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4 February 2014
One of the notable trends in the Irish property market over recent years has been the number of traditional businesses with valuable property portfolios disposing of valuable city-centre premises for significant windfalls and relocating to suburban locations. Given the improvement in Ireland's larger urban areas, in particular in terms of road infrastructure and to a lesser extent of rail infrastructure, there is no longer a business case for traditional businesses, especially those in the manufacturing sphere, to maintain an inner-city presence. This is particularly so having regard to the rise in property values in the Irish market over recent years.
There have been numerous instances of traditional businesses located in strategic inner-city locations relocating elsewhere. Particular examples of this include companies in the media sector, such as The Irish Times and the Irish Independent, each of which recently vacated inner-city locations and placed them on the market for sale.
In the hotel and leisure sector the Jurys Doyle Hotel Group agreed the sale of its strategically located Jurys and Berkeley Court hotels in Ballsbridge, Dublin. And on the manufacturing side, ceramic toilet manufacturer Qualceram Shires recently announced its relocation from a central riverside location in Arklow. Finally, Bohemians Football Club has decided to dispose of its city-centre stadium in Dublin in favour of a move to a more suburban location.
There have been a number of cases where traditional businesses have leveraged off development opportunities that their strategically located sites present, which afford them an opportunity to maintain some presence of the site while at the same time securing significant returns from the redevelopment. An example of this includes the recently announced proposal by Arnotts Department Store to redevelop not only its own store, but also a significant tract of land adjacent to the prime Henry Street retail area of Dublin.
The Irish government itself and several state agencies have also taken advantage of the strong market in seeking to dispose of state-owned lands and buildings in strategic inner-city locations, thus securing significant returns for the state. The commissioners of public works have been engaged for some time now in a disposal of state-owned buildings, including: the former Department of Justice building on St Stephen's Green, Dublin, which has been redeveloped as a prestigious office building; the proposed Dublin Port Company sale of its interest in the former Irish Glass Bottle site in Dublin 4, which will result in 25 acres of prime development land being released into the Dublin market; and the decision of Dublin Airport Authority to dispose of the Great Southern Hotel chain, several of which, particularly in Galway and Killarney will in due course present significant redevelopment opportunities for the purchasers.
Financial institutions have also got in on the act. The Bank of Ireland and Allied Irish Bank are both engaged in an extensive sale-and-leaseback programme for large segments of their branch network and, in the case of Allied Irish Bank in particular, the sale and leaseback of its very valuable headquarters in Ballsbridge, for which it achieved a very strong return.
The town planning strategy being pursued by the several of the larger city councils in Ireland has encouraged this movement insofar as city development plans and local area plans look favourably upon redevelopment of inner-city locations, in particular for housing purposes.
In Dublin , the very successful regeneration of the docklands area led by the Dublin Docklands Development Authority has itself proved a catalyst for the redevelopment of adjacent areas of Dublin that would traditionally have been regarded as the location of port-related industries and activities and that have seen significant redevelopment for housing retail and leisure purposes.
A further interesting trend in Ireland is that of large trading companies spinning off their property assets into separate companies. Such companies would have taken the view that the value of the properties that they owned was not being adequately reflected in their market valuations. Equally, it would have been anticipated that such a step would provide greater transparency for investors in evaluating such assets and would provide a means to unlock the redevelopment potential of such assets. With the Irish property boom and scarcity of good development land, it is likely that many of the properties in question, often in key development areas, would have become increasingly valuable over time. Certainly, it has proved to be a prudent restructuring strategy enabling companies to use the value of their property assets to increase profitability and value for their shareholders.
The most high-profile example of this trend is the mid-2006 demerger by Irish fruit distribution company Fyffes of 30 of its properties - with a combined gross asset value of approximately E197m (£132.84m) - and its property activities into a new property company, Blackrock International Land, in which Fyffes' shareholders were issued shares, with Fyffes itself retaining a 40 per cent stake. As a result of the demerger, Blackrock has a strong balance sheet to borrow funds for expansion and development projects.
Similarly, Dairygold Co-operative Society, one of Ireland's largest and oldest dairy continued #+ continuedcooperatives, restructured its non-core businesses in May 2006 by hiving off certain divisions, including its property development arm Alchemy Properties to Reox Holdings. Seventy-five per cent of the shares in Reox Holdings were then distributed among the members of Dairygold, with Dairygold itself retaining the remaining 25 per cent stake. Alchemy Properties' activities now include: the transforming of these key brownfield sites, which are, in certain cases, located in or on the outskirts of expanding town centres, into high-quality developments; the acquisition of new development and investment properties; and project and facilities management. Again, many of the sites concerned would have had excellent development potential.
Another reason behind companies spinning off their property arms may be to prevent a bid for the company to target its underlying high-value property assets. The acquisition of a 22 per cent stake by a well-known Irish property developer in the state-owned sugar processing company Greencore has certainly raised eyebrows. The book value of the company's 900-acre property portfolio is said to be drastically underestimated compared with what it could reach on the open market.
No doubt these trends will continue given the scarcity of development land in strategically located inner urban areas in Ireland. n
Mark Barr is a partner in the property group at Arthur Cox