Developer Joe O’Reilly and Henderson Park Capital acquire HSQ for €222m

Developer Joe O'Reilly's Chartered Land has teamed up with Henderson Park Capital to acquire the landmark Heuston South Quarter (HSQ) in Dublin city centre from US property giant Marathon Asset Management for €222 million.

The price represents a premium of 85 per cent on the €120 million Marathon paid Lloyds Banking Group to acquire the loans associated with the scheme in 2014.

Widely acknowledged as one of the foremost mixed-use campuses in the capital, the HSQ scheme was offered to market just over two months ago in a targeted process by joint agents Savills Ireland and Eastdil Secured, a subsidiary of Wells Fargo bank.

The purchase comes just one year after the €175 million off-market sale by US property group Northwood Investment Corporation of Eir's nearby headquarters to a purchaser linked to CK Hutchison Holdings, controlled by Li Ka-shing, Hong Kong's richest man.

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The HSQ portfolio comprises 266 apartments, 9,877sq m (106,319sq ft) of grade A office space, 4,463sq m (48,034sq ft) of commercial space, and a 1.47 hectare (3.63 acre) development site.

While the scheme is already delivering in excess of €10.3 million in gross annual income, there is understood to be scope to increase that figure through a combination of asset management and further development.

The portfolio’s 266 apartments are understood to be producing total annual rental income of €6 million – or an average rent of €1,888 a month per unit which is well below the prevailing market rate for similar properties. The residential element of the portfolio does not include 79 apartments that were sold previously.

The office and retail space at HSQ is also under-rented currently with average passing rents of just €29.62 per sq ft for the office space and €17.85 per sq ft for the retail element.

The centrepiece of HSQ's commercial offering is the Brunel Building. The property, which extends to 7,235sq m (78,841sq ft) over 12 floors, is fully let to the Health Service Executive (HSE) at a passing rent of just over €2.4 million per annum.

Retail element

The retail element of the HSQ portfolio is distributed across 7,015sq m (75,512sq ft). Supervalu is the anchor tenant, and occupies a 1,862sq m (20,044sq ft) unit on a 25-year lease from 2010. Other retail tenants at the scheme include Insomnia Coffee, HSQ Pharmacy, Anytime Fitness, and Safari Childcare.

All told, the retail and commercial tenancies at HSQ are producing combined annual rental income of about €1.9 million.

Notwithstanding the opportunities for increasing rental income, Chartered Land and its partners will be looking to maximise the potential of HSQ’s 1.47 hectare (3.63 acre) development site. A feasibility study prepared by Reddy Architects and Urbanism in advance of the sale suggests the land could accommodate a mixed-use development comprising 245 apartments alongside office and retail space.