Letting and finance firms in sale and leaseback deal on apartments

InvestmentVehicles:A letting and a finance company have come together to offer a novel scheme for those seeking to dabble in property investment.

It promises guaranteed rental income, no occupancy voids and a leaseback deal that returns full control to the purchaser after 10 years. The scheme has been put together by specialist letters, StayCity.com, and financiers FinanceOne. The two have already agreed the purchase from Cosgrave of its Christchurch Hall apartment building in High Street, Dublin 8, and its 37 units, and is looking for another 63 units in the general Dublin 7/Dublin 8 area.

The scheme involves selling the apartments to individual investors, who lease the apartments to StayCity.com for a guaranteed nine-and-a-half years at attractive pre-agreed rentals. Investors can sell their apartments at any time during the investment term with StayCity.com, but its covenant remains in force for the duration of the lease deal.

StayCity.com is a Dublin-based international serviced apartment operator founded in 2003 by Tom Walsh, Gary Wickham and Gerald Walsh. It specialises in letting apartments to short and long stay guests. It operates over 200 rooms in Dublin, Amsterdam, Paris, Birmingham and Marbella, and plans to launch apartment availability this year in Dubai, Edinburgh and Florida. Its key market is the leisure and business traveller who doesn't want to rely on hotel accommodation.

FinanceOne, established in April 2006, provides residential and commercial mortgages and property investment opportunities in Ireland, the UK and the Continent. It has completed over €150 million in mortgage business and raised over €15 million in private equity on investment deals worth over €100 million, according to the company.

StayCity.com began canvassing developers and landlords to sell it apartment buildings and individual units in Dublin 7-8 where it believes the tourist industry is rapidly developing. These are then offered by the firm to individual investors. The Cosgrave purchase gives it 37 units with which to proceed.

"The actual sale price and the guaranteed annual yield will largely depend on how much the company spends on the purchase and fitting out of the block," according to the firm. The investment vehicle would "largely appeal to parents with young families who would not need the use of the apartments for at least 10 years", says Peter Browne of Davin Auctioneers and Chartered Surveyors, which is advising StayCity.com.

The offer comes amid what he described as a "slowdown in sales" of new units due to interest rate rises and uncertainty, says Browne. It represents an "ideal opportunity for a developer to sell a large tranche of apartments in a single transaction".

The Christchurch Hall purchase will provide six one-bed, 30 two-beds and a penthouse. StayCity.com undertakes to refurbish each at a cost of €20,000 per unit and offers the units to renters including new carpets, furniture, kitchens, bathrooms and sundry repairs. It claims there will be "no maintenance fees, tenant issues or voids" over the leaseback period and plans to invest €100,000 in common areas. Investors are promised a guaranteed annual indexation of 3 per cent on rent. Capital appreciation over the period is retained by the owner. The connection with FinanceOne allows for 100 per cent mortgages, subject to terms, and StayCity.com promises that investors in Christchurch Hall "will be offered priority investment opportunities on all future StayCity.com deals".

The company suggests a one-bed after €20,000 "enhancement" would cost €339,000 and deliver a rent of €1,000 per month, with indexed 3 per cent increases per year. A two-bed after "enhancement" would cost €442,000 and yield €1,200 per month. The €535,000 penthouse would return €1,400 per month, according to StayCity.com. Stamp duty applies at 6 per cent on one-beds and 7.5 per cent on two-beds.