A near-miss by Irish bidders for an overpriced €1bn London site underlines the culpability of bankers in our economic woes, writes FRANK McDONALD
WE KNOW a lot more now about the recklessness of our banks as their toxic loans to property developers are transferred to us, through Nama. But the full picture of how the bankers turned into touts during the boom may never become clear – because the scale of what they did was so enormous and so utterly recidivist in its nature.
It was the willingness of these imprudent institutions to provide unlimited credit, often to developers who were already “highly leveraged”, that ensured prices continued to soar and sustained the property bubble for so long. In many cases, indeed, it was the bankers who put them up to bidding ridiculous prices for sites, on the basis that they had the Midas touch.
Take the Chelsea Barracks site in London. It was sold at the height of the boom in April 2007 for an all-time record price – £959 million (€1,096 million) – to the high-flying Candy brothers, who were acting for Qatari Diar, the gulf emirate of Qatar’s sovereign wealth fund. What isn’t so well known, and needs to be noted, is that the disappointed underbidders were Irish. They were prepared to pay a staggering sum for the site, aided and abetted by a consortium of banks – including both Anglo Irish and AIB – which were providing a syndicated loan for the purchase.
These investors were not, as you might imagine, developers with many years’ experience and knowledge of the London property market, such as Seán Mulryan of Ballymore Homes. Neither Mulryan nor Treasury Holdings were in the running; wisely, they didn’t tender for the 13-acre site in Chelsea after learning that the price was likely to be “far north of £500 million”, as one source recalled. Treasury, in any case, already had its hands full with the 35-acre Battersea power station site across the river Thames, which it acquired in late 2006 for £400 million.
The Irish consortium gagging to snaffle the royal barracks site was led by Paddy Shovlin, a relatively minor developer whose projects included the Morgan Hotel in Temple Bar and Beacon Court in Sandyford, and Gerry Purcell, son of cattle exporter Séamus, who made a name for himself in currency dealing; he had no direct experience of property development in London or elsewhere.
Along with their partners in the Chelsea punt – all investors rather than developers – they managed to get Anglo Irish and AIB to join in backing their £949 million (€1,084 million) bid for the barracks site, just £10 million less than the Qataris.
But what did these guys, or their Irish bankers, know about the London property market and the acute development risks involved? For example, the close proximity of Sir Christopher Wren’s Royal Hospital, precursor of the one in Kilmainham. The barracks site was also burdened by a requirement to provide no less than 50 per cent social and affordable housing, which would put many people off.
Might the Irish bidders and their money men have considered that any scheme bold enough to achieve a payback of the huge investment they were contemplating was almost bound to run into opposition from articulate and well-heeled local residents, just as Seán Dunne’s did in Ballsbridge? Indeed, the Chelsea Action Group had already been set up in February 2007 – two months before the tender date.
No wonder it all went sour for Nick and Christian Candy, and Qatari Diar. The dense high-rise scheme they commissioned Richard Rogers to design was condemned as “unsuitable” and “unsympathetic” by the Prince of Wales, in a letter to the Emir of Qatar, and was withdrawn in May 2009 just days before Westminster City Council’s planning committee was due to make a decision on it.
Project Blue, the Qatari-Candy vehicle, went back to the drawing boards, eventually selecting a new design team headed by architects Dixon Jones to draft a masterplan for “a magnificent and sustainable new neighbourhood, respectful to the traditions, diversity and cultures of the surrounding urban fabric”. But three years after making their huge investment, one suspects they must be regretting it.
Coincidentally, Paddy Shovlin and one-time wizard Derek Quinlan had to withdraw their plan to redevelop the Bank of Ireland headquarters onDublin’s Baggot Street, after it came under heavy fire for being unsympathetic to the original building. They had successfully tendered for the property in June 2006 when it was put on the market by Salix Trust, the bank’s pension fund. The price was €200 million.
AIB did even better, flogging its headquarters in Ballsbridge to Seán Dunne and Hibernian Life Pensions in April 2006 for €378 million, having earlier disposed of its development site at the rear to a Goodbody Stockbrokers syndicate for €368 million. Both AIB and Bank of Ireland also netted millions through sale-and-leaseback deals for numerous branches throughout the country.
These disposals of assets suggested to some observers that the two main banks believed the bubble was about to burst. But AIB’s then chief executive, Eugene Sheehy, scotched any such notion by insisting that it was really “a vote of confidence” in the property market. And so, the banks continued to dish out the dosh with reckless abandon, leaving us – and our successors – with a mountain of debt.
But for the Candys and Qataris, €1 billion for Chelsea Barracks would indeed have been part of it.