Noel Ahern: liked 'marriage value' of sites

The state's experience with property disposals in recent years could best be described as mixed. After then finance minister Charlie McCreevy announced his ill-conceived decentralisation plans, the Office of Public Works was instructed to sell surplus properties in Dublin to help fund the anticipated €900m cost of moving 10,300 staff outside the capital city.

Initially the programme proved a huge success, and the OPW raised €387.5m from the sale of properties in Dublin, including the sale of the former Veterinary College in Ballsbridge to Ray Grehan for €171.5m and the sale of the adjoining faculty building to developers David Courtney and Jerry O'Reilly for €35.9m, both of which at the time set record prices per acre for land in Ireland. The prices were pushed up in part because the buyers did not have to pay stamp duty as the vendor was the OPW, but the results were still hugely impressive. In addition, an additional €75m worth of property was transferred to the Affordable Homes Partnership to provide homes for the middle classes who could not buy elsewhere.

However, the OPW wasn't satisfied with this and got greedy. It decided it wanted to benefit from the "upside" in value that the development of these sites was meant to create. The problem was that the OPW was not allowed take construction risks and so it worked with the Department of Finance to come up with a mechanism that allowed it enter joint venture agreements with the owners of directly adjoining properties which would allow joint developments of the sites. The advice of the Attorney General was also sought.

In September 2007, it announced details of the plan, with the first three joint ventures being a redevelopment of Hawkins House and adjoining properties in Dublin city centre with Shelbourne Developments, the redevelopment of an office block on Hatch Street and adjoining houses with Clancourt and buildings on O'Connell Street being leased to Joe O'Reilly's Chartered Land to facilitate its Dublin Central retail scheme plan.

"Such developments would unlock marriage value and thereby yield a higher return than both portions being redeveloped on their own. In order to manage its risk on each transaction, the OPW has decided to put its sites into the deals by way of a long lease, share in planning, rental and void period liabilities but not construction risk," OPW minister Noel Ahern said at the time. Under the deals, the OPW is to get a percentage of the income stream from the entire ''married'' site. It would also be able to pull out of the contracts on certain specified dates if planning had not been obtained, work has not started or problems emerged.

It later said these schemes could generate up to €125m for the exchequer and that it was also in talks with the owners of sites in Cork, Limerick and another site in Dublin on possible joint ventures.

Unfortunately for Ahern, and the state, the market crashed soon afterwards and the state is now involved in sites that if sold today are worth at least 50% less than they were at the time.

Since the plan was announced, Shelbourne has bought up some adjoining properties to facilitate a wholesale redevelopment of the area, Joe O'Reilly has been told to redesign his Dublin Central scheme by An Bord Pleanála and a nine-storey office scheme approved by the local authority for Hatch Street but is subject to an appeal by An Taisce.

Like Nama, it will take many years before we know whether the decision to use joint ventures rather than continue the disposal programme that had proven so successful will cost the state dear.

The whole decentralisation programme will also come under scrutinty, particularly given the downturn in the office market could have set the state up with modern office buildings at rents significantly below what it is currently paying. As one office expert put it: "they could name their own terms at the moment."