Returns of up to 7.25 per cent tempted cash-rich investors to buy the provincial bank branches

HIGH VALUE commercial investments are still proving difficult to sell in the Irish market because of the banking crisis but it is a different story for cheaper properties with a guaranteed rental income. AIB has just agreed sale terms on six provincial branches at prices from €1.1 million to €4.7 million.

The sale and leaseback deals will give the new owners returns of between 6.25 and 7.25 per cent.

Colm Luddy of CB Richard Ellis, who is handling the sales, said it was too early to give details of the individual transactions. However, he said there had been a high level of interest in all the properties from investors “who were sitting on cash and had no need to rely on borrowings”. The response was hardly surprising, he said, given the affordable lot sizes, the high street locations and the long lease commitments given by AIB.

Mr Luddy said he believed that yields for prime properties were now as high as they were likely to go. This meant that we were unlikely to see further falls in capital values because of yield expansion. However, some experts have warned that there is still uncertainty about future rental trends and the level of demand for office and retail space over the next few years.

AIB has agreed to take 20-year leases on all the branches with break options in year 15. The leases will also be subject to five yearly upwards-only reviews even though the Government no longer favours these terms.

The six branches could easily have been sold for double their current value of about €16.3 million had they been put on the market at the peak of the property boom in 2006 when 37 other branches were disposed of. AIB netted almost €100 million from that sale by DTZ Sherry FitzGerald which gave investors an average yield of only 3.15 per cent. In some instances, such as the branches in Baggot Street and Rathgar, the returns were a mere 3 per cent.

AIB has defended its policy of selling off its branch network, arguing that it is unlocking shareholder equity for its core business. The bank is expected to sell more branches later this year.

The highest value branch sold this time around was in Navan where an investor paid €4.7 million for what is a modern building at the entrance to the local shopping centre. CBRE had expected to get €5 million for the building which is to be rented back by the bank at €335,000 a year. The sale includes a small but valuable site with good road frontage which will inevitably be developed in the future. The second highest price obtained – over €3.5 million – was for the Swords branch which will produce an initial rental income of €248,000.

The bank branches in Dundalk and Maynooth are being sold at below the guide prices. Each of them has made around €3 million even though Dundalk had been valued at €3.4 million while Maynooth had been expected to make €3.33 million.

The Dundalk branch building will be rented for €239,000 while Maynooth has been agreed at €235,000.

Further branches in Castleblaney (Co Monaghan) and Kells (Co Meath) were each sold for €1.1 million and they will be rented back at €86,000 and €84,000, respectively.

Another branch in Monaghan town is still available although CBRE is confident it will find a buyer shortly. The agency is seeking €2.7 million for this building which will be rented at €200,000 a year.