Salix - Bank of Ireland's pension fund - has surprised many by opting for a direct sale of the bank's HQ on Baggot Street, writes Jack Fagan

The Bank of Ireland headquarters on Baggot Street in Dublin 2 is expected to make between €150 million and €190 million when it is sold on June 14th. The bank pension fund, Salix, which owns the building, has invited best offers by that date.

The decision to proceed with a direct sale has taken many by surprise because it was widely believed that the bank had preferred a sale and leaseback arrangement as it sets about finding a site for a new headquarters.

Salix has agreed a variation of the bank's 99-year lease under which the bank will have break options in years five, six and seven, as well as after 25 years.

However, the rent set for the first five years at €290 per sq m (€27 per sq ft) is well below the open market value.

Even though it is a second generation office block, it would normally attract a rent of at least €376 per sq m (€35 per sq ft). Similarly, the rent of €3,000 for each of the 220 car-parking spaces is between €500 and €1,000 below other office blocks in the area.

The total rent roll agreed at €6.4 million for the 20,494sq m (220,595sq ft) block and the car-park falls well short of the open market rate. For that reason those likely to pitch for the bank complex may have to settle for a low yield for at least five years.

At a selling price of €150 million, the net yield would be 3.8 per cent while anyone bidding up to €190 million will have to settle for a return of just 3 per cent.

While there is no shortage of developers prepared to invest in Ballsbridge sites with a long lead in period before construction begins, some will undoubtedly be reluctant to tie up substantial capital in a Baggot Street site where they are unlikely to know for at least five years whether or not the bank is moving out.

There is also the issue of whether the planners would allow such a prestigious block to be either redeveloped or enlarged.

The lease changes agreed between the bank and Salix allows the pension fund to dispose of one of its biggest assets and reinvest the funds in a higher yielding investment property.