Investors make £14m-plus profit as State pays £23.5m for offices

A group of private investors has made a profit of over £14 million on a Ballsbridge office block they bought just over three years ago. The syndicate has completed contracts to sell Lansdowne House, beside Jury's Hotel at Lansdowne Road, Dublin 4, to the State for £23.5 million, representing a handsome profit on the £9 million they paid for it in 1996. The decision by the Office of Public Works to acquire the 70,000 sq ft block is in line with Government policy to buy in buildings occupied by public servants on long leases.

The strategy was adopted in the light of the much improved state of the public finances. However, the price agreed for the 32-year-old Lansdowne House is virtually the same as the Government paid for the Guinness mansion, Farmleigh, in the Phoenix Park.

Although there may be some disquiet at the profit margin achieved by the owners of Lansdowne House, investment experts contend that the purchase makes good economic sense for the Government. The current rent averages out at £11 per sq ft and £800 for each of the 140 car-parking spaces.

With a rent review due in 2003, the OPW was facing the prospect of paying at least £25 per sq ft in a market where city rents have virtually doubled over the past year. The location of the block in one of Dublin's prime office areas would also have been an important factor in determining the new rent level.

Lansdowne House was owned by 10 investors - some of them professionals and others using old money - whose shareholding ranged from 5 to 25 per cent. The decision to sell the block to the State was obviously influenced not only by the strong price offered but also the fact that they can now avail of the 20 per cent capital gains tax rather than the old more punitive 40 per cent rate. The investors initially earned a return of 8 per cent on Lansdowne House, according to Bill Nowlan who advised the group. It "washed its own face at the start in terms of cash flow" but in the three years since then, interest rates have halved, rental values have doubled, and capital values have doubled or trebled.

Mr Nowlan says the increased value of the building reflects what has happened right across the board in both the commercial and residential markets.

Most of the investors were originally introduced by Tilman Asset Management. The group was represented by Mr Nolan and solicitors Whitney Moore & Keller.

Lansdowne House is currently producing a rent of £850,000 per annum with about £770,000 of it coming from the OPW, which is renting the eight upper floors.

The balance of £80,000 comes from AIB, which operates a bank branch on the ground floor.

The outlet is apparently due to be relocated to the bank centre and the accommodation used as offices.

The OPW took a 65-year lease of the building in 1968, with a break option in 2009. The block was built on a speculative basis and was first let at £1.50 per sq ft and £25 for car-parking spaces. Hardwicke held 66 per cent of the equity in the building and Irish Life owned the remaining stake until it was sold in 1996.