McDonald's sale falls through

€23m offer on Grafton Street outlet withdrawn over fears following ban on upwards-only reviews

A PLANNED sale of McDonald’s fast food restaurant on Dublin’s Grafton Street has fallen through because of fears that the new ban on upwards-only rent reviews could devalue the investment property in the future.

A Dublin businessman is understood to have been willing to pay in the region of €23 million for the high street building – €2 million less than the asking price – but when the Minister for Justice signed an order banning upwards-only reviews, the offer was promptly withdrawn.

DTZ has been running a vigorous marketing campaign since last June to sell the McDonald’s building and six other investment properties owned by Royal Liver Assurance.

The upwards-only rental ban will only affect new leases but, with the lease on McDonald’s due to run out in 2011, it is clearly on the cards that the rent could fall by at least 20 per cent.

McDonald’s has refused to indicate whether it will be renewing its lease – as it is entitled to do – but retail experts are convinced that it will want to stay on because of the existing planning permission which allows it to trade 24 hours a day.

No further fast food outlets are to be permitted on the street under Dublin City Council’s planning guidelines.

Even if McDonald’s opted to close the large Grafton Street premises, it would have no difficulty selling its lease to another fast food operator at a considerable profit because of the round- the-clock trading opportunities.

Anyone purchasing the McDonald’s building would obviously prefer to see the food chain closing down. The next owners could then redevelop the site as a major new store with up to six levels of shopping facilities and exceptionally large floor plates, exactly what is needed on Grafton Street.

The 1,858sq m (20,000sq ft) building is one of the finest on the street, having originally served as the office of the Irish Hospitals’ Sweepstake.

McDonald’s is currently paying a rent of €1.15 million while Foot Locker, which occupies a section of the building, contributes another €500,000. Its lease runs out in a matter of weeks. Part of the upper floors are sublet to a language school that may not be willing to relocate.

Had the sale gone ahead, the new owner would have secured a return of around 7 per cent on his investment.

Meanwhile, sale terms are believed to have been agreed on three other properties in the Royal Liver portfolio, two of them for shops on Henry Street. DTZ had been seeking €5.5 million for 52 Henry Street which is let to 02 Communications on a lease which has another 18 years to run.

It is rented at €290,000 per annum. Next door, number 51, priced at €4.5 million, is let to Vodafone at €335,000.

Royal Liver is also believed to have accepted an offer of over €8 million for blocks A and B at Clonshaugh Industrial Estate in Dublin, which are occupied by Vodafone at a rent of €812,663.

There are 16 years unexpired on the lease of the buildings which extend to 11,454sq m (123,300sq ft).

The best known property for sale in the remainder of the portfolio is Café en Seine on Dawson Street. The original asking price of €8.9 million would show a net yield of 6.5 per cent. The property is held on three long leases at a rent of €539,700. The sale of the bar was badly timed because of the credit crunch and the sharp downturn in business.