AIB puts prized branch back on the market

The bank is selling its key asset on Grafton Street in order to meet higher liquidity benchmarks set by the Financial Regulator, writes JACK FAGAN

FOUR MONTHS after blocking the sale of its most valuable bank branch on Dublin’s Grafton Street, senior management in AIB has reversed its decision and put the building back on the market.

Estate agent Colm Luddy of CB Richard Ellis will be hoping to secure at least a similar offer of just under €28 million for the branch in a sale and leaseback deal. At that value, an investor would get a return of almost 6 per cent.

AIB’s surprise decision to proceed with the disposal of the high profile building comes at a time when it is under pressure to strengthen its capital and liquidity ratios.

The original sale to a UK-based investor was due to have been completed early in January but was blocked by the newly appointed managing director Colm Doherty 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.

With the bank now needing €7.4 billion to reach new capital ratios set by the Financial Regulator by the end of this year, it could hardly be seen to be holding on to one of the most valuable retail buildings in the city while availing of a State bailout.

The bank will only raise about €4 billion from the sale of Polish, UK and US businesses.

CBRE is understood to have reopened negotiations with most of the original bidders, some of them based in the UK, and the expectation is that a sale will be agreed in the short term.

The Grafton Street building has a dual frontage on to Wicklow Street and is the busiest of all its Dublin branches. The sale and leaseback terms include a 20-year lease with a 15-year break option. The initial rent will be close to €1.8 million per annum.

In the last significant investment sale on Grafton Street, the German banking group DekaBank bought the Tommy Hilfiger store on the opposite side of the street for €25 million, reflecting a yield of 6.4 per cent. The bank is an infinitely better investment with a ground floor area of 464sq m (5,000sq ft) and the great advantage of dual frontage.

Despite the hesitancy about selling the Grafton Street building, AIB is expected to push ahead with the sale and leaseback of other parts of its branch network as a means of unlocking equity for its core business. It has already sold more than 70 branches since it launched its first tranche of buildings at the peak of the property market in autumn 2006.

The first dozen branches showed an initial yield for investors of only 2.8 per cent. The most recent portfolio of buildings gave investors a return of between 6.25 and 7.25 per cent.