Investments:There are signs that rising interest rates are starting to lower the price individual investors are willing to pay for sale and leaseback deals on bank branches, writes Gretchen Friemann
Bank of Scotland (Ireland) is expected to raise over €9 million from the sale and leaseback of four of its branches after strong demand for the properties pushed bids over the €8.6 million guide price.
The outlets are located in Dún Laoghaire, Bray, Kilkenny and Drogheda, and are believed to have been bought separately by private investors at a combined yield of just over 4 per cent. Each of the branches trades as Halifax (Bank of Scotland, which is part of the UK-based HBOS group, re-branded its retail division under that name last November).
Colm Luddy of CB Richard Ellis handled the negotiations but he was unavailable to comment on the deal.
The outlets will be rented back by the bank on 20-year leases and currently generate a total rent of €375,000.
Property disposals from the big banks have become a major feature of the investment market recently with AIB and Bank of Ireland both netting hundreds of millions of euro in the ongoing sell-off of their branch networks.
However, there are increasing signs that rising interest rates are starting to hit investor confidence.
According to industry sources, negotiations on a small number of AIB branches collapsed after the purchasers rowed back on their commitments at the last minute. It is understood new terms have been agreed with the underbidders on each property at marginally lower prices.
Last October, AIB announced it was selling 25 of its branches in a deal that was expected to raise €100 million for the bank.
There has been speculation in the media that this figure was heading to €125 million, well over the initial guide price, but informed sources claim the final total will be in the region of €110 million.
Although this is still significantly above expectations, many in the market believe sentiment is starting to shift with some predicting a fall in prices by the end of the year.
According to one source, the higher financing costs tend to weigh more heavily upon smaller investors and it is in this sector where the demand for bank branches has been highest.
Contrary to general belief, Bank of Scotland was the first institution to put part of its real estate portfolio under the hammer with the sale and leaseback last summer of its branches in Wexford and Ballyfermot.
Since then there has been intense competition among private investors for this type of property investment, largely because of the prime locations, the quality of the tenant and the strong rental growth prospects.
But some industry experts claim such purchases are also "status buys" as, according to one source, "there is a lot of kudos in owning your local bank branch".
Larger players have also been forking out substantial sums of money for the institutions' properties. Bernard McNamara, Quinlan Private and Friends First snapped up half of the 36 Bank of Ireland branches that were sold last summer in a deal that generated a combined total of just under €240 million.
However, the majority of bank branch buyers are individual investors looking for a secure property asset for their pension, and the concern is that tighter borrowing costs will choke off this fundamental corner of the market.
