The Bank of Ireland headquarters on Baggot Street in Dublin 2 could be offloaded in a sale and leaseback deal, writes Jack Fagan
The Bank of Ireland head office at Lower Baggot Street, Dublin 2, is almost certain to be sold and leased back in advance of an eventual move to a new headquarters in Dublin.
The bank pension fund, Salix, which owns the building, has apparently agreed to release the bank from a lengthy lease in return for a modern lease that would produce a higher rental income in the short term and give the trustees the freedom to sell the property.
If, as expected, the landmark modern block is offered for sale, it is likely to make anything from €150 million to €200 million.
A statement for the Salix trustees said last night that "disposal is among several options being considered and only if this is chosen by the fund as the preferred option will any marketing activity take place".
The trustees said they continuously review, from a strategic and tactical point of view, each element of their real estate portfolio of €400 million in Ireland and the UK and as part of the total Bank of Ireland Group pension fund of €3 billion. "As part of this regular process, a number of options for this property are under consideration."
The bank's 99-year lease of the building dates back to 1972 and has another 66 years to run. Surprisingly, the lease provides for a staggered rent over the full 99-year period and, even after 34 years in occupation, the bank is still paying only about 60 per cent of the open market rental value.
The rent roll of over €6 million equates to a rent in the early €30s per sq ft. High quality office accommodation such as this would easily rent for up to €538 per sq m (€50 per sq ft) in this central location.
The substantial shortfall in the rent roll going to Salix means the pension fund is not getting anything like the return it could expect from such a prestigious building. An eventual sale would give Salix the opportunity to invest in a higher yielding property.
Sources in the property market have indicated that, in the event of a sale and leaseback arrangement going ahead, the bank will pay a rent of €484 per sq m (€45 per sq ft) for the block along with an annual fee of around €4,000 for each of the 220 car-parking spaces. The short term lease is expected to run for about five years while a new headquarters is developed.
It will have a floor area of at least 41,805sq m (450,000sq ft), more than double the present headquarters which extends to 18,580sq m (200,000sq ft).
There will be no scarcity of developers and investors prepared to pitch for the Baggot Street building because of the strong rental income available while planning permission is sought to enlarge the building.
There will be even more developers in contention for what will be the biggest ever property contract in this country to design and build a new headquarters.
If the bank decides to remain in the city, then the choice will be between two sites - the north city docklands and Heuston Station - but if an out-of-town location is preferred, the choices will probably be between Cherrywood, Leopardstown, Santry Demesne and Ballymun. All the sites have drawbacks.
Around 1,650 of the 7,000 people on the headquarter's staff are based at Baggot Street. The remainder are based at 31 other centres, only two of which (Cabinteely and the former New Ireland block on Dawson Street) are owned by the bank.
Some of the better known services not based at Baggot Street include Bank of Ireland finance, private banking, asset management, internet business, export services, motor loans and international services.
The bank's decision to concentrate all its headquarters functions in a single new location comes as Allied Irish Bank also plans a sale and leaseback of its headquarters in Ballsbridge. It is likely to have a value of around €275 million. Last year a syndicate assembled by AIB bought a planned extension to the Bankcentre for €367 million in a similar deal.
