Several investment portfolios are due to be offered for sale in the coming months at considerably enhanced yields in an effort to kick-start the stalled market, writes JACK FAGAN
ALTHOUGH THERE are no signs of an immediate end to the banking crisis, several investment portfolios are due to be offered for sale in the coming months at considerably enhanced yields in an attempt to interest both private investors and cash-rich companies.
The move could help break the deadlock in the investment market which declined in the past year from close to €2 billion to over €300 million because of the credit crunch and fears of a recession. Tesco is hoping to pick up more than €200 million from the sale of two shopping centres and four sale-and-leaseback deals on supermarkets. Meanwhile, several funds are anxious to dispose of long standing assets to meet ever increasing redemption rates.
There is a general acceptance that property fund values have fallen by 30 to 35 per cent this year but some of the institutions seem reluctant to accept that they have another 10 per cent to go before the market bottoms out.
That issue should be clarified over the coming months as vendors set out their stalls, hoping to attract realistic offers from buyers able to avail of the new loan-to-value rates of 65-70 per cent as well as the recent cut in stamp duty from 9 to 6 per cent and the planned reduction in interest rates, though this will be partially offset by higher bank margins.
However, the essential criteria will be the availability of debt financing because without it the property market cannot function. Current moves by the banks to recapitalise offer the best hope of some degree of liquidity being restored to the banking system early in the new year.
In the meantime, much of the interest in the investment market will focus on Dublin's Grafton Street where the newly developed Tommy Hilfiger store has been offered for sale at a yield of 5.25 per cent. The opening bid is expected to be no lower than 5.5 per cent and, even though the rent of €1.672 million is considered on the high side for these premises, several more investors with cash on deposit are expected to pitch for the building in the coming days. The selling price - and more importantly the return on the investment - will be closely monitored by the investment sector.
Several more estate agents waiting to bring Grafton Street buildings on to the market early in the new year will decide on strategy once the outcome of the Tommy Hilfiger sale has been determined. However, some of the other buildings in the pipeline do not have the configuration, location or strength of covenant available with the American fashion multiple.
Agents hoping to shift buildings on Grafton Street will be careful to ensure that rent reviews are wrapped up before putting them on the market. This has been prompted by fears about future rental trends on the street and the fact that several traders are struggling to meet their overheads after rents were increased by up to 90 per cent over the past two years.
Many traders claim that buildings are over rented because of the demand for space on the street rather than a significant increase in turnover at the tills. Leases on the street are now difficult to shift and seldom attract key money any more.
Tesco is hoping to secure at least €212 million from the sale of Golden Island shopping centre in Athlone and Artaine Castle shopping centre in Artane, Dublin 5, as well as from the sale and leaseback of four individual supermarkets.
DTZ Sherry FitzGerald has been running a low key campaign to offload the various sites, targeting development companies with substantial rental income and private investors with access to cash. The fact that the portfolio offers secure returns in a volatile market will be well understood by investors.
DTZ is seeking €60 million for the 20-acre Golden Island centre where the rental income of over €2.8 million is expected to rise to around €4 million when the current review is completed. At that price the investment would show an initial yield of 6.15 per cent. Both Tesco and Penneys own their own stores but Tesco has undertaken to rent a "hypermarket" of 7,432sq m (80,000sq ft) once it is developed by the purchaser.
The centre extends to 14,240sq m (154,000sq ft) and still has about €8 million available in tax breaks. The tenants include Argos, Boots, Vero Moda, Japan, Claire's Accessories and Peter Mark. The sale will not be helped by the fact that the corporate finance firm CFI has not yet proceeded with its plan to buy the new Athlone Town Centre for €375 million.
Tesco is looking for €35 million for the Artaine Castle shopping centre which has redevelopment potential. The yield in this case would also be over 6 per cent while the rent of almost €2.36 million is 81 per cent secured against multiples like Tesco, Penneys, Lifestyle Sports, Unicare and O2.
Tesco will take a new 20-year lease of its premises, paying a rent of €881,766 - the equivalent of €215 per sq m (€20 per sq ft). The centre has a floor area of 7,813sq m (84,101sq ft) and stands on a site of 8.2 acres, including a piece of land leased to McDonald's.
DTZ is quoting €116.9 million for the sale and leaseback of four individual stores. They will be rented by the multiple on 25-year leases incorporating annual fixed uplifts linked to the consumer price index with a cap of 3 per cent. The opening rent for the portfolio will be €7.11 million and the initial yield would work out at 5.61 per cent.
The highest price of €40 million is being sought for the 9,297sq m (100,085sq ft) Tesco shop at Clearwater in Finglas which will produce a rent of over €2.7 million.
A price of €14 million is being quoted for Tesco's 3,716sq m (40,000sq ft) store at Paul Street in Cork which will be rented at €840,000. A further €31 million is expected for the Arklow supermarket of 7,839sq m (84,378sq ft) which will be rented at almost €1.9 million. In Tullamore a smaller store of 6,874sq m (73,991sq ft) has a price tag of €27.5 million. The rent will be almost €1.68 million per annum.
