Mr. Joe O'Reilly:

Thank you, Chairman. Mr. Chairman and members of the committee, thank you for the invitation to appear here today before the committee of inquiry into the banking crisis. I have furnished the committee with a statement, which sets out of responses to the specific areas on which the committee has asked me to focus. I won't repeat the detail of the statement in my opening submission but will confine myself instead to some specific points. I'll concentrate on the time period of which the committee has asked me to address - the years between 2001 and 2008.

As my statement indicates, I've been involved in property and in property investment and development for the past 30 years. I've a professional background in construction surveying but in the later years, my studies were in the area of project management. Having worked with some of Ireland's leading property companies, I went on to form ... I went on to found Castlethorn Construction with my partners in 1989. Over the time, the company gained a reputation for developing quality homes in areas that were connected and serviced by quality infrastructure. These homes were built in locations where housing development was endorsed by local and national policy. In the period between 2001 and 2008, Castlethorn Construction built approximately 3,000 homes. Part V social and affordable housing was included in these schemes.

In 2005, I formally established Chartered Land, which is the retail and office property division of the group. This organisation owns and manages some of the most valuable and prestigious retail investments in Dublin, including Dundrum Town Centre. The company has a 50% share in both the ILAC Shopping Centre off Henry Street and the Pavilion Shopping Centre in Swords. With more than 500 tenants under management, these three centres support in excess of 11,000 retail and related jobs in the local economy. The commercial office portfolio of Chartered Land includes 150,000 sq. ft. of modern office space in Dundrum and 400,000 sq. ft. of offices at Grand Canal Square in the so-called silicon docks. Grand Canal Square, which has now been sold, is home to Facebook's European headquarters with a thousand employees and a host of other fast-growing and demanding large spaces users.

In addition to these investments, Chartered Land has secured planning permission to develop three co-located sites beside each of the retail investments. While these proposed developments didn't proceed due to the recession, we're confident that they will be delivered at a point in the future. In time, Dublin city centre proposal will make a significant contribution to the regeneration of the north inner city area. Some of our other developments include the Bord Gáis Energy Theatre and a retail-led, mixed use, commercial scheme of Grafton Street in Dublin.

It might be helpful to the committee if I outline our approach to property opportunities as a group. Firstly, it's important to recognise that large-scale property investment and development is a complex business. Our approach to investment was driven by a clear long-term strategy to develop, or acquire, internationally attractive premium real estate in the retail, commercial and residential sectors. These properties have to satisfy certain criteria. For example, they had to be close to major transport nodes and had to appeal to the target catchment population.

Secondly, our focus was on prime areas in dense population in the greater Dublin area. We didn't undertake development outside the greater area or outside of ... outside the greater Dublin area or outside of Ireland.

Thirdly, our approach to development was very much guided by national, regional and local policy, whether in relation to housing, commercial or retail development.

Fourthly, our approach reflected detailed and sound research of possible investment and development opportunities. This was an exhaustive process, addressing both upside and downside risk. It involved input from planning, design, construction, development, property and finance personnel. Following initial appraisals, the assessment of each project moved to detailed in-house financial modelling considering different funding options, profitability and exit routes. We undertook detailed market research, modelled project demand for each investment or development. This involved engaging experienced property agents and international third-party experts. For development, the planning and development framework work relevant to each site was extensively reviewed with the input of our planning consultants.

Finally, our approach to assessing new projects was based on utilising the best advice that we could secure for each relevant discipline. We had, and continue to have, a strong internal team, but we have supplemented this expertise with external advisers and consultants, where necessary. This detailed process was key to the success of both Chartered Land and Castlethorn. Our attention to detail ensured that any decisions we made to proceed with new investments or developments were well-grounded, thoroughly researched and based on sound, objective business assessments.

During the period under review, we had borrowed from a number of banks, including AIB, Anglo Irish Bank, Bank of Ireland, KBC and Ulster Bank. In financing our properties, bank debt was complemented with promoter equity. Our approach to dealing with our lenders was based on formal engagement with each bank. At all times, we followed the normal process that applied for the assessment of any loan application. In my statement to the inquiry, I've outlined the approach that we employed, including our detailed engagement with the lenders to secure support for each proposal. I can say that, at all times, from a corporate perspective, our engagement with lenders was formal, professional and based on the appropriate and documented procedures. Loans were only sanctioned after ... or loans were only sanctioned following extensive engagement with the relevant lender and formal sanction by the bank's credit committee. The type of information typically to be provided with each application included: investment or development rationale; financial appraisals; projected cash flows; external planning reports and risk analysis; an independent asset valuation report; a legal title report; the exit strategy, supported by robust market research. Once a funder engaged, a term sheet was negotiated and solicitors were then appointed to draft the loan and security documents, while legal, technical due diligence was also conducted during the time ... during this time. Preconditions were agreed for loan drawdowns over the term of each facility, while loans ... while loan advances were subject to comprehensive financial and asset management reporting. In 2010, the economic downturn, our loans were acquired by NAMA. We began to work with the agency to maximise the value of the assets. For the past six years, we've enjoyed a professional relationship with NAMA and we worked hard to assist the agency to meet its objectives.

As the committee will be aware, our loans are currently being sold by the agency in a loan sale process called Project Jewel. It's likely that the return to NAMA, when the loans are sold, will be a multiple of the figure that NAMA paid for these loans in 2010, and that the original capital borrowed, both personally and corporately, may be fully repaid.

I understand that the committee will be reaching some conclusions on the cause of the banking crisis, and, in this regard, you've heard from a wide range of witnesses with different views. What seems apparent now is that at the time of the crisis there was too much debt available for borrowers from too many banks. It's of note, for example, that there were 59 land transactions in Ireland in 2001, but this had risen to 260 by 2006. The problem was compounded by lending in respect of poor quality assets, where insufficient equity was invested. While both Chartered Land and Castlethorn did borrow in the period between 2001 and 2008, these loans were advanced following a thorough and full assessment of each proposal. Our debts were secured against prime assets, I believe this will be demonstrated with the Project Jewel, when Project Jewel completes.

In terms of the crash itself, there was a failure to predict and anticipate the sale of the banking and property crises. On the property side, the talk of a soft landing was misplaced, particularly given that investment property values fell by 60%, with land values falling by as much as 90% in certain parts of the country. On the banking side, the capital structure of certain lenders was inappropriate for the nature of their exposure. There was an over-reliance on property based lending by some of our institutions, including some international banks, some who had been operating in Ireland for a relatively short period of time.

From my personal perspective and for the benefit ... and with the benefit of hindsight, I do regret that I did not foresee the extent of the banking crisis and the property crash. The severity of the crash took most property professionals by surprise, as it did the Department of Finance, the Central Bank and many respected international agencies. Looking to the future, we must ensure that the appropriate system of checks and balances is introduced to prevent a repeat of the failures in the period leading up to the crisis. Property investment and development has a significant role to play in the regeneration of our economy. The challenge is to implement policies which recognise the positive contribution that property companies make and which encourages, in a responsible way, the delivery of real estate, which contributes to employment, housing provision and a general economic growth. I'm sure that the report of the committee will help to shape these policies. Thank you, Mr. Chairman, for giving me the opportunity to address the inquiry today.