Business Opinion:Builder Sean Dunne finally took ownership last week of the Jurys Hotel site in Ballsbridge, and early next month he takes over the adjoining Berkeley Court site.
Dunne paid €379 million for the two sites in 2005, but the fact that he had not actually taken ownership escaped most people, until he pointed it out in a letter to this paper last month.
Dunne was silent about the precise point at which he took on the responsibility for the very large loans that finance his deal, but presumably the meter is now well and truly running.
Indeed, a planning application for the scheme Dunne wants to develop in Ballsbridge has now been lodged, and while it would be foolish to underestimate him, it is at the same time very hard at this stage to see how he will make any money out of the project without driving a coach and four though the planning laws.
Property development is something of a black art of which Dunne is a very successful exponent. Not surprisingly, he is not intending to divulge details of his project's finances any time soon.
But we can at least make some educated guesses in this regard thanks to a memorandum prepared by Davy Stockbrokers for investors in the Bernard McNamara-led development down the road on the old Irish Glass & Bottle site.
McNamara estimates that his construction, site clearance and finance costs will work out at around €1 billion, or just over €3,300 per square metre for his 300,000sq m mixed use development.
Applying the same multiples to Dunnes 188,102sq m development gives a figure of €620 million. Given that what Dunne has in mind, replete with 37-storey tower, is somewhat more ambitious than McNamara's development, it is, if anything, rather conservative to use this figure.
It is also conservative to assume that Dunne's finance costs are on a par with McNamara's, given the personal involvement of Derek Quinlan in McNamara's project.
So when the €375 million he spent on the site is added in, it looks like Dunne will need to get in at least €1 billion before he starts to make any money.
The Davy memorandum is also quite helpful for working out what Dunne's development might be worth if it went ahead as planned.
McNamara is predicting that he will be able to sell apartments in five years time at €8,135 per square metre, and office space at €7,726 per square metre.
More specifically, McNamara expects to get €625,000 for a two-bed apartment when his development comes on stream over the next five years. It is a reasonable assumption given current prices, even allowing for the current weakness in the property market. If anything , these prices look a little cheap for Ballsbridge in five years' time, but using them compensates for the conservative approach to Dunne's costs.
According to Dunne's planning application he plans to build 27,375sq m of retail space and 41,000sq m of office and embassy space. There is also a 12,303sq m hotel planned, along with another 10,144sq m for a cultural centre, creche and other elements. The balance of the 188,103sq m development is apartments.
Using McNamara's projections, Dunne looks well covered, with the non-residential elements of the project worth around €700 million at those prices and the residential elements are worth another €800 million.
The problem however, is that some 270 of the 536 apartments that Dunne plans to build are housed in two tower blocks that are not even on the same planet as most people's concept of what is appropriate for Ballsbridge. As well as the landmark 37-storey tower, there is also an 18 storey tower. And that is ignoring the planning obstacles posed by the other buildings proposed for the site which will tower over the neighbourhood.
Very roughly, some €400 million of the €800 million that Dunne hopes to make from the residential aspect of his development is housed in two buildings that, frankly, will amaze, and appal, most people if he gets planning permission for them.
And if he doesn't get his towers, then the finances of his project look far less robust. It also calls into question the viability of whatever projects the developers who paid even more than Dunne for the adjoining sites in Ballsbridge have in mind. The €54 million an acre paid by Dunne is dwarfed by the €83 million an acre paid by Ray Grehan for an adjoining site and the €133 million an acre paid by Gerry O'Reilly for his site.
Whatever problems Dunne must face, their difficulties will be significantly greater. It is hard to see any of them, Dunne included, making money unless the planning laws are rewritten massively in their favour, and the only logical reason for them to spend the sort of sums they have expended is because they are certain that they will be. It is not even a case of projects being able to wash their faces within the current planning paradigm. Without a decision to allow massive high-density development in Ballsbridge, they will be in trouble.
And that might explain their optimism. Put crudely, Ireland's big property developers are too big to be allowed fail. As UCD economist Morgan Kelly pointed out in this paper last Friday, the Irish banking sector has a €100 billion exposure to developers and builders. The sort of blood bath that would ensue if a big developer got into trouble would cost the taxpayer billions to fix.
Confronted with that sort of reality, it is possible to see Dunne getting his tower blocks and his peers getting whatever it is that they need. Manhattan in Ballsbridge may be just another Celtic Tiger chicken coming home to roost. Apologies for the mixed metaphor, but it was hard to resist.
