Wednesday 26 June 2019

Richard Curran: 'Sean Dunne, Walford and some very messy hair-splitting'

The sale of Sean Dunne’s €58m house, Walford, on Shrewsbury Road in Dublin, was eventually finalised in 2013
The sale of Sean Dunne’s €58m house, Walford, on Shrewsbury Road in Dublin, was eventually finalised in 2013
Richard Curran

Richard Curran

Back in October 2006, just a few weeks after property developer Sean Dunne had arranged the final payment to purchase Walford, the €58m Shrewsbury Road house, I wrote a newspaper story naming him as the mystery buyer of Ireland's most expensive home.

The deal had been done privately in 2005 but it had never been confirmed who the purchaser was. I was working for The Sunday Business Post that October and the story ran under the headlines 'Developer paid €58m for Shrewsbury Rd property' and 'Dunne mystery buyer of D4 home'."

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We quickly received a legal letter demanding an apology and damages, while berating us for this "outrageous publication" which claimed the article had portrayed him (Dunne) as a "hypocrite and a liar". Dunne's central argument was that he didn't own the house. He was trying to split hairs between him owning it and his wife Gayle Killilea owning it. Those split ends proved to be quite complicated.

The issue of ownership and transfer of assets (including Walford) to Killilea culminated in a Connecticut court verdict last week which said she must pay back the proceeds of the sale of the house she received to Dunne's bankruptcy trustee.

Killilea may well appeal the decision by arguing the transfer of this asset was well before there was any hint that Dunne was in financial difficulty.

The US bankruptcy case taken against Sean Dunne in that Connecticut court this week also threw some fresh light on the modus operandi of the Carlow developer, and Irish Nationwide Building Society, at the height of the boom.

At issue was whether Dunne had lawfully transferred millions of euro in assets and cash to his wife to shelter the money from creditors.

Dunne denied the allegations but eventually a jury found that Killilea should hand over €18m to the bankruptcy trustee because Dunne had wrongly transferred the money to her. The court made no finding of wrongdoing on her part.

At its core was the question of who bought, who owned and who sold Walford, the Shrewsbury Road house purchased in 2005 for €58m. During the case it emerged that the purchase of Walford did not actually close until the summer of 2006 when the final payment was made. Lawyers for the trustee recounted evidence which showed that when the final payment for the property was made it required a loan by Dunne because he had insufficient funds in the account on which the cheque was drawn.

The trustee's lawyers said that Dunne secured a loan from Irish Nationwide Building Society, as a short-term facility, to cover the shortfall. The trustee's side quoted from memos and communications with lawyers at the time in which one lawyer claimed Dunne had said he would not tell Fingleton the true purpose of his loan request.

When lawyer for the trustee Thomas Curran put it to Dunne in court that he had in fact, kept the information from Irish Nationwide chief executive Michael Fingleton, Dunne said it happened nearly 13 years ago and "I believe I did tell Michael Fingleton".

This is the first time INBS had been mentioned at all in relation to the purchase of Walford. If Dunne did not tell Fingleton, it points to a relationship in which the Carlow man could borrow millions of euro without even saying what it was for. This raises questions over the security, and loan agreement.

If Dunne did tell Fingleton, what security did INBS take?

Dunne said it was only a short-term facility paid back once the sale of his share of Whitewater Shopping Centre in Kildare went through.

But other evidence in their relationship shows how casual the building society was when it came to lending tens of millions to Dunne.

Also in 2006 a Sean Dunne company, called Waterside Kilcock Property Company, registered in the Isle of Man, borrowed €38m from INBS to acquire the former Zed Candy site in Kilcock.

INBS failed to register security on the loan in the Isle of Man and had go to court seeking permission to register a charge on the site as security two years later in 2008.

The loan ran into trouble and was written down by INBS by 87pc to just €5m. Waterside Kilcock went into receivership and the loan was transferred to Nama.

The Sean Dunne bankruptcy case may not be over in the US, especially if Killilea decides to appeal. Around €14m of the €18m she had to pay is derived from the sale of Walford which eventually took place in 2013.

The case gave quite an insight into the banking relationships of the time.

Berlin rent-freeze test for us

Shares in Germany's biggest residential landlord companies fell last Thursday on concern that the City of Berlin will freeze rents in the German capital for five years. The plan has been gathering traction and comes in response to a surge in housing costs there.

Rents in Berlin have shot up by around 100pc in recent years in a city where 85pc of residents rent their homes.

There is also a petition to have the state expropriate some properties through compulsory purchase or break up companies that own more than 3,000 units.

Deutsche Wohnen, a listed landlord, owns 112,000 units in Berlin. Germany introduced rent increase caps not that long ago but while it has held back rents in more expensive areas, it has not really worked. Now things are looking a little more serious for the big players. The Dublin rental market is nowhere as big or as corporate as that. But it is heading increasingly in that direction.

The capital has had rent controls for some time, which have been largely ineffectual. Larger institutional landlords are playing a bigger role in Dublin, especially by buying apartment blocks.

Some of the counter-arguments are the same in Berlin as Dublin. In Berlin they argue that a rent freeze would lead to 50,000 fewer apartments being built in the years ahead.

Perhaps we will end up watching how the Berlin experiment plays out. Of course by then it may be far too late.

Big savings to be made on national debt interest bill

News that ECB interest rates are to remain at record low levels until at least the middle of next year, isn't just good news for mortgage holders. Although, some of those who fixed might not be best pleased.

It is also good news for Paschal Donohoe, because the NTMA has an opportunity to fill up its boots by refinancing the national debt at very low yields.

Irish 10-year bonds are paying out under 0.5pc and it seems likely these low rates will last a little longer. The NTMA had to refinance €15bn of bonds this year, including bilateral loans, and a massive €19bn is due next year. If this cheap money lasts, the saving for the Exchequer on interest repayments could be substantial.

Our average interest rate on the national debt is down to 1.1pc. Back in 2014 the Government estimated that the interest bill by 2018 would be €9bn a year. Instead it was more like €5.8bn.

There is a real savings opportunity to refinance a sizeable piece of debt next year if these low rates hold. The NTMA is already targeting an annual interest bill of €4.5bn by 2021. Given the increasing demands on the Exchequer, further reductions would be most welcome. But we shouldn't forget. Despite the economic bull run since 2015, our net national debt in 2018 was €176bn, compared to €167bn in 2014.

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