Prime €74m portfolio the most important sale for years

Some of the best retail buildings in the city with strong covenants may tempt cash-rich investors back into the market

SEVEN EXCEPTIONAL investment properties – including McDonald’s fast food outlet and two other shops on Dublin’s Grafton Street along with Café en-Seine on Dawson Street – are going on the market today in the most important sale of an Irish property portfolio for several years.

Sean O’Neill of DTZ Sherry FitzGerald is expecting to secure over €74 million for the seven properties which also include three retail buildings on Henry Street.

All the properties have been owned for many years by Royal Liver Assurance which is now under pressure to rebalance its investment fund in the light of the slippage in the value of equities and the fall in the value of sterling against the euro.

It is not the first time the fund has been overweight in property as in recent years it also sold several retail investments off Grafton Street as well as a number of office blocks. It also found a buyer for the struggling Royal Liver Retail Park on the Naas Road at the top of the market for around €60 million. Of the seven properties going for sale, six are in the retail sector and the seventh is an industrial investment. The current rent roll of €4.165 million is expected to increase by a further €1 million when a number of rent reviews are completed.

The asking prices for the six retail investments reflect the dramatic fall in values of over 50 per cent on Grafton Street and Henry Street since early in 2008. Investors are now being offered yields of between 6 and 6.8 per cent on the Royal Liver retail investments. In September 2007, a private investor settled for a return of 2.4 per cent on the River Island and adjoining Wallis store investment at the bottom of Grafton Street.

The properties now going on the market are likely to be of interest to a handful of cash-rich Irish investors but also to a number of overseas funds which up to now have been reluctant to move into Dublin because of the perception that the commercial property market was overvalued. That is clearly no longer the case.

The most valuable property for sale – 9-11 Grafton Street – is let to McDonald’s and Foot Locker, and is priced at €24.5 million, a figure that would show a net yield of 6.2 per cent.

McDonald’s contributes €1.15 million to the rent while Foot Locker pays a rent of €500,000 under a lease which runs out at the end of this year.

McDonald’s trades 24 hours a day and has a break option in its lease at the end of 2011. The 1,858sq m (20,000sq ft) building – one of the finest on the street – was originally the offices of the Irish Hospitals’ Sweepstake.

DTZ is seeking offers in the region of €15 million for an adjoining building, 7-8 Grafton Street, which is let to Office Shoes under a lease which does not run out until 2028. The 723sq m (7,788sq ft) building is currently rented at €720,000, a figure that is expected to rise substantially to give a yield of over 6 per cent.

Offers in the region of €5.5 million are being sought for 52 Henry Street which is let to 02 Communications on a lease which has another 18 years to run. The 376sq m (4,052sq ft) building, currently producing €290,000, will be showing a return of over 6 per cent when a new rent is set shortly.

Next door, number 51, which has a guide price of €4.5 million, is let to Vodafone on a lease which has another three years to run. The 249sq m (2,688sq ft) building is rented at €335,000 per annum and when a review it completed it will be showing a return of close to 6.8 per cent.

Close by, DTZ is quoting in the region €6.1 million for 5 GPO Buildings on Henry Street which is also rented by 02 Communications. There is over 19 years remaining on the lease of the building which has a floor area of 220sq m (2,372sq ft). The rent of €357,500 is currently being reviewed and investors can expect a return of over 6 per cent.

The well known Café en-Seine is easily the largest of the buildings going for sale with a floor area of 1,544sq m (16,622sq ft) on Dawson Street. The suggested 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 total rent of €539,700. The rent on two of the leases was recently reviewed and the third lease settlement is imminent, according to DTZ. It will be no surprise if Capital Bars, which operates Café en-Seine, is among the bidders for what is one of the finest bars in the city.

DTZ is quoting a selling price of €9.5 million for Blocks A and B at Clonshaugh Industrial Estate in Dublin 7 which are occupied by Vodafone at a rent of €812,633. This would show a return of 7.9 per cent on the two buildings which have a combined size of 11,454sq m (123,300sq ft). The 23-year lease runs from 2001.

Sean O’Neill says he is expecting considerable interest in what are prime, well let assets which are available at above average yields. Given the current level of interest rates, property was rarely so affordable, providing the ability to service loans and pay down debt.

He said one of the key attractions of the Royal Liver investments was the strength of the covenants, such as McDonald’s, 02 and Vodafone. “The properties will provide a stable return with the prospect for medium to long term capital growth,” he said.