Monday 19 March 2018

Mixed developments are a headache for investors

The site surrounding the Tara Towers Hotel in Booterstown
The site surrounding the Tara Towers Hotel in Booterstown

Donal Buckley

Could the Irish investment market be about to see the term "cross over" applied to forthcoming property deals?

Is it time for a departure from the traditional approach where corporate and institutional purchasers avoided mixed properties with residential units because they were considered too time consuming to manage.

Their bias, as one institutional investment manager explained, was often blamed on planners. "Most mixed use projects were developed in response to planners' requirements rather than in response to the economics of the project."

Traditionally IPUT, Aviva, Friends First and Irish Life were among those which lacked an appetite for shops with flats.

More recently some new comers also shied away from mixed investments. For instance Green Reit teamed up with Kennedy Wilson to buy Central Park in Leopardstown in a deal which saw Green take the mainly office commercial section while Kennedy Wilson (KW) took the residential side.

Brehon Capital, now called Tetrarch, relatively quickly sold off the apartment block at the Marker property in Grand Canal Docks to IRES REIT.

So this begs the question will commercially focused investors avoid big mixed use developments which have recently come to the market or will they team up with residential specialists and developers?

Hibernia Reit says "We will happily look at mixed use projects that involve an element of residential, but will be maintaining our main focus on offices."

So it may fall to some resi investors to take the lead where residential units predominate. For instance eight of the apartment portfolios acquired by Ires Reit have included smaller commercial and retail elements.

On the other hand there may never be a better time for commercially minded institutions to cut their teeth on resi sector as rents are achieving strong growth and multi-family investment sales enhance liquidity for this sector.

Furthermore should commercial investors find the experience successful they might well expand the residential side of their portfolios and thus help the rental market to address the current housing shortage.

The big three opportunities currently on the market are Elm Park Business Campus in Dublin 4; Tallaght Cross in Dublin 24 and Stonebridge in Wexford.

Firms in the commercial, residential, and institutional sectors have already had discussions with each other about possible joint bids for Elm Park.

In addition the joint agents Savills and DTZ Sherry FitzGerald have had enquiries from prospective bidders for neighbouring Merrion Road sites. In all these sites would comprise the 17.3 acre Elm Park Campus guiding €185m; the 1.45 acre split Tara Towers sites guiding in excess of €9m, and the 0.52 acre Merrion Petrol filling station which is guiding over €3m.

While the market has seen plenty buyers with the capacity to pay the combined €197m for these Merrion Road properties, it is less evident as to whether buyers have the vision and expertise to generate synergy from an already well developed 19.27 acres.

Such synergy may need extra vision and deep pockets because the neighbouring properties are separated by both a graveyard and the narrow Bellevue Avenue leading to the unrelated Bellevue apartment complex.

The Tara Towers Hotel is located on the right of Bellevue Avenue which separates the hotel from both the petrol station and a hotel car park. In turn this car park is separated from the petrol station by Merrion Cemetery which is reputed to be a public park under the care of Dublin City Council.

Nevertheless developers may well be enticed by the stand alone development potential of both the petrol station and the Tara Towers. The latter has the potential for a 120 bedroom aparthotel, 36 apartments to the rear and 16 apartments on the car park site. Already enquiries have come from parties which include developers and hoteliers acting together.

Developers and investors have also enquired about the petrol station which has an existing tenant. It had planning permission for 42 apartments and John Swarbrigg of Savills says a feasibility study indicates the 0.52 acre site has potential for between 20 and 27 units under current planning trends.

But investors who prefer to minimise risk might prefer Elm Park on its own as it already generates €9.5m in office and residential income. Its commercial component extends to 400,000 sq ft. comprising three office buildings, a café/restaurant and a crèche. Its residential element consists of 218 of the 332 apartments on the site and eight terraced houses.

Further accommodation in shell and core condition includes a conference centre, leisure centre and swimming pool and there is planning for a pavilion café.

Meanwhile Friends First expects that the sale may also provoke offers for Block A "The Quartz" at Elm Park which Friends owns and which was recently let to the Willis Group. "Friends First will deal with these as they arise," says Friends director Brian O'Neill.

Already some long-term European and British investors have been showing interest in Tallaght Cross which is mainly a residential investment play but with appeal for those who may have expertise in attracting medical and leisure operators.

This property comprises 442 apartments and 16,390 sq m of commercial space with potential for up-to 22 retail units as well as medical and leisure uses and about 1,600 car spaces.

DTZ Sherry FitzGerald are guiding over €80m for it and agent Ross Harris says when the apartments are fully let they could generate €6.8m in annual rent.

It is anchored by discount retailer Aldi which occupies two commercial units generating €625,480 in rent.

A Wexford town portfolio known as Stonebridge includes 73 apartments in a block with some retail units, as well as nearby commercial and development properties. DTZ Sherry FitzGerald and Sherry FitzGerald Haythornthwaite, are guiding €6.75m.

The apartments generate rents ranging from €600-€700 per month. One of the retail units is let to TK Maxx on a turnover related rent. A multi storey car park has 314 spaces of which 85 are for residents.

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