Property developers Jerry O'Reilly and David Courtney have offered a high premium for a lease in order to redevelop a top site on St Stephen's Green, writes Gretchen Friemann

Property developers Jerry O'Reilly and David Courtney have bid close to €6 million to acquire the leasehold interest on Eircom's corporate headquarters at St Stephen's Green, Dublin 2.

It's understood O'Reilly and Courtney offered the unusually high premium in order to gain control of the site and redevelop it into a larger complex.

Eircom currently occupies 11,260sq m (121,200sq ft) of space at the Ardilaun Centre generating an annual rent roll of €4.6 million for the property's landlords, the Royal College of Surgeons.

But industry sources claim the real value of this site is its development potential.

And they point out that the timing of the bid indicates that O'Reilly and Courtney, who are part of the consortium that bought the Shelbourne Hotel for €160 million in 2004, are hoping to secure a pre-letting deal with Anglo Irish bank.

Three weeks ago the financial institution confirmed market expectations that it was planning to relocate its operations by issuing a briefing note to developers on its spatial requirements for a new city centre head office.

Initially the bank will take 14,864sq m (160,000sq ft) of space, according to agent CB Richard Ellis Gunne, although it wants the capacity to expand into an additional 13,006sq m (140,000sq ft) over the term of the lease.

Speculation had centred on Anglo Irish Bank negotiating a deal with Treasury Holdings at Spencer Dock.

However, market sources now believe a redeveloped Ardilaun Centre would prove a far more attractive site to the bank than a location in the docklands.

Eircom holds three separate long term leases on the St Stephen's Green property which have been up for sale since last October. Agent Lambert Smith Hampton were quoting a premium of €7 million but it's understood that O'Reilly and Courtney have committed close to €6 million for the offices.

While this figure is short of the advertised asking price, it is still considered by the market to be an exceptionally high premium in the current conditions.

Usually the tenant is forced to pay a reverse premium to reassign a lease but the Eircom building is regarded as ripe for redevelopment and is situated in one of the most prestigious locations in the city.

But O'Reilly and Courtney's radical strategy of buying out a tenant's lease to obtain a stake in a property is risky and requires the consent of the Royal College of Surgeons.

If the medical institution agrees to the reassignment, then it's likely it will redevelop the site with O'Reilly and Courtney on a joint venture basis.

However, industry sources expect the Royal College of Surgeons to reject the bid.

Eircom's leasehold on the Ardilaun Centre expires in 2016 and it's thought the college is reluctant to release the telecommunications company from these obligations simply to facilitate a joint venture.

Finnegan Menton, the agent for the medical college, declined to comment on the deal. In the past, the medical college has contracted builder Bernard McNamara to develop its substantial property portfolio with the construction of the Royal College of Surgeons car-park as well as the Beaux Lane office block.

While O'Reilly and Courtney have participated in a number of deals with the well-known builder, including the purchase of the Shelbourne Hotel, it's understood McNamara has no involvement in this bid. Eircom is shifting its head office operations to a new purpose-built block located on a 1.8-acre site near Heuston station. The 19,695sq m (212,000sq ft) headquarters is expected to be ready by 2008.