Thursday, Sep. 03, 2009

The Hangover

For a while there, Irish property developers had it pretty good. If hi-tech multinationals powered growth in the '90s, Ireland's boom this decade came down to one word: property. Fast growing incomes, and an economy awash in jobs and cheap cash fed the demand for new buildings: some 40% of the country's houses were built in the last ten years; if Dublin were a city in the U.S., it would place second in terms of the portion of its office space added since the mid-90s. A new generation of developers remade Dublin (not to mention parts of London and cities across Eastern Europe) and in the process made millions for themselves. They swapped land at record prices, hired "starchitects" and, flush with the proceeds of their deals, splurged on their own grand palaces, helicopters, private jets and swanky parties.

That was then. A year after the great recession took hold and rendered the Celtic Tiger clawless, some of those same developers face ruin, and Ireland is in the middle of a national identity crisis. Ireland's wager on property, says David McWilliams, a former central banker who had long warned that the country was headed for a tumble, "was nothing more than a coup d'etat orchestrated by developers and banks with the total support of the government."

The tale of Ireland's developers — men of modest, often rural backgrounds who became enormously wealthy before falling on harder times in a few short years — mirrors the country's own rapid rise and fall since the early '90s. Back then, Ireland had just a few hundred millionaires; by 2006 there were roughly 30,000 according to estimates by the Bank of Ireland. The number of helicopters registered in Ireland rose four-fold in the decade or so to 2007, Irish journalists Frank McDonald and Kathy Sheridan note in The Builders, their illuminating account of the rise of Ireland's developer-class. Seán Mulryan, one of the country's biggest developers, hired Debbie Harry to perform at his 50th birthday party. Rival Johnny Ronan had Pavarotti sing for him and his friends.

Few matched the fortune of Seán Dunne. Brought up in Tullow, a small town not far from Dublin, Dunne, 55, "worked from the age of 12," he said in a radio interview last year. "We had to. Making hay, thinning beet, picking potatoes, working on building sites." When he or his siblings took a bath, he added, it meant "a swim in the River Slaney." By 2004, after his wedding to a former gossip columnist, Irish bank chiefs, sports stars and celebs joined Dunne in the Mediterranean for a cruise aboard the Christina O, Aristotle Onassis's one-time yacht. (Former Irish Prime Minister Bertie Ahern, a friend of Dunne's, along with ex-Finance Minister Charlie McCreevy, whose house the developer built, were among the invitees.) A year later, Ireland's highest-profile developer splashed a record $540 million on a seven-acre plot in Ballsbridge, the posh, leafy quarter of Dublin where he now lives.

But when Ireland's bubble burst, so did the developers' — and the country's image of itself as a place of economic miracle and never ending growth. Tumbling real estate prices, anemic demand and an end to easy bank loans mean development projects have been mothballed. Some builders face financial ruin. "Most of the major developers in Ireland wasted no time in doubling up," says Ronan Lyons, an economist at Irish property website Daft. "Any winnings they had, they used to borrow even more again when they were on a role." As soon as their luck changed, he adds, "everything was at risk." In other words, says John Gallagher, an investor and entrepreneur who sensed in early 2007 that the market was overheated, "everybody was naked in the room, but nobody was prepared to tell anyone else."

Among those exposed is Liam Carroll, who built more apartments in Dublin than anyone over the past decade and who is now seeking court protection from creditors in an effort to dodge liquidation amid bank debts of $1.7 billion. Lenders are moving, too, on Paddy Kelly, another major builder, after he admitted in March to being on the brink of bankruptcy. Even Dunne — whose plans for a bold, $1.4 billion office, retail, residential, and leisure complex on the seven-acre Ballsbridge site were scuppered by planners in January — is feeling the strain. Staff have been let go at Mountbrook, his development company. Others have taken pay cuts. "If the banking crisis continues," he told The New York Times late last year, "I could be considered insolvent." (Dunne later claimed he was misrepresented; Mountbrook declined TIME's request for comment.)

Beyond the developers, the rest of Ireland has been left reeling. Tens of thousands have protested government measures aimed at tackling the crisis in recent months; many more, spooked by forecasts of 13% unemployment by the end of 2009, are simply leaving. With the IMF predicting Irish output to fall 13.5% in the two years to 2010, further than any other advanced economy, cleaning up the financial mess, and fixing the national psyche, will not be easy. Ireland's economic revolution in the '90s — and the strengthening sense of place within Europe — brought about an "end to introspection, the turning outwards to the world and the new self-confidence", author Paddy Logue noted in his book Being Irish. That faith is disappearing fast. "There's been a kind of nervous breakdown," says Colm McCarthy, an economist at University College Dublin, "a perception," he adds, "that the leadership groups have failed."

One afternoon in early August, inside a seven-story concrete shell, left open to the elements amid the docklands north of Dublin's River Liffey, there's not a construction worker in sight. Gates to the site, one of Liam Carroll's many developments, are shut; four towering red cranes are idle. Stymied by a planning dispute, the deserted building's future looks bleak. Anglo Irish Bank, which had earmarked the site for its new headquarters, is yet to decide whether to proceed. The Dublin-based lender, nationalized in January after running out of money, is desperate to pare back its costs. Amid the sleek new office complexes, apartment blocks and restaurants already opened around it, the half-built building stands as a monument to the mess Ireland finds itself in. The docklands is the place for "giggling, meeting, sightseeing, talking" read the cheerful hoardings put up by local authorities to help promote the area. Not to mention "joking, sailing, kissing, swimming, dancing." But not, for now, building.