Commercial property adrift after Atlantic examinership
THE decision by Grafton to put its Atlantic Homecare DIY operation into examinership could well signal a further downward spiral in commercial property prices, with grave implications for both the banks and Nama.
Last Wednesday, an interim examiner was appointed to Atlantic Homecare, which has 13 stores throughout the country. Atlantic has been loss-making since 2007. It lost €11.2m in 2011 and a further €3.1m to the end of April. Woodies, Grafton's other Irish DIY operation, is unaffected by the examinership.
So far, so bad. With sales in the key DIY categories down by between 40 per cent and 50 per cent from their 2006 peak, Atlantic's problems hardly come as any surprise. What does come as a surprise is that Atlantic, which has been owned by Grafton since its takeover of Heiton in 2004, has a solvent parent company.
The fact that Michael Chadwick's company was prepared to walk away from Atlantic speaks volumes about the state of the commercial property market. Stuck with upward-only leases and an annual rent bill of €10.5m, something had to give.
Does the Atlantic examinership mean that other solvent companies locked into upward-only leases will also start to take drastic action? Atlantic reckons that the market rate for the rents on its stores should be no more than €5m.
If the examinership sets a precedent, then commercial property values will almost certainly fall even further.
This is very bad news, not just for the landlords but the banks and Nama also.
Sunday Indo Business