AIB chiefs block Grafton Street sale

Newly-appointed AIB managing director Colm Doherty came out against the sale of its Grafton Street branch, even though it attracted an offer of over €28m

THE MANAGEMENT of AIB has blocked the sale of its high profile bank branch on Dublin’s Grafton Street in spite of being offered more than the guide price for it.

The decision not to accept slightly over €28 million in a sale and leaseback deal has taken the investment market by surprise, given the strong price available and the bank’s urgent need for additional capital.

The bank’s selling agent, CB Richard Ellis, mounted a low key but effective marketing campaign in Ireland, Britain and Germany last November to find a purchaser for the building which has dual frontage onto Wicklow Street as well as Grafton Street.

Apart from the top bid from a Dublin-based private investor, which would have shown a net return of 5.9 per cent, there were two other offers only marginally lower, one of them from a British fund.

A report that the top bid came from the owners of Brennan’s Bread, the Irish breadmaking firm, could not be confirmed yesterday.

All the indications up to Christmas were that the sale would proceed as planned but at a management meeting in the bank in recent days, the newly appointed managing director, Colm Doherty, is understood to have come out against the sale on the grounds that it was their most valuable property and it should not be disposed of at a time when the investment market favoured purchasers rather than vendors.

Despite the decision to retain the Grafton Street building, the bank is still understood to be anxious to proceed with the sale and leaseback of other parts of its branch network as a means of unlocking shareholder equity for its core business. It has already sold more than 70 branches since it launched its first tranche of building at the peak of the property market in the autumn of 2006.

The first dozen branches showed an initial return for the investors of only 2.8 per cent.

The most recent block of buildings gave investors yields of between 6.25 per cent and 7.25 per cent.

Early in 2006, AIB also sold its Ballsbridge headquarters to property developer Sean Dunne and Hibernian Life Pensions for €377.7 million. The high level of interest and the strong bidding for Grafton Street stemmed not only from the strength of the covenant but also the long-term possibility that the bank might eventually bow out of the building: it has 464sq m (4,994sq ft) on the ground floor and four overhead levels, leaving the way open for two separate retail operations on Grafton Street and Wicklow Street.

AIB was due to pay a rent of almost €2 million for the branch under a 20-year lease with a break option in year 15.