The return of competing investors will be welcomed in a market dormant for two years after an overseas buyer pipped a US bank for a Dublin office portfolio, writes JACK FAGAN
A US investment bank on the verge of buying a €50 million office portfolio from Irish Life has been gazumped by another overseas buyer.
The bank was within days of exchanging contracts on the purchase of the four office buildings when Irish Life opted for an alternative, last minute offer of €52 million from another bidder. This deal is now expected to go ahead.
The US bank, advised by David Goddard of Davys, had been in negotiations for around three months and, with all the terms of the sale fully agreed, it was due to be formally signed off last week.
Irish Life’s decision to pull out of the transaction at the 11th hour has clearly taken the other side by surprise given the length of the detailed negotiations and the perception that there was no one else chasing the investment.
With the four office blocks producing a rent roll of €4.2 million, the bank had expected to avail of a net yield of around 8.5 per cent. The alternative buyer is settling for a return of about 8.3 per cent.
A spokesman for Irish Life said yesterday he couldn’t comment “on any particular deal”.
The unexpected competition between the two buyers will be welcomed by the investment sector given the paucity of transactional evidence in a market that has been largely dormant over the past two years.
Funds and individuals contemplating offloading commercial property investments will be hoping that the pending Irish Life sale could trigger further overseas interest now that values have been drastically trimmed back.
Irish Life selling agent Colm Luddy of CB Richard Ellis originally sought a buyer in May, 2008, for Hambleden House, a mock Georgian office block at Lower Pembroke Street, along with Wilson House on Fenian Street in Dublin 2 and an office block above the Merrion shopping centre in Dublin 4.
There was little interest in the sale at a time when investment values were in freefall and bank funding was difficult to obtain.
However, with an upsurge in redemptions from retail investors at its unit-linked funds, Irish Life decided to press ahead with the sale of the investment and in September, 2009, cut its asking price for the three office buildings from €81 million to €40.8 million.
Davy expressed interest in Hambleden House but, instead of the two other blocks in the portfolio, identified three different investments it was interested in – Seagrave House on Earlsfort Terrace, Davitt House on Adelaide Road and the former CompuStore at 25 St Stephen’s Green.
Irish Life agreed to proceed with the sale of the alternative portfolio and opted to underwrite the rent of vacant space for five years to maximise the value of the investments.
The five-storey Hambleden House has a floor area of 3,729sq m (40,140sq ft) and 67 surface car-parking spaces on the opposite side of the road. The lower ground floor has been vacant since the expiry of a short lease held by Anglo Irish Bank. The building has the potential to yield a rent of around €1.7 million.
The 1,625sq m (17,500sq ft) Seagrave House is partially vacant but its tenants include Nortel Network, GVA Planning and Regeneration, and asset managers the LGT Group. When fully let the building would be expected to produce a rent of around €850,000.
Davitt House, a 4,087sq m (44,000sq ft) building, is rented to the Office of Public Works at €1.7 million. The lease has another five years to run.
The building at 25 St Stephen’s Green is close to the Lisney office and, apart from the long vacant CompuStore, includes 1,393sq m (15,000sq ft) of offices and three apartments. It is producing a rent of €600,000 per annum.
