There will be keen interest in the outcome of the planned sale of three secondary buildings owned by Irish Life later this year, writes Gretchen Friemann
IRISH LIFE, Ireland's largest property fund, will become the first institution to brave the deteriorating market conditions next September when it tries to sell a portfolio of three properties for an estimated €90 million.
However, industry experts are already pouring cold water on the valuation price, claiming the assets are more likely to fetch a total of €20 million to €30 million - less than a third of the predicted sales figure.
This is because the portfolio is thought to include only secondary properties and, in the wake of the credit crunch, this segment of the market has suffered some of the sharpest price falls as investors and banks opt for the relative security of prime assets.
According to one well-placed source: "There wouldn't be a hope in hell of selling three secondary properties for €90 million in the current climate. They will be lucky to get €30 million."
The insurer's decision to offload assets at such a challenging time has also prompted speculation over whether this will be the first in a series of institutional sell-offs as companies battle to offset a liquidity crisis brought on by the sudden demand for redemptions.
Although Irish Life, Hibernian, Standard Life and Friends First have all imposed restrictions on encashments, there are fears that investors would prefer to stomach the penalties rather than hold onto depreciating assets. As one investment specialist pointed out, many people may see the exit fees as the "lesser of two evils".
But it's not just the demand for redemptions that is squeezing the institutions' cash reserves. Many companies, like Irish Life, offered geared investment funds, largely for acquisitions in the UK, and there are concerns the double whammy of falling values and rising borrowing costs has resulted in some institutions breaching loan-to-value covenants.
Industry experts have claimed that both these scenarios would force property funds into selling assets at a discounted price.
One source said that so far "the institutions have been sitting on their hands hoping for a quick recovery in the market", though he argued there was "now a realisation that price adjustments are a certainty and that's a positive in the sense that we may see some movement in the second half of the year".
However, a spokesman for Irish Life declined to comment on the anticipated portfolio sale, stating it was not the institution's policy to "discuss future plans". He said the fund was "currently" maintaining "a neutral position", meaning that it was "neither in acquisition or disposal mode".
He also stressed that Irish Life, which manages €1 billion worth of property, was meeting the upsurge in redemptions out of cash reserves that "had been built up in the funds over a number of years".
But it's understood property agent CB Richard Ellis was last week appointed as negotiator for the three buildings after Irish Life issued a letter to a number of estate agents inviting them to pitch for the business.
According to one source who saw the document, no details of the portfolio were provided but it was made clear that the sales process was to begin in September with a price tag of €90 million.
Although CB Richard Ellis is not expected to put the properties on the open market, there will be keen interest in the outcome of the sale if only because the lack of transactions this year has prevented any accurate assessment of the shift in market values.
