Investments: The terms offered by Bank of Ireland in the first tranche of its branch sell-off are more favourable than those on offer at AIB, writes Jack Fagan
The commercial property investment market will get a shot in the arm today when Bank of Ireland releases for sale and leaseback 36 bank branches located across Ireland. This portfolio includes 13 branches in Dublin with the balance in key provincial centres, including Galway, Cork, Limerick and Waterford.
There will undoubtedly be intense competition for most of the branches, particularly the trophy properties within the core retail pitches of some of the cities.
Selling agent CB Richard Ellis is forecasting that the investments will sell at yields around 3 per cent and, in some cases, below that level. The investments will be sold at tender in one or more lots on October 4th.
With thousands of Irish investors now owning high value apartments and houses to let, many of them have been trying in vain to break into the commercial market in recent years. Because of the weight of money chasing commercial investments and the impressive returns from the commercial sector, yields have been steadily driven down to a level where only the cash-rich can operate.
The arrival of both the Bank of Ireland and AIB branches on the market will provide the first real opportunity in recent years for individuals - particularly self-employed professionals wanting to manage their own pension fund - and syndicates to break into the commercial market. It will be no surprise if some of the institutions also pitch for the more prestigious branch buildings in Dublin and other cities.
While AIB brought forward its marketing campaign to be first in with the sale of 12 branches, Bank of Ireland has obviously structured its selling campaign to maximise the value of its portfolio. AIB is taking 20-year leases on most of its branches once they have been sold but is also reserving the right to break the leases after 15 years.
Interestingly, Bank of Ireland is offering 25-year leases in all cases with no breaks on 18 of the best located branches. A further 17 branches will have tenant breaks in year 15. Equally significant is that Bank of Ireland is guaranteeing a 15 per cent uplift in the rent after five years; subsequent reviews will reflect the open market values.
Both banks plan to offload further branches at later stages to release dormant capital for their core banking businesses. UK banks have been using the same strategy for years. The 36 branches going for sale today are expected to yield more than €237 million for Bank of Ireland. The portfolio will initially cost the bank €8,596,765 in annual rents.
One branch at Upper Leeson Street, Dublin 2, will have lease breaks in favour of the bank in years five and 10 because of the redevelopment opportunities.
Sean O'Brien of CBRE describes the branches as "prestigious, trophy assets" in the core retail pitches of cities, suburbs and towns. Purchasers would get 10 years of income certainty because of the guaranteed 15 per cent rental uplift after five years.
One of the attractions of the portfolio is that it offers an extremely broad range of properties, from part of the branch in Dublin's Lower Camden Street which has a market rent of €78,547 and a guide price of €1.6 million up to South Mall in Cork which will rent at €784,799 and is expected to make over €20.996 million.
The next highest valuation is the Bank of Ireland at O'Connell Street in Limerick which will have a rent of €596,292 and a guide price of €17.2 million.
The Galway branch at Eyre Square is expected to make at least €16.7 million (rent: €577,004) and, like Cork and Limerick, will have no breaks over the 25-year lease.
Two branches in Dublin city centre have a fairly similar valuation. O'Connell Street, which was upgraded in the last three years, will have a rent of €442,633 and a guide price of €12.8 million while the branch on St Stephen's Green will have a rent of €351,725 and a guide of €11.1 million.
Two Co Louth branches have a fairly similar valuation with the Drogheda branch on Laurence Street expected to make at least €7.8 million (rent: €269,248) and the branch at Clanbrassil Street in Dundalk likely to fetch €7.67 million (rent: €264,619).
There are several branches with valuations slightly below that level. The bank at Wilton shopping centre in Cork is rented at €253,942 and is expected to sell for at least €7.3 million; the well located branch at main Street in Blackrock, Co Dublin, is valued at €6.9 million after the rent was fixed at €239,406.
Also with virtually the same valuations are the branches at Castle Street in Tralee, Main Street, Newbridge, Parliament Street in Kilkenny, The Quay in Waterford and Bridge Street in Tullamore.
Branches at Main Street in Bray and Stephen Street in Sligo both have guide prices of €5.7 million, just ahead of Upper George's Street in Dún Laoghaire at €5.5 million, Swords at €5.4 million, Ballinasloe at €5.3 million and Mainguard Street in Galway at €5.03 million.
Below that price range there is a considerable number of branches, such as those at Marino Mart in Fairview, Dublin 3 and Bank Place in Ennis (both €4.5 million); Nenagh (€4.2 million); Athlone (€3.9 million); Clonmel (€3.8 million); The Mall, Malahide (€3.7 million); Bridge Street in Cork (€3.68 million); Leeson Street in Dublin 2 and North Circular Road in Phibsboro, Dublin 7 (both €3.59 million); Main Street, Rathcoole, Co Dublin (€3.5 million); Midleton in Cork and Lower Camden Street in Dublin (both €3.3 million); Main Street, Tipperary town (€3.1 million); Dungarvan (€3.07 million) and Arran Quay, Smithfield, Dublin 7 (€2.4 million).
To cater for the high level of anticipated interest CBRE has developed a website for the portfolio at www.cbreboi.com
