels was a €12 million apartment project near the European district. The project comprises 28 apartments, which are due to be formally launched next month. The firm is seeking planning permission for another 19 apartments in a nearby district, Woluwee.
The company has visited every major city and district in the country, to discuss possible affordable housing projects.
McCarthy said he expected his first Belgian affordable housing project to begin within the coming months.
Last month, the company made its biggest Brussels play yet, when it acquired a site on Rue Belliard in Leopold, in Brussels.
The site has full planning permission and is just 250 metres from the European Parliament and European Commission buildings.
“As soon as I heard the site was available, I jumped on a plane from my holidays in Portugal, cancelled a trip to the Galway Races and went about buying the site. It puts us on the map,” said McCarthy.
“The scheme has an €80 million development value. We bought it for a good eight-figure sum. It will have 180 apartments, a 150-bedroom hotel and 17,000 square feet of retail space. We have made a conscious decision to retain ownership of the hotel. Is there a developer, yet that has not become a hotelier?”
McCarthy and his partners have been so impressed with Belgium that they have established a spin-off company to buy commercial property throughout the country. The new venture, called the 27 Group, was established last year and specialises in sourcing Belgian investment properties for Irish banks and financial institutions.
McCarthy said it was finalising a deal with one Irish institution, which would lead to an investment of €75 million with the 27 Group. The money will be used to buy a portfolio of four Belgian properties.
“This €75million is for those four properties alone, but we have a long line of projects that will reach into the hundreds of millions. The most important thing is to get the first deal across the line,” he said.
“There is a lot more money around than there are good projects. A lot of banks and investors are looking for true investments.”
While Thornsett and the 27 Group are operating in Ireland and Belgium, McCarthy said he was keen to enter other markets over the coming years. He said they would concentrate on old western economies, rather than Eastern Europe – “draw a line from Stockholm to Munich and look everywhere to the left,” he said.
In addition, he said he would like the group to be the largest social and affordable housing developer in Ireland, and one of the major development players in Belgium.
To make this happen, he said they might have to take in some outside equity or possibly even float the business.
“Cash is the biggest constraint,” he said. “We have tried to grow the business as organically as possible. But who knows what will happen in the long term.”
“We are always assessing our options.”