Banks pull the strings
Published: 01 September, 2010
While retailers are gradually regaining their optimism, and some are even expanding again, there is little sign of an end to the crisis gripping Ireland’s shopping centre developers and investors
The latest casualty is Arnotts, the Dublin department store operator-turned-developer. This month the European Union cleared a move by Anglo Irish Bank and Royal Bank of Scotland to take over the business in return for a restructuring of its debt.
The European Commission approved the move even though both banks are effectively state-owned, because it saw it as part of “the ordinary course of business of managing claims,” rather than an extension of state aid for troubled businesses.
For more than a century Arnotts was content to run the oldest department store in Dublin but it became caught up in the irrational exuberance of the property boom, and drew up ambitious plans to redevelop its Henry Street site with a new 35,000-sq m store anchoring a mall of 50 shop units.
The costs of a five-year planning process contributed to its downfall, but it also bought the lease on the 8,500-sq m former Debenhams anchor store in the nearby Jervis Centre to allow it to continue trading while its own site was redeveloped. This year, once it had become clear that such a move would not be necessary, it paid a reported €5m to rid itself of its lease obligations, which carried a €2.2m annual rent bill.
A source close to the company said the bank takeover merely formalised a situation that had been in place for some time, with the banks pulling the strings as they are with many hard-hit Irish businesses.
So does the Arnotts takeover presage a more interventionist stance by the banks, and can we expect to see them take control of more property businesses? Not in the short term, believe most observers, if only because so many property loans are under the control of NAMA, the Government-backed ‘bad bank,’ or are heading that way.
The first tranche of loans were transferred from the banks to NAMA on schedule earlier this year, but the second tranche has taken longer than expected. The uncertainty and delay is only prolonging the agony for Ireland’s property community.
Colliers International’s head of retail Aiden McDonnell says: “There is still this large cloud over our heads, with precious little money in the system. Until the banks, the regulators, the Government and NAMA can properly sort themselves out and stabilise the flow of credit, we are probably heading for a few more hiccups.”
Another straw in the wind is that local authorities, faced with massive cuts in their budgets, are becoming increasingly aggressive in their attempts to recoup development levies from property developers.
Sean Dunne and Sean Mulryan, developers of the Whitewater shopping centre in Newbridge, Co Kildare, have just been landed with a €16m bill after An Bord Pleanala – the planning appeals board – ruled that they were liable for the cost of the road improvements necessary to serve the centre. The levy had been a condition of the planning consent for the centre, granted as long ago as 2003, but Kildare County Council had not enforced payment until the crisis in public finances forced it to reconsider.
Other developers have been taking advantage of the lull in activity to fine-tune their planning consents ahead of any upturn. For example the Pizzarro Consortium headed by developer Paddy Kelly has recently concluded a four-year planning battle to redevelop a golf course on the banks of the River Dargle with an extension to Bray town centre. Now An Bord Pleanala has approved revised plans that include 60,000 sq m of new retail space in up to 100 units.
The proposed development incorporates four anchor units (one of which has been pre-let to Dunnes Stores) as well as 5,800 sq m of offices; 326 apartments; a 103-bedroom hotel; 17 bars, restaurants and cafes; an eight-screen cinema and 3,300 underground car parking spaces. However the decision on when to go ahead with the development may ultimately rest with NAMA, which is understood to hold several loans secured on the project.
