Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I thank Senator MacSharry for raising this important issue. Senators will be aware that Activate Capital, known as Activate, is a new and innovative non-bank financing platform that has been established by the Ireland Strategic Investment Fund, ISIF, and the global investment group KKR. Activate Capital will invest on a commercial basis in residential development projects in Ireland, which will help to address the current supply shortages in the main urban centres. Activate is focused exclusively on lending to Irish residential projects and will target, in particular, new residential development in the greater Dublin area, Cork, Limerick and Galway, all of which have been identified as the areas of greatest demand. However, outstanding activity is not confined to those locations.

Activate is a €500 million fund, which is financed through a €325 million loan note provided from ISIF and a €175 million loan note provided from KKR. The ISIF's investment is fully consistent with its mandate to invest on a commercial basis to support economic activity and employment in Ireland.

The €500 million represents the peak funding outlay at any one time, but as borrowings are repaid this will create additional lending capacity over and above the original €500 million. It is estimated that Activate will, in this way, be capable of financing the construction of over 11,000 new homes in Ireland.

This is clearly a very important initiative given that new housing output continues to fall short of demand. It should be noted that, in addition to its direct impact, Activate is also introducing competition to the market for development financing and should, in this way, result in more competitive and attractive terms for borrowers across all lenders in the real estate sector.

House building of the scale envisaged under the Activate initiative is expected to support approximately 1,900 direct and indirect jobs in the house building sector, which will further underpin measures that have been introduced to return construction output and employment in Ireland to more sustainable levels so that it is capable of meeting the growth needs of the Irish economy.

Activate uniquely will provide up to 90% of project funding and will provide funding for both the acquisition of land and to bring projects through the planning process. Irish banks will currently not lend for site acquisition or to fund project design and planning processes.

It is useful for Senators to note that Activate also offers the advantages of both deliverability and speed of execution. The Activate model is capable of substantially quicker credit turnaround times than average timeframes currently in the market place given the requirement, typically, for project promoters to deal with more than one lender and sometimes multiple lenders.

On the issue of lending rates, the ISIF informs me that the Activate base lending rate is in the order of 10% approximately. As would be expected for projects of this nature, there is participation in equity upside if projects are successful so that the fund, and by extension taxpayers, share in any gains alongside the project promoter.

The pricing for Activate facilities reflects the provision of up to 90% of overall development costs compared to typically up to 60% provided by the traditional bank capital, and the fact that it is, in effect, taking a combination of debt and equity risk. The alternative for project promoters currently is to seek debt and equity funding, if available, from a number of different lenders.