Election rent pledge blamed for Liffey Valley sale collapse

TWO BRITISH investment funds have dropped plans to buy Liffey Valley shopping centre, located off the M50 in west Dublin, because of the promise by Fine Gael and Labour to force the renegotiation of all commercial rents if they are elected.

FC Reit Asset Management and Area Property Partners had offered €350 million for the centre but have now pulled out of the deal because of the decision by the two parties to review all leases this year, irrespective of the lease terms, according to the London weekly property magazine, Property Week.

Commercial property prices have dropped by more than 60 per cent over the past three years and the plan to force the renegotiation of all leases is expected to further undermine the market. Of particular concern to landlords and investors is the intention effectively to scrap all existing leases and ban upwards only reviews.

The two funds have been in detailed negotiation for more than 12 months with the owners of the shopping complex, Grosvenor Estates, controlled by the Duke of Westminster, and Aviva. A sale had been expected within weeks.

The owners first offered the shopping centre and an adjoining site of more than 17 acres for sale in July 2008 when they invited offers of between €300 million and €400 million for a 50 per cent stake. Commercial property values have plummeted since then, most recently because of a fall-off in rents.

Liffey Valley is producing a rent roll of €30 million from 46,400sq m of retail and leisure space. Last October, An Bord Pleanála refused permission for a major extension to the centre including a large food store for Tesco.

Property Week said the uncertainty caused by the election pledges from Fine Gael and Labour meant banks that had agreed to fund the deal had been unwilling to approve a loan because of the possibility of the value of prime property suddenly dropping in the next few years.

Sources close to the transaction told Property Week the promised legislation could have a knock-on effect for property markets in countries with struggling economies such as Greece, Spain, Portugal and even the UK.

A representative of the vendors said: “Aviva Investors and its partner Grosvenor have withdrawn Liffey Valley shopping centre, Dublin, from the market, having failed to reach an agreement on acceptable terms with potential purchasers. The centre will be retained, with Aviva Investors continuing to perform the role of asset manager.” – (Additional reporting: Copyright The Financial Times Limited 2011)