The Irish Times - November 11, 2009
Allied Irish Bank is to sell its most valuable high street property in Ireland.
The Dublin city centre bank branch with dual frontage onto Grafton Street and Wicklow Street is expected to be bought either by a cash-rish Irish investor or a British or German property fund.
Colm Luddy of CB Richard Ellis confirmed yesterday that his agency is “discreetly” marketing the sale and leaseback and said there were already a number of expressions of interest. “This is without doubt one of the best pieces of real estate on the street and, coupled with a long secure lease, is exactly where the investor interest is in the current market.”
No guide price has been suggested to date but investment experts expect that the price could be between €28.37 million and €30.7 million – reflecting an initial yield of 6 to 6.5 per cent.
The bank will obviously be hoping to get the best possible price in order to set an enhanced valuation benchmark on the street before it passes over €24.6 billion in toxic loans and €7.1 billion in associated loans to the State rescue bank Nama. AIB could not be seen to be holding on to one of the most valuable retail buildings in the city centre while seeking a State bail-out.
Investors pitching for the AIB branch will be conscious of the 6.4 per cent yield set only weeks ago when the German banking group DekaBank bought the Tommy Hilfiger store on the opposite side of Grafton Street for around €25 million.
The AIB investment will have a broader appeal because of the strength of the covenant and the potential for opening up a major new store of around 464sq m (5,000sq ft) on the ground floor, or two separate retail operations on Grafton Street and Wicklow Street in the unlikely event of AIB moving out.
AIB is due to pay a rent of close to €2 million for the bank branch under a 20-year lease with a break option in year 15. The L-shaped banking hall near Weir Sons, the jewellers, is easily the busiest of its branch network in the city centre and has three and four storeys of overhead offices.
AIB has sold off much of its branch network in recent years, arguing that it was unlocking shareholder equity for its core business. The disposal programme has become more important in recent months because of the liquidity problems facing all banks. Yields on bank branches have been rapidly creeping up since AIB started offloading branches at the peak of the property market in the autumn of 2006. The first 12 branches – including some of the best in the country – were bought in one lot by property developer Gerry Gannon for around €100 million and showed an initial return of only 2.8 per cent. The most recent tranche of branches sold by the bank gave investors yields of between 6.25 and 7.25 per cent. Early in 2006 AIB also sold its Ballsbridge headquarters, to property developer Sean Dunne, and Hibernian Life and Pensions for €377.7 million.
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