Friday 28 July 2017

State sat on pot of gold through boom

The Government's sizeable property portfolio constituted a potentially lucrative source of funding during the good years, but it went untapped

Snowed under: The Oscar Wilde statue in Merrion Square, the centre of State activity
Snowed under: The Oscar Wilde statue in Merrion Square, the centre of State activity

IT emerged last week that the Government is wasting millions of euro of taxpayers' money by not shopping around for goods and services -- but it appears more money is being wasted by mismanaging State-owned properties and needlessly holding on to prestigious offices in Merrion Square and St Stephen's Green.

A report by the Public Accounts Committee released last week indicated that government departments awarded contracts worth €144m without seeking cheaper alternatives.

But given that the State spent €125m on leases and associated costs of renting offices and other buildings in 2008, perhaps similar questions can be asked about how this money is spent and how rigorously other savings are sought in terms of managing the 220 offices owned by the State for use by government departments.

Findings by the Sunday Independent suggest that the taxpayer may also have lost out because the Government hung on to properties that would have brought in a tidy sum if sold at the peak of the property boom.

Despite already owning six office properties on Merrion Square, in 2008 the Office of Public Works (OPW) paid €19.95m for additional offices at numbers 91-93 beside Leinster House in a building that also has six adjoining apartments.

Its portfolio there includes the Institute for Advanced Studies at number 5, Bord na Gaeilge's office at number 7, the Red Cross headquarters at number 16, the Irish Manuscripts Commission and the Irish Architectural Archive at numbers 73 and 44/45.

In 2007 the Football Association of Ireland sold its headquarters in the Square for almost €9m, suggesting that State properties there were perhaps worth up to €70m in total at their peak. They might now be worth only €35m.

Although the Government raised €52m in 2004 from the sale of an office block at 72-76 St Stephen's Green, taxpayers missed out on a further windfall of perhaps €50m or €60m where the State could have sold its offices at numbers 50-52 and 78-81 at the same time.

In the case of numbers 50-52, however, it would have meant OPW civil servants who manage the Government's office properties abandoning their enviable city centre location on the Green.

Of course, the State now owns another building a few doors away -- the Anglo Irish Bank headquarters at numbers 18-21 -- whose future remains to be seen.

Other offices that could have once raised millions for our depleted State coffers are located at 10 Burlington Road -- currently occupied by the Dublin Institute for Advanced Studies -- and 21 Fitzwilliam Square, occupied by the Department of Justice and Law Reform.

The State sold two adjoining offices, formerly occupied by An Bord Altranais, at 31/32 Fitzwilliam Square in 2006, fetching around €10m.

This suggests number 21 might have been worth up to €5m as values peaked. However, there are now dozens of empty offices in the vicinity, and current commercial property values suggest it might now be worth as little as €2m.

Releasing any money the State has tied up in the 200 other offices it owns around the country -- as AIB did through a sale-and-leaseback of bank branches in 2007 -- is not likely to be an option at the moment, according to Stephen Vernon, chairman of Green Property.

"It might be possible with the best Dublin properties, but no investor would touch it without an upward-only rent review," he said.

"An investor might buy an income lease on the properties over a 15-year term, but they'd want it inflation-linked plus a 7 per cent yield. It's probably cheaper for the Government to borrow money than to sell properties," he added.

Centralising the management of State properties is a better option, says economist Colm McCarthy, author of last year's Bord Snip report.

At the moment, the OPW manages government offices, the Health Service Executive manages hospital buildings, and the Department of Education manages school buildings. You also have the Industrial Development Authority, the semi-states and local authorities all managing their own property portfolios.

A comprehensive inventory should be prepared, surplus properties should be sold to realise as much value as possible, and the management of all of these bodies' properties should be centralised under the stewardship of the OPW, McCarthy concluded.

Sunday Independent

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