Boom-time deal in the docklands turns sour

One of the biggest deals during the property boom has gone wrong, writes COLM KEENA,Public Affairs Correspondent

IN NOVEMBER 2006 Davy Stockbrokers approached a number of its wealthy clients and invited them to get involved in the largest development site in Dublin 4 to come onto the market in decades.

“The size and location of the site presents an opportunity to create a new city district in Dublin’s best postal address,” the broker claimed.

The Dublin Docklands Development Authority (DDDA) was going to buy the the Irish Glass Bottle site in Ringsend, along with developer Bernard McNamara and another shareholder.

“The DDDA has confirmed that they (sic) will endeavour to ensure that the site will qualify under section 25 of the Dublin Docklands Development Act 1997. Should this prove successful, the site will qualify for a fast-track planning process,” promised Davy.

It was at the height of the Irish property boom. McNamara envisaged a massive development. There would be 2,166 apartments, and more than 826,000sq ft of shops, offices and other development. One bed apartments would sell for €500,000, and three beds for €850,000.

Land acquisition and development costs would be €1.3 billion, and finance costs would be €296 million. The profit before tax would be €296 million, or a 23 per cent return.

Investors were to put a minimum of €250,000 each into the deal, and would be entitled to 17 per cent interest per annum, payment on maturity after seven years. The Davy investors were to put in €52 million. In the event, they put in more.

Bernard McNamara put the money into his company, Donatex, which in turn was a shareholder in Becbay, the company that ended up buying the site. The DDDA owned 26 per cent of Becbay, and the unnamed investor (Derek Quinlan) had 33 per cent.

The State-owned DDDA had become involved with two of the biggest players in the Irish property scene, in one of the largest, and last, blow-outs of the boom.

It has all gone very sour. The investors are seeking their money back through the courts, from McNamara who gave a personal guarantee.

As of October 15th last, the amount involved was €95 million. Given the interest rate involved, the figure is growing fast.

McNamara in turn is suing the DDDA, seeking an indemnity. According to his affidavit filed in the Commercial Court this week, it was the DDDA’s then chief executive, Paul Maloney, who first contacted him about the site, in “early October”.

McNamara said that at first he wasn’t interested, but that Maloney sought further meetings. According to McNamara, he became involved after Maloney told him about the fast track process, and about plans for a Luas line close to the site.

The DDDA was given special powers when it was established in 1997, with a view to overseeing the development of the docklands area. It has in the past been directly involved in successful developments, though some, such as Fine Gael’s Phil Hogan, question the wisdom of the Ringsend project, given its scale and nature.

The authority, for its part, says it got involved because members of the local community had urged it to, and that it acquired the minimum stake that would prevent it being outvoted on key decisions.

Its lawyers say the deal struck with McNamara specifically set out what would occur if the section 25 permission wasn’t achieved.

Over and above the wisdom of the decision, there lies the issue of the closeness between the docklands board and Anglo Irish Bank.

Anglo were to fund the project, and put up €288.4 million towards the €424.34 million it cost Becbay to buy the site. Anglo has since shared this debt with AIB.

The then chairman of the docklands board, Lar Bradshaw, was a non-executive director of Anglo, and the chairman of Anglo, Seán FitzPatrick, was a non-executive director of the authority.

On October 3rd, 2006, at a meeting attended by Bradshaw and FitzPatrick, the Ringsend deal was discussed.

“The chief executive briefed the board on the confidential negotiations which he had undertaken with a developer who had indicated an intention to bid for the site,” say the minutes, which have been sourced by Hogan by way of the Freedom of Information Act.

“The developer confirmed that he would welcome the involvement of the authority jointly in tender.”

McNamara’s affidavit says it was only after a number of contacts initiated by Maloney “during the month of October”, that he became interested.

In a solicitor’s letter sent on his behalf in July, McNamara said he was “induced” into participating in the deal, because of the representations made by Maloney.

McNamara’s case is that a High Court ruling in October of last year, involving Liam Carroll’s development in the docks which was to provide a new HQ for Anglo, means the authority cannot enter into deals such as the Becbay one, prior to issuing a Section 25 certificate to a related development.

However in response, the authority’s solicitors said the Becbay partners clearly “understood and provided for” a scenario where Section 25 permission was not achieved.

McNamara’s claim was “without merit”, they said.

Early on the morning of the October 24th, Bradshaw and Fitzpatrick took part in a board meeting that approved the DDDA involvement.

Bradshaw opened the meeting by saying he had been told at 8.30pm the evening before that McNamara was “in discussions with” the Bank of Ireland and Anglo about funding.

The issue of conflict of interest was discussed but the men remained at the meeting because both Bradshaw and FitzPatrick had non-executive roles with Anglo.

McNamara, in his affidavit, says that prior to the tender deadline for the site, he submitted a loan application to Anglo for €379 million, “with the approval of the DDDA”. The tender deadline was October 25th.

The site, bought at a value of €412 million, is now valued at about €60 million. Who is servicing the Anglo/AIB loan is not clear. McNamara is in difficulties, and Quinlan has moved residence to Switzerland.

McNamara is seeking indemnities from the DDDA over his guarantees to both the Davy investors and Anglo, and the total amount is well in excess of €140 million, and growing.

If he is successful the investors may think they have a better chance of being paid.