ANALYSIS:Despite the setback, the value in the property lies in what can be done with it in the future
YESTERDAY’S AN Bord Pleanála decision to refuse permission for a high-rise development on the Jurys site in Dublin’s Ballsbridge leaves one of the State’s biggest land deals, and its backers, at a crossroads.
Mountbrook Homes founder Seán Dunne paid €379 million for the Jurys and Berkeley Court hotels and an adjoining site in Ballsbridge in 2005.
The deal amounted to about €55 million an acre, which at that point was the largest per-acre sum paid for property in the Republic.
He promptly began putting together an ambitious plan for the site, involving a high-rise development designed by Scandinavian architects Henning Larsen.
The plan provided for a hotel, offices, shops and apartments, and was designed to ultimately unlock the value in what was seen as one of the prime sites in the capital, and to give his business a return on its record investment.
It was this that the planning appeals board shot down yesterday, forcing Dunne and Mountbrook to literally go back to the drawing board. The group yesterday said that it intends submitting a new application in line with the area’s zoning.
Dunne and Mountbrook are not the only ones with a stake in the site. Ulster Bank, owned by Royal Bank of Scotland, lent the developer the money to buy Ballsbridge.
In the same way that banks expect house buyers to put up some of the cash for their new home, they expect developers and commercial property dealers to do the same.
Dunne did not borrow the entire amount from Ulster Bank, but put up a proportion of the purchase price, which is his own equity in the property.
Earlier this month, he told the New York Times that he put up 35 per cent of the price, which amounts to just over €132 million.
Mountbrook subsequently issued a statement clarifying aspects of the interview, which confirmed that Dunne’s own share of the Ballsbridge deal was substantial and said his borrowings against it were “conservative”.
Assuming that the 35 per cent figure is right, this means that the debt comes to just over €246 million. Whatever the final figure, it is understood that Ulster Bank has “syndicated” 50 per cent of it to other banks, which in all likelihood are not Irish.
Syndicated means it brought other lenders into the deal. This is normal practice with big commercial loans, and would have given Ulster a return on some of its money, and spread its risk, as its liability is half the original loan.
As yesterday’s ruling means that Dunne’s plans for the site are delayed, it sparked some speculation about how the banks may react. Ulster Bank itself would not comment as it never discusses dealings with individual clients.
Some sources suggested that the bank could move to take shares in the site and any subsequent development, which would make it a part owner.
The bank will have secured its loan against the property, which could give it the right to take ownership of it entirely, or to appoint a receiver, who would then attempt to find a way of recovering the lender’s money.
This could prove particularly risky from the bank’s point of view. Property prices have slumped since 2005, and selling it in this situation would mean that the vendor would get considerably less than the figure it fetched almost four years ago.
This could force the bank to reduce the value of other properties against which it has lent money, and which are recorded on its balance sheet, which in turn has implications for the bank’s own value.
Appointing a receiver or taking similar steps would amount to a nuclear option for the bank, and there is no indication that it is on the verge of taking any such steps.
In any case, one source pointed out yesterday that the value in the property lies in what can be done with it in the future.
“The bank is ultimately likely to support him [Dunne] over the long term,” he said.
