With a quite obvious and serious oversupply of office buildings still in evidence in central Dublin, it is not surprising to learn that Californian real estate investment company, Kennedy Wilson has snapped up Brooklawn House in Ballsbridge for a total of €15m – Kennedy Wilson says that it is going 50:50 in the building with an unnamed partner, so Kennedy Wilson’s share of the purchase price would have been €7.5m. The net operating income from the building in the past 12 months was €2.2m, indicating a yield on the purchase of 15%. The building had been on the market through Savills for €17m – the MyHome.ie property listing and brochure are available here.
The 45,000 sq ft 5-storey 3rd-generation building with 39 car parking spaces is rented to blue chip tenants including Citibank, IG International Management and Irish state agencies Eirgrid and the Higher Education Authority. It was owned by a consortium of investors including Sean FitzPatrick, the bankrupt former chairman of Anglo Irish Bank, and indeed it was Anglo’s successor, IBRC that has receivers Kieran Wallace appointed to sell the building.
Kennedy Wilson is taking on a considerable exposure in Ireland, with the €40m acquisition of the Alliance Building complex of 210 apartments beside Barrow Street in Dublin 2, as well as a 50% stake in Lloyds Bank/BoSI “Project Prince” portfolio of loans secured by Irish commercial property – this latter deal was announced during the week, but had been flagged by UK commercial property portal CoStar in June 2012. Kennedy Wilson was joined by Deutsche Bank in the acquisition of the €360m Lloyds portfolio. In 2011, it acquired Bank of Ireland’s Real Estate Investment Management (BofIREIM) company for an undisclosed sum, which was the US company’s first foray into the EuroZone – BofREIM has €1.8bn of real estate assets under management. At the start of 2012, it again partnered with Deutsche Bank to buy a €1.5bn-nominal-value Bank of Ireland UK loan portfolio, for which it paid €900m. Last year, Kennedy Wilson was one of four investors in a consortium which acquired 34.9% of Bank of Ireland.
It is understood that nearby office block, St Martin;s House is still on the market after sources claimed a 13% yielding sale had fallen through.
With the Irish taxpayer taking about a 20,000,000 hit.Signigicant implications to NAMA’s impairment charges here.
The Irish property market is now the poster boy for distressed real estate,slap some leverage on here,reported to have been a cash buy,and the returns are off the charts.
The risk/reward ratio is out of whack,hopefully Anglo is the 50% partner but unlikely.
http://www.irishtimes.com/newspaper/finance/2012/0320/1224313578978.html
All tenants have break options coming up,Citi has also sublet two of its floors.
Assume they get exercised,factor in market rents,down time,leasing costs and tenant improvements.The original owners basically did what we call a deed in lieu,can have interesting tax implications as its forgiveness of debt.So not only does your equity get wiped out but you may also get a whopping tax bill too,depends on PG.s basis in deal etc.
Very nice of Anglo to allow the borrowers ride off into the sunset,was Anglo not famous for always requiring insisting on PG’s.
NAMA has a similar opportunity with below marker vendor financing available,snazzy video too,assume agents paying marketing costs.With less than 200 views a bit questionable not to mention cheesy.Does NAMA approve these gimmicks and videos?
http://www.savills.ie/_news/newsitem.aspx?intSitePageId=112474&intNewsSitePageId=119444-0&intNewsMonth=4&intNewsYear=2012
This sale combined with the Project Prince sale at 17 cent in the euro gives an indication of the impossible feat that NAMA faces.
NAMA holds 66% of its portfolio outside Britain. Assuming that it loses zero on its British portfolio (it includes London – but still an optimistic assumption) it portends a NAMA return on its portfolio of €19.1 billion (17% of 66% of €74 billion plus €10.9 billion of British property), a loss on its purchase price of €32.4 billion of €13.3 billion. This is in line with the worst forecasts on this blog.
The sale of the Shelbourne Road property is no surprise. It is over-rented by €20 to €25 per sq. ft and it has only 3 to 4 years to the tenant breaks. Its current rental value is in the region of €1 million per annum. So €15 million is a good price when you think that it could be empty in 4 years time and that there is a huge supply overhanging the market.
The real test was whether this could be funded by one of the Irish banks. Kennedy Wilson is an investor in Bank of Ireland and it is a telling point that BoI did not provide core lending here. KW keep trying to catch the falling knife – but notably it is not the investor, just the asset manager. Different agenda entirely.
Presumably Deutsche Bank have thoroughly and independently investigated the Irish property investment market? Banks wouldn’t make mistakes – would they?
@WSTT, the estate agent listing details indicate there is a weighted average of 4.4 years remaining on the leases. So 4.4 times €2.2m is €9.68m. Even if the 45,000 sq ft fetched just €10 psf after that, it is still a pretty awesome-looking deal. As with any property, there can be all sorts of planning, tenant, physical issues which would skew a price, but on the face of it, KW – and their mysterious partner, surely not BofIREIM using BofI funding?! – have gotten a good deal.
@NWL, I agree that the near term return is very attractive and I would imagine that the strategy is to take advantage of that, and do deals with the existing tenants to lower the rents in return for extensions to the leases. They would then hope for some yield compression over the extended term.
It will achieve a nice return, especially if the banks return to financing property investment. But there is better value waiting in the wings and still to be shown to the market.
It is a nice buy. Good asset in a great location. As JG says, we have to be the poster buy for bargains – but no sign of Blackstone yet, so not enough blood in the streets to attract the real sharks. When we see them, we will know that we have hit bottom.