Pension fund pays £5.7m for offices

ONE of the most notable office buildings on St Stephen's Green in Dublin 2 has been bought by the Bank of Ireland Pension Fund for £5.7 million. The investment will provide a yield of 7.2 per cent.

Canada Life agreed terms for the sale of the 41,000-square-foot building at 51 St Stephen's Green in advance of funding a major extension to The Square shopping Centre at Tallaght in west Dublin. Canada Life and Irish Life are to pay £15.7 million for 10 stores in a deal which will give them a return of 8. 1 per cent. Canada Life will have a 45 per cent stake in the new Tallaght stores and the balance will be held by Irish Life.

The St Stephen's Green building is let to the Office of Public Works under a 70-year lease from 1972 at a rent of £445,000 per annum. The rent equates to £10 per square foot and £650 for each of the 57 car spaces. The next rent review is due in 1997.

The sale of the building underlines the continuing demand for office investments offering security of income. The 70-year lease in this case by a State agency confers a premium value on a building which is somewhat dated but occupies a super location.

Over the past three years, the OPW has been surrendering office leases where break clauses apply. The State sector is now back in the market looking for extra space though it is still not prepared to pay rents of £16 and over per square foot for high quality space unless it secures lease breaks ever five years.

About 10,000 square feet of the office space sold by Canada Life located in the original Georgian building which retains most of its period features. The balance is located in an extension at the rear which fronts on to Ely Place. Canada Life funded the extension in 1972 as an intermediary long leaseholder and acquired the free-hold in 1992. Michael White, property manager of Canada Life, said he believed the sale of the building on St Stephen's Green was well timed to maximise their investment and to reinvest at a higher yield in prime retail properties at The Square. The company probably had another £5 million to spend on investments and they were particularly interested in industrial and office properties, he said.

The investments produced the second best performance in a league compiled by the Investment Property Databank for 1995. Over a three-year period they were ranked first.

Earlier this year, Canada Life developed Blackrock Park House, a 17,000 square foot office building in the centre of Blackrock, Co Dublin, on a joint venture basis with Bank of Ireland Asset Management. The building was subsequently let to AIG Europe, a computer software company set up by AIG, formerly known as the American Insurance Company of Ireland. Canada Life's other investments include retail on Grafton Street and Patrick Street, Cork, offices in the Earlsfort Centre and industrials on the Western Parkway.

The Bank of Ireland Pension Fund, which has a property portfolio valued at more than £100 million, showed a rental return of 8.25 per cent and capital appreciation of 6 per cent last year. The fund is managed by Salix Trust.

The fund's last significant purchase was also on St Stephen's Green. Last August it paid more than £6 million for the Habitat retail building which had been owned for some years by the U2 rock group. Habitat is paying a rent of £340,000 for 25.000 square feet of retail space. There are also two floors of offices with a separate entrance.

The bank pension fund also owns Stillorgan Shopping Centre which is valued at around £40 million and holds £10 million worth of retail investments in both The Square and in Merchants Quay Shopping Centre in Cork.