It was in March, 2011 that NAMA appointed property receivers to a number of properties where Paddy Kelly was seen to be the lead developer, though in fact most of the properties were owned by consortia which Paddy was instrumental in putting together. One of the properties foreclosed was the Smurfit Kappa HQ on Beech Hill Road in Clonskeagh, Dublin 4 (agent’s property details here, agent’s brochure here). Last month , the Irish Times reported that the property was on the market with property services giant, CB Richard Ellis appointed to handle the sale and that it was expected to fetch €10m. Sources have claimed that the building has now been sold for €8m.
It is understood that the property was bought by Smurfit which is also the present leaseholder. It is also understood that there were two further bids for the property which fell considerably short of the settled purchase price.
The property in Clonskeagh, just outside the Central Business District in south Dublin city had been generating €500,000 per annum in rent on 3,291sq m (35,400 sq ft equivalent to €14 psf) of offices and 70 surface car parking spaces. In addition there is vacant space on the site which might have been expected to generate €150,000 per annum. The total site covers 7 acres. The lease with Smurfit Kappa was due to expire in 2013. The property is close-by to the Belfield Office Park where bookmaker Paddy Power became a tenant to a 120,000 sq ft property in May 2011.
The Irish Times previously reported that the site had been bought as an investment in 2003, four years before Irish commercial property values peaked in 2007. The buyer was a Paddy Kelly led-consortium which included John Flynn and the McCormack family and the purchase price was €25m. The Irish Times reported “planning permission was granted almost two years ago for a mixed development of 18,399sq m of offices and 121 apartments.”
I don’t think anyone will be overly happy with the price achieved including the buyer who will presumably continue to use the property as its head quarters, but at least it is a transaction in an otherwise moribund Irish commercial property sector which is still dangling on the whims of Minister for Justice and Equality, Alan Shatter with respect to planned legislation on Upward Only Rent Review commercial leases. The professionals which include Savills as property receivers for the property and CBRE as selling agents presumably won’t be complaining too much.
No comment on the transaction claims has been forthcoming from NAMA, Smurfit or CBRE.
re: I don’t think anyone will be overly happy with the price achieved including the buyer.
I have no knowledge of commercial property how can the buyer and seller both be unhappy with the deal? Normally if one side is happy the other is not impressed!
Including the expected €150,000, this means an ~8% gross yield at €14 psf.
How does this compare with international yields?
@Paddy, what I meant was that the seller might have hoped for a buyer who would reflect the development potential in the price paid. A developer would presumably be best able to exploit the potential of a 7-acre site with planning for commercial use as well as 121 apartments.
As it happened, the buyer is the present occupier and after the lease runs out in 2013 might have been expected to pay closer to €10 psf rather than €14psf. So the yield is likely to be lower than 8% which is expensive in the present market. But then again, Smurfit possibly paid a price reflecting the anticipated long term value of the site as a HQ.
I hope that’s clearer.
Redevelopment of this site would be awkward because of the access rights of Ericssons who occupy offices on what was originally one site. Subdivision of the site is also poor.
The building itself requires updating and I can only imagine that Smurfit Kappa intend to stay there now and spend a bit of money on it.
The only other likely purchaser would be UCD. I wonder was the college an under bidder? As stamp duty at the full rate will be payable any effort to sell on will be expensive. Had UCD bought it, they would of course been exempt from stamp duty as a charity
The best use for this site was a mixture of approximately 150,000 sq. ft. of R&D space and a similar area of student housing. It should have been relatively easy to amend the existing permission to allow this. Neither the Ericsson nor the UCD rights of way impact on the potential development of the site as they are spurs off the existing access.
UCD do not have the funds to purchase additional land at present and it was a “no brainer” for Smurfit. The interest on the loan would cost them no more than they are paying in rental at present and they have the upside development potential when they decide to move.
The lost opportunity is with UCD and can be measured in terms of graduate level job creation and convenient student accommodation. UCD have an immediate need for 250,000 sq. ft. of R&D space; the last government proclaimed the “smart economy” as their main answer to our economic woes. Dublin is flaunted as the European City of Science in 2012. And of course we have the the TCD – UCD Innovation Alliance.
You don’t have to be a cynic, to see the myopia in this sale. The lack of entrepreneurial flair and creativity, the failure to do what is best for the economy – just the dead hand of the receiver and the brain of a civil servant bent on making an example of an errant developer for the benefit of the media.
An extract from NAMA’s Mission Statement says it intends “To conduct its activities in a way which assists the property market to operate efficiently and in a way which achieves achieves longer term sustainability while taking account of wider societal objectives.”
Clearly it failed miserably in the latter objective in this case.
The problem with the NAMA strategy rests in the civil service culture that pervades the place from the moment one steps inside the front door. Even the toilets are locked preventing entry and require opening by the security staff. Are they afraid someone is going to steal the toilet rolls, or that it might become a meeting place for their developer clients who might decide that its more environmentally appealing than the waiting cubicles?
In spite of Steven Seelig’s published advice to the contrary when he was in the IMF, NAMA have proclaimed that they have societal objectives. They did not deliver here. Steven must be smiling wryly.
The civil service culture means that NAMA dance to a structured tune. Authority and responsibility are not delegated. There are about half a dozen standard responses that are used for most queries, whether they are appropriate to the particular situation or not. It is the institutional approach. The institutional position is that the property must be marketed, the sale must be transparent and the best offer taken, no matter what that is. In this way, the boxes are ticked and nobody can embarrass NAMA.
As can be seen, taking a wider view, the approach does not necessarily achieve the best result for the economy. A bit more emphasis on the bigger picture, guys and gals. A good start would be to take the security locks off the toilets.
Has anyone any observations on the perception of duplication in NAMA appointing a property receiver (Savills, which also has an estate agency business) which then appointed CBRE as an agent to sell the property.
And in the end, CBRE didn’t have to go very far to find a buyer in the existing tenant.
This is not to have a go at either Savills or CBRE, and Irish commercial property at any price is a difficult enough sell at present. And for all I know CBRE marketed the property far and wide to “Arab sheikhs, Hindu Sikhs and Jesus freaks” and the only reasonable offer was from the existing tenant.
The perception of duplication and an easy sale might be unwarranted but the basic facts available wouldn’t tend to gainsay that perception.
@NWL
I see that the Irish Times has plagiarised your scoop this morning.
In response to your query, I believe that the people who expressed an interest were Riverview, UCD and of course Smurfits.
The real question is “why did NAMA sell this asset at all, at this time?” They were in receipt of a rent roll of €500,000 per annum from Smurfits with the ability to extend the lease and increase it to €650,000 by renting the empty space. It would have given them an 8% return on the tender price while they waited for the banks to return to lending or for UCD to target a philanthropist or a JV partner to develop the much needed R&D space. That’s a 7% p.a. profit on NAMA’s cost of funds. It flies in the face of their Mission Statement.
So hey! It might not make sense but the process was marketed, sold and was above all transparent in accordance with the NAMA book of rules.
I’m surprised that a budding film-making pal of NAMA’s debtors has not yet offered to produce a sequel to “Free Willy” in Treasury Building. Starved and emaciated developers escaping from their individual holding cells to their newly attained liberty in the unlocked urinals where they could mix with familiar convivial company and reminisce about the good ol’ days when they shared Gulfstream G5s. It would screen well on Primetime.
@WSTT, it was a well recognised tactic used by former Syrian ruler, Al-Assad senior (Hafez) to hold meetings that would last hours and hours and deprive participants of comfort breaks, and in that way encouraged agreement.
Might be worth investing in a product from these good people.
http://www.purpleturtle.co.uk/acatalog/Toilets_On_The_Go.html
P.S. My understanding is that NAMA require receivers to appoint separate agents so that there can be no conflicts of interest or allegations of collusion with favoured purchasers (which NAMA experienced in the UK).
It is also more evidence of NAMA’s paranoia and inflexibility regarding the structure of disposal techniques. The attained price is irrelevant as long as the approved process is followed.
@WSTT, on the more serious point of why NAMA chose this time to sell the property rather than waiting for the return of a more normal credit and economic environment. That’s a good question, but given NAMA’s self-imposed targets of reducing debt, particularly the 25% reduction in the next 28 months, what are the chances that the environment will have improved by then?
We are likely to have some form of Upward Only Rent Review legislation, banks have to deleverage and stopping lending is one sure-fire way of doing that. The GDP outlook for 2011 and increasingly 2012 is looking little better than flat. The inflation outlook is flat. Europe’s recovery and indeed the US recovery and more generally the global recovery is looking shaky. It seems to me that this new government is almost encouraging emigration which will affect new residential property demand.
Of course we will get back to a more functional banking and economic environment at some point and population will begin to grow and there will be confidence to buy property. But given the 2013 target, what was NAMA to do.
In selecting property to sell, which property would have been a better candidate than the Smurfit Kappa site?
@NWL:
I totally agree with your last comment. The point I was making was that, taking its Mission Statement at face value, it would have been better to wait for UCD’s financial position to improve so as the site could have been sold to them. It would have been a better result for the economy in general and graduate scientific research in particular. However, it may still happen when Smurfits decide to move on – only then it will cost a lot more money.
Throw in 250,000 for closing costs going in yield as is 6.25%
strip out the overage rent 4.29% in place
Throw in the vacant space result stabilized 6.25
8 million in the bank lots of development sites available the students may prefer ballsbridge the vetinary students were very happy for many years better bars closer city center …..
To suggest that this is suitable as corporate HG in current condition is unrealistic it requires substantial capital.
Highest best use was significant redevelopment it was “held” for that purpose.
SK had inside track and were competing bidders any indication that they would have packed up if they did not get it……
The lease expires in two years this could easily have become another stalled mothballed development project with carrying costs instead the Irish taxpayer got back 8 million CASH no indication NAMA financed it.
Maybe a location halfway between Trinity and UCD….
@John Gallaher:
Who suggested its best use was as corporate headquarters?
I am unaware that Simon Kelly made a bid. He is precluded under the NAMA legislation from doing so.
What I am saying is that the best buyer was UCD. It would at least have made a difference to the wider economy.
@WSTT, am guessing SK is Smurfit Kappa.
Apologies. I realised that later. Too many SKs to compute!
BTW, on NAMA financing. I have heard a lot of talk but seen no evidence of any NAMA “staple” financing to date. A bit like the debtors’ final agreements – still none signed at mid August 2011.
Having run the rule on the site, when it came up for sale, John Gallaher is correct when he says that its highest best value is as a development site:
In round figures it has a Final Development Value (net of VAT) of €110 million and development costs of €80 million at today’s levels, leaving €30 million for site value and profit.
However, with no development or mortgage finance in the market, the sum is of academic interest only.
interesting that a company with a x chairman in NAMA is not precluded for buying from NAMA
http://www.businessweek.com/news/2010-12-07/smurfit-says-he-ll-survive-after-pension-fund-decimated-.html
but their is a deep ingrained development culture at ‘smurfit’ or ‘SK’… wstt the packing reference …. one only has to read The Glackin Report………..
http://thestory.ie/2010/10/13/the-glackin-report-final-part-1/
Thanks to ‘the story’
@John, I am not convinced Michael Smurfit is in NAMA despite that businessweek article to which you provide the link above, saying
“He [Michael Smurfit] and Gannon are now in talks with Ireland’s so-called bad bank, National Asset Management Agency, about the club, which “hopefully” will be run as a business “as usual,” he said.”
I have seen reporting that Gerry Gannon’s loan in respect of the K-Club is indeed in NAMA. But my understanding from previous reporting was that Michael Smurfit did not have loans on the K Club which were now in NAMA.
I had understood Michael Smurfit might have had talks with NAMA, but where the subject was the management of the club and potentially the purchase of Gerry Gannon’s interest.
http://namawinelake.wordpress.com/2010/06/09/nama-approves-sale-of-k-club/
Given the Glackin Report and the ‘talks’ and site visits then….
Perhaps its better optically if x chairmen of potential buyers of properties in NAMA refrain from ‘talks’