Property Investor

Some syndicates which dabbled in property speculation during the boom are now in a financial bind with no obvious way out, writes JACK FAGAN

IT WAS not supposed to end like this: with groups of business syndicates wondering why they ever got involved in apartment sites.

As the collapse in the property market wreaks havoc on the value of the same pieces of land, there are any number of groups at their wits end trying to get out of what is now a serious financial dilemma.

There is no easy answer to the problem. Many of the syndicates outbid long-established builders for the sites at the peak of the property market in 2004 to 2006 in the firm expectation that they would make a killing on new apartments. As we now know, the residential sector flopped almost overnight and most sites are now down in value by 40 to 60 per cent.

It is inevitable that whenever a business collapse of this magnitude happens, it is swiftly followed by recriminations and finger pointing. With no earthly sign of a recovery on the horizon, the arguments are already building up behind the scenes about who was responsible and how they should get out of the fix.

Many of the syndicates had planned to use profits from the apartment sales to supplement their pensions but, like many other workers in the private sector, the issue of final pensions is now in the lap of the gods.

For a start, syndicates that provided a proportion of the purchase price for sites have in most cases lost their money and, with the banks right up in the firing line for facilitating huge volumes of toxic debts, they will be in no mood to write off borrowings to any group of entrepreneurial young businessmen. They can hardly be expected to treat this new generation of “developers” any differently from long standing customers such as house builders.

Donal Kelleher of Savills is advising syndicates that, if there is no reasonable prospect in the medium term (five to seven years) of recovering a large proportion of the original costs, they “should face the music and attempt to sell-on the sites at the first signs of a lift in the market”.

There were good and bad spots in Dublin city and some of the suburbs but, where sites were bought in places like Mullingar, Navan, Drogheda and Dundalk, “it will be difficult to recover the lost value”, he said.

The problems facing the troubled syndicates are no different to those of many developers who borrowed heavily during the boom to buy expensive sites. Two examples that immediately come to mind are the €325 million paid for the 200-acre Millennium Park in Naas and the €412 million purchase of the 25-acre Irish Glass Bottle facility in Ringsend. Though both were bought in 2006, they are unlikely to be redeveloped for years. And there are others, indeed a great many more now worth about half what was paid for them.

All sectors of the property market have taken a serious hit in the downturn but none more so than development sites which have plummeted in value and are still largely unsaleable because of the absence of debt financing.

A number of the small properties, like car sales depots in the greater Dublin area, are due to go for sale in the coming weeks but, with the banks not yet daring to write down the value of many of the larger tracts of land they foolishly financed, there is little likelihood of an early rush of sites to come on to the market.

Some of the devalued land may well be allowed to sit for years as the banks continue to pressurise the original purchasers into paying off their debts. In other cases, the banks will either look for alternative buyers at reduced values or embark on a joint venture development with builders who have a track record for delivering the finished product.

Most of the sites in trouble have different characteristics and therefore a common approach to resolving the problems will not necessarily work. In some cases even the bankers are reluctant to acknowledge the huge fall in values because it suggests poor judgement. Various estate agents are being commissioned to carry out valuations on the same sites so that the bankers can eventually settle on a figure that is acceptable. Oh, what a game.