Colony Capital, the US private equity fund, has teamed up with UK developer Development Securities for the re-entry of veteran Irish developers, Paddy McKillen and Johnny Ronan, in the Dublin office development market.
The joint venture consortium has purchased a 1.7-acre development site in Dublin’s Burlington Road, with existing planning consent for the development of a 166,000 sq ft grade A office building, for €40.5m.
The development will replace the existing five-storey office building that currently occupies the site which has been vacant since developer Bernard McNamara acquired the site in 2007 for around €105m, financed by a Bank of Scotland (Ireland) loan.
Colony Capital, who recapitalised McKillen through acquiring his NAMA loans at par in a process dubbed Project Pebble, owns around 60% of the joint venture with McKillen, while Ronan, the founder of Treasury Holdings, and Development Securities each own around 20%.
Colony’s role in financing the development is probable but is still yet to be finalised. Development Securities first partnered with McKillen last October after acquiring a 50% stake in Percy Place in Dublin for €2.4m.
Development Securities and Ronan have been connected for some several months with the expectations that the two parties are fronting the acquisition of the former Treasury Holdings founder’s loans from NAMA at par.
The Irish Independent trailed the much-repeated link earlier this month, reporting that a deal by Development Securities and Ronan could be completed with NAMA in the next two to three months. CoStar News separately understands that this partnership to acquire Ronan’s NAMA loans could be part of a wider consortium.
The Burlington Road scheme has been acquired by the joint venture consortium out of receivership from Grant Thornton after the legacy Bank of Scotland (Ireland) loan to developer Bernard McNamara was accelerated last year.
The consortium’s €40.5m price paid reflects a 61.4% discount to McNamara’s €105m paid seven years earlier, although it still reflects a 62% premium on the initial guide price of €25m, set by selling agent, CBRE.
This modest asking price, however, largely reflects the risk appetite for Dublin developments at the time the Burlington Road site was first brought to market. With Ireland’s capital facing a substantial supply shortage of prime office space in Dublin’s central business district (CBD), the price paid reflects the early phase of the momentum building in confidence for new development.
In a statement to the Stock Exchange this morning, Development Securities stated that the office development will be marketed for pre-lets over the near-term with initial site works expected to commence within the next six months and the building anticipated to complete in mid to late 2016.
Michael Marx, chief executive at Development Securities said in the statement: “The acquisition at Burlington Road presents a rare opportunity to acquire a ‘shovel ready’ development site in Dublin, a market in which the supply of new, high quality office space is limited, and where only one major speculative development scheme is currently under construction.
“Demand within Dublin’s established occupier market is strengthening and with this acquisition, we see a good opportunity to deliver an office building, of similar quality to 10 Hammersmith Grove, our prime office development in London.
“We have an established track record in office development and this expertise is further strengthened through investing in the partnership with Mr McKillen and Mr Ronan, two of Ireland’s most experienced commercial developers.
“The support of Colony Capital, one of the US’ premier real estate investment firms, underlines the strength of both the team and the project. This is our second acquisition in Dublin, a market where we see continued investment and development opportunities.”