Bank of America's former headquarters on St Stephen's Green may be converted into a luxury apartment scheme after Shelbourne Developments, a company controlled by businessman Garrett Kelleher, bought the property for just under €16 million in an off-the-market transaction.

The acquisition of the 1,161sq m (12,500sq ft) mock Georgian building means Kelleher now controls a substantial land bank on one of Dublin's most prestigious squares.

In 2004 his company snapped up the former Department of Justice block for €52.3 million and the refurbished and substantially extended property serves as Shelbourne Developments' head office.

However, this latest deal has taken some in the industry by surprise. News of the deal comes in the wake of Dublin City Council's rejection of the redevelopment of the nearby former Hume Street Hospital, which was bought by businessman Michael Kelly for over €30 million last year.

Kelly, who founded a chain of business centres with his company Glandore House, had planned to transform the former hospital, which includes five listed Georgian buildings, into another business centre. A restaurant and spa were to be installed in the basements.

To make way for the new office space it was proposed to demolish some buildings dating from the 1920s that were in poor condition. The scheme would also have included a small residential element.

But the city planners dismissed the proposal stating the "excessive scale, bulk, massing and site coverage" would represent "a serious intrusion on the character and setting of the protected structure and would undermine the integrity of the conservation area".

The report also cites the need for any secondary application to increase "the residential element proposed within the protected structures". It states that it is a "zoning objective . . . to encourage a mixture of residential and commercial uses" and that a "maximum of 50 per cent of the building" could be utilised for office space.

It's understood that prior to submitting the application, Kelly had several pre-planning meetings with the local authorities at which his proposal was well received.

A closely placed source says Dublin City Council's decision to reject the application came as a "bolt out of the blue".

While it's not clear how far Kelly will have to adjust his proposal for the former hospital, it's understood a second application is at an advanced stage and will be resubmitted to the local authority early in the New Year.

On the basis of this decision, some market sources believe city planners will welcome Kelleher's plans for a luxury residential scheme on the corner of Hume Street and St Stephen's Green.

Others question whether the seasoned developer could squeeze a sufficient profit margin from such a project in the current market.

One market observer argues a luxury residential scheme would mean Shelbourne would have to charge up to €21,529sq m (€2,000 per sq ft) for an apartment, way over the current price ceiling in this sector of around €10,764 per sq m (€1,000 per sq ft).

"Bank of America's building is 12,500sq ft and, as most luxury apartments these days are around 1,500sq ft, you're looking at a maximum of seven apartments. And as the purchase price is already around €1,300 per sq ft, you'd really want to be certain of getting €2,000 per sq ft on each apartment to turn a good profit".

Earlier in the year it was widely speculated in the industry that any purchaser of Bank of America's building, which the financial institution acquired in 2005 as part of its $35 billion take-over of the credit card firm MBNA, would seek a joint venture development with the owners of the two adjoining properties.

This is because Bank of America's former offices occupy their entire site footprint, making any outward extension of the building impossible.

The only scope for further development would be upwards and few in the industry believe Kelleher, who is spearheading the construction of one of the world's tallest residential towers in Chicago, would receive planning permission for a scheme that would disrupt the fairly uniform skyline on St Stephen's Green.

As one source pointed out, this means Shelbourne will be unable to replicate the "relatively straightforward" profit-making strategy it implemented on the former Department of Justice property.

"Shelbourne was able to extend that building by half its size and that massively increased the site's value - probably by more than three times the purchase price. They had also looked at raising the height of the property, but had to settle for a well-set-back penthouse.

"The Bank of America building, however, is a completely different proposition. Even if Kelleher received planning permission to demolish the property, since he could argue there is no intrinsic architectural value to it, he can't build outwards and it's extremely unlikely he would be able to build upwards. So although the building itself is in an excellent location, it's difficult to see what his strategy is on this."

Bank of America's former headquarters is sandwiched between IIB's former offices on Hume Street and Barclays bank's old offices on St Stephen's Green.

IPUT, the Irish Property Unit Trust, owns the former property, which is now vacant, while the Irish Airline Pilot's Association (IAPA) pension fund owns Barclays bank's previous headquarters. It's understood a long-term lease was recently taken on the ground and first floors of that building, making any site assembly of the three properties a more difficult undertaking.

When Bank of America moved to the Clancourt Group's Park Place on nearby Hatch Street last summer, some in the industry speculated the Charlie Kenny-led firm had priced in an option to buy the financial organisation's corner site on St Stephen's Green as part of the leasing deal.

It was thought that the Clancourt Group would then acquire the IAPA and IPUT properties or agree a joint venture development. Some in the industry still maintain that IPUT and Shelbourne could strike a deal but, as one source pointed out, site assembly is not as easy as it looks. "The properties are not adjoining at the back and getting planning permission in this area can be tricky."

John Moran of Jones Lang LaSalle acted for Bank of America in the sale of its headquarters, but he declined to comment on the transaction.