Back in March 2011, there was a blogpost here on what Jack Fagan at the Irish Times called “by far the most valuable asset under NAMA’s control”, the Dundrum Town Centre shopping centre which was seemingly valued at around €600m. The view on here was that the Battersea Power Station was more valuable even if it was in the same valuation ballpark, but as it turns out we were both proved wrong when NAMA announced a €800m sale of loans in the Maybourne group two weeks ago. The March 2011 blogpost was prompted by reporting of imminent rent reviews in the Dundrum Town Centre and today Jack Fagan writing in the Irish Times provides some results which make for very interesting reading, and the view on here is that Dundrum might only be worth half the valuations being bandied about previously.
To recap, Dundrum Town Centre (pictured here) claims to be the largest shopping centre in the State with 79,000 sq meters. Built by NAMA Top-10 developer, Joe O’Reilly and the late Liam Maye, it is understood that loans underpinning the development are now in NAMA. Back in 2005, tenants were enticed with teaser introductory rents and it is these rents that have now been coming up for review. As was normal back in 2005, the lease agreements in Dundrum have Upward Only Rent Review (UORR) terms which mean that the reviews now can either increase the rent or keep the rent at existing contract levels, there is no right yet for tenants to have the rent set at levels below the existing rent, though as reported here last week this is set to change in the coming weeks.
The expectation in Dundrum was that the current rent reviews would result in substantially higher rents than the so-called teaser rents. That is not turning out to be the case according to today’s Irish Times article. Rents for the anchor tenants, House of Fraser and Marks and Spencer remain the same; indeed were it not for the presence of UORR lease terms, M&S’s rent would actually fall. Penneys has been asked to pay €50,000 per annum more on the existing rent of €1.8m (a measly increase of 2.8%). The smaller units will, however, be paying more – between 20% and 55% more according to Jack Fagan. There is no mention whatsoever of the 85% increases reportedly being sought at the start of this year. There is also no update to the estimated rent roll of €55m, but will that headline total have been reduced as a result of the anchors keeping their rents flat? And will the €55m be affected by the forthcoming changes to UORR lease terms?
Of course this won’t be scientific because smaller units are likely to be paying higher rents per square foot but I note that House of Fraser, Marks and Spencer and Penneys which together hold 30,000 sq metres (325,000 sq ft) will be paying €7.75m per annum, and this may fall after the UORR changes are made into law. I believe Dundrum has 80,00 sq metres of rentable space which on a pro-rata basis would put the rent roll at about €20m per annum. At an 8% yield that indicates a capital valuation of €250m. According to Jack Fagan’s article today there’s a queue of retailers waiting to rent space at Dundrum which indicates the centre is 100% rented, and it may be that the smaller units generate higher rents which might result in an overall capital value well over €250m.
In April 2011, NAMA was reported to have sold a shopping centre in Blackpool in northernEngland, half the size of Dundrum with 82% of the footfall for €112m. My money is still on Battersea being more valuable than Dundrum.
NAMA Wine Lake 
mine too when REO gets out of the way.
Good analaysis as usual NWL. Some of the smaller units are paying ridiculous rents though. The centre is very well managed in fairness. Has been developed outwards into the ‘pembroke’ quarter significantly in the last number of years. Resteraunts appear to be thriving there with shopping/theatre/cinema all driving footfall. Cheap parking, good transport links, the place is spotless.
Certainly doesnt have any of the hallmarks of a property under ‘workout’ management.
With some of the confusion regarding UORR resolved the “trophy” nature of the property lack of any realistic competition down the road and the deal size with historically low interest rates allowing positive leverage it would not surprise me to if it achieved closer to a 6 yield or 330,000,000.
BPS as a JV clearly NOT very attractive REO has extended and pretended the various debt instruments loans numerous times.
Post REO very dependent on capital markets buying it is the easy part lining up capital commitments to build it not so.
Apologies forgot to mention the FEES for the agents advisors promoters I bankers associated with a transaction of this size who will all get behind what evev value they decide can “fly” throw in substantial leasing management fees asset advisory fees etc and it’s a go closer to a 6 with the main stream media more that willing to describe it as a “coup” or steal and everyone happy !!!
JG – Yield of 6% actually would be achievable, there’s a huge amount of international interest in Dundrum. The equiv stock in the UK would be c5% (e.g. trafford centre traded at about that level), so 6% gives a reasonable Irish discount – but actually in a competitive process, the tax payer could maybe do better.
If the rent roll is €55m then at 6%, assuming costs of 7.5% (IIRC Irish stamp is 6%) then you would get a value of €850m, even if you reduce this to a distressed 7.5% you are still looking at well over €650m
Battersea on the other hand will struggle to generate much more than £300m, unless the existing lenders don’t mind bridging 100% of the vendor consideration for a very long time. £300m is still about £12m per acre, so not cheap especially given the need for a tube, the hassle of dealing with the power station, and so on.
@DCB utilized numbers for illustrative purposes don’t have the offering memorandum or OM so it’s all conjecture but it’s a irreplaceable asset and will generate international interest I used the nwl RR of 20mil again UORR will come into play what discount factor to be applied between that and est RR of 55 will be interesting but 6 yield should be achieved if not Nama should hold onto it.
The burn rate for the pleasure of owning BPS must be outlandish it’s also non income producing and will not be ready for the Olympic “bubble” with the amount of deals about to hit the street one has to question is there sufficient capital available and any serious interest REO has been in talks with every potential JV capital partner and so far none.
When they get out of the way it will trade but the “buy in” price and the vendor financing issue will have to get resolved will Treasuary agree to “burn” some very influential aisan investors is the real question………
And just to clarify the €55m rent roll which was reported in March 2011 as being “understood” to be the rent roll for the centre; I interpreted this to be dependent on the imminent rent reviews which appear to be largely complete and seem to have resulted in smaller increases than expected (and in some cases, Marks and Spencer and House of Fraser being cases in point, there has been no increase). So I am assuming the rent roll is now less, possibly far less, than €55m.
6% yield? Not according to Knight Frank who think our prime shopping centres are “yielding” 7.75%
https://namawinelake.wordpress.com/2011/06/17/report-shows-dublin-has-highest-prime-office-yields-in-the-eurozone/
@nwl oh well rule KF out for the listing then… but in all seriousness comparable to other assets internationally it’s a solid 6 throw some cheap debt on it achieve positive leverage and it’s a fantastic deal with lots upside.Parker Green paid that for their US Strip mall tenanted by discounters and have already “lost” one of them circuit city to Ch 11 BK.
NWL – I thought the €55m was existing passing, if its developers idea of ERV, then yes, it could be a lot less.
7.75% is a meaningless yield for an asset like Dundrum, you would have Westfield, CSC, Simon and many others falling over themselves to get Dundrum. For a unique asset you only know the yield by actually selling the asset.
JG – your right, the cash burm on Battersea will be very intence. It’s all way after the Olypims – you need to build a tube before you can build out most of the site, and then in 2019 they are planning to absolutly flood the market with appartments – what could possibly go wrong. When REO started marketing it I didn’t discount the possibility that they could find some dumb foreign money to burn, but none of the sov money would touch it. Possibly a Brookfield or Pears, with an attractive vendor finance package, will take it.
And JG is right, if you can’t get 6%, far better to hold
The “reputation risk” associated with some of the “players” involved here far outweighs the benefits of the deal just too much brain damage to deal with.
The Canadian pension plans will be very interested with Canadian money in B of I they are all having a look.
First line BPS second Dundrum apologies