**Sean Dunne in Ballsbridge **
SEAN DUNNE may not be the most exposed Irish property developer to the ongoing Irish property crash but because of his high profile acquisition of 10 acres in the middle of Ballsbridge the key parts of which are the old Jurys and Berkeley Court hotel sites he is among the best known. He is likely to become more so with the upcommg Bord Pleanala oral hearing into his planning application on the key seven-acre hotels site, incorporating seven high rise buildings and a 37-storey skyscraper.
The Dunner has been staying out of the country in recent times, perhaps to find distraction there from the €800m financial crisis which is brewing and which, in the current credit crunch, could even prove his undoing.
There is little doubt that Dunne - the 54-year-old Tullow, Co Carlow, quantity surveyor - made a fortune over the last 15 years, with his first real big play being 70 acres of development land out in Bray bought for a then record price of €14m right after the last property set back in 1989. This worked out at what is in today’s terms a tiny €20,000 per housing site, with Dunne breaking this land up into a number of different housing estates on which he managed to turn a handsome profit.
His next big coup was linking up with Davy’s private client vehicle, Mulroy Securities, and Paul Coulson to buy the big St Helen’s estate on Stillorgan Road, where a Radisson Hotel is now based. It was, however, in Celbridge, where he built over 400 houses, that Dunne’s Mountbrook Homes operation really turned in some serious profits. His subsequent hefty €10m acquisition of Hollybrook house on Brighton Road in Foxrock in 1999 was not such a money spinner but Dunne still turned a pretty penny on this 42-apartment development.
It is however very difficult to get any real visibility on just how well Sean Dunne has done as he controls a maze of private companies which only return very limited information and schemes often only get a public airing when something goes wrong and a row ends up in the courts, as happened with the Whitewater Shopping Centre in Newbridge, Co Kildare. Dunne had a serious falling out here with Kevin Warren’s private equity operation over an agreement for the latter to buyout Dunne’s 50% stake. Goldhawk understands that Dunne walked away with a profit here of not far short of €50m!
Whatever about both the size and success of some of these deals, the audacious property play Sean Dunne took on back in 2005 was out of all proportion to anything he had previously attempted. At the time, the late PV Doyle’s three daughters, Bernie, Anne and Eileen, put the crucial 4.8 acre Jurys Ballsbridge hotel site up for sale by tender and Dunne offered an incredible €260m cash in July 2005. Incredibly, this figure was provided to Dunne by his wife, Gayle Killilea, thus began the three-year adventure which has left the once super-rich Dunner in a most precarious position today.
At the time, this price was unprecedented, representing as it did €54m per acre. Having got Sean Dunne to tender €260m for the Jurys hotel, the sisters turned to the Berkeley Court hotel which was only earning a €1.2m operating profit and sitting on an adjoining circa 2.2 acre site that Dunne coveted, partly for the increased Lansdowne Road frontage as well as opening the combined site onto Shelboume Road. This allowed for a much more intensive development from a traffic/access point of view and opened up the possibility of getting away with a Manhattan-like 37 storey skyscraper in the middle of the enlarged site. For this, it turned out, the Dunner was willing to bid €119m to push the price paid per acre up to €55m.
Not too surprisingly, the whopping €379m bid was received with open arms, although at the time Goldhawk noted that “as it is almost certain the property market will turn against him by the time he starts building out his Ballsbridge land bank in 2010 or later … Dunne may well find himself locked in to an impossible situation as virtually all developers like him did back in the big UK property crash in 1989”.
To ensure his place in history as the Donald Trump of Dublin, Dunne then lashed out a further €200m to buy a two acre site on Merrion Road in Bank Centre, which AIB had put up for sale. The Dunner then did a deal with Irish Life to buy Hume House for circa €120m in a complicated deal whereby he bartered a new 150,000 square foot office block down on the Docks as part of the package.
This brought Sean Dunne’s total Ballsbridge outlay for his 10 acre footprint to a mind boggling €700m. It is not clear how all of this is financed but what is known is that Ulster Bank is in for a big chunk of it having registered its charges against Dunne’s key DCD Builders company for an attention-grabbing €556m. The subsidiary used to purchase the Jurys Doyle properties was Padholme Ltd, although in the case of the €200m AIB deal, the official announcement from the bank - as required by the Irish Stock Exchange - named Dunne personally as the purchaser.
As the Irish property crash unfolds with greater intensity, the Irish banks have been racking up their bad debt provisions and their interest rates charged on borrowings. AIB last week announced that a fifth of its loan book to Irish residential developers (over €2bn) was now “on watch” while Bank of Scotland (Ireland) chief executive, Mark Duffy, said that the market was going to see more “pain” among property developers as the year progressed.
In such circumstances, it really doesn’t matter now what planning permission the Dunner gets for his key seven acre Jurys/Berkeley Court hotels site, even if it includes the two skyscraper blocks the council turned down, for no one could possibly build out this scheme in the current climate, even if they could get a bank to fund construction. Even Ulster Bank, a subsidiary of the fifth biggest bank in the world, RBS - which recently had to bolster its balance sheet with a €15bn rights issue - is unlikely to consider financing a €500m building programme on top of its existing €556m mortgage to the Dunner’s DCD company. That would represent a total outlay of well over €1bn plus the current rolling €33m pa interest charge on existing borrowings. These have now been rolling for three years and have pushed the Dunner’s total Ballsbridge outlay to a scary €860m.
Whether the Dunner can come out of this in one piece must now be a very real question. Most estate agents will admit that on both the housing and commercial property front prices have come back in the order of 15% over the last 18 months but the underlying reality is that the real fall is more in the order of 25% - a figure which has not been realised only because so many sellers still refuse to really cut back their asking price to what might be a real current trading level.
More significantly, value of land prices falls faster than those for actually built property prices for very obvious reasons. A good rule of thumb is that relevant land values fall at about twice the rate of finished property values. On the basis of the current real underlying 25% fall in current Irish property values, this would mean that the ten acres in Ballsbridge on which Sean Dunne has outlaid €860m are now only worth around half this, resulting in a potential €400m-plus write-off for the Dunner.
There is some good news for Dunne in the fact that his DCD Builders is a limited company. Although various unlimited entities are in place, it looks like the buck stops with DCD. Many other worried Irish property developers with huge exposure have been operating on a unlimited only basis for the last few years. However, there is the small matter of personal guarantees.
Most of the Dunne companies are co-guaranteed or mortgaged into the key €556m Ulster Bank loan and, of course, there may be other loans with private companies where it is not possible to get visibility. Sean Dunne himself has limited his personal guaranteed exposure to €4m of this according to a note in the DCD accounts. But, on top of this he has guaranteed the hefty ongoing interest charge. In the first six months of 2006 alone, the “interest payable” by DCD was put at €18.8m although it is not clear if the interest rate is rolling up on the huge loans associated with the Ballsbridge sites. If it is, this would represent a personal guarantee to date for the Dunner of an accumulated €75m!
The really big problem for the Ulster Bank is that if it moves against him it will seriously damage confidence in the whole market. Not only might it have to take a huge write-off on the Dunner’s loans but any foreclosure would run like a virus through its whole loan book, which could be devastated by circa 50% write-downs in mortgaged property values. On top of this, the whole Irish banking business would be caught by the fall-out. Along with the €140bn Irish domestic mortgage mountain, this sector also covers a further €100bn exposure in the Irish commercial property and land development sector. A move against Dunne could well crystallise a €50bn property write-off requirement for the Irish banks which could threaten their very survivial.
Of course, this is something that neither the Government nor its agent, the Central Bank, could possibly contemplate. As it will be at least two years before there is any modest recovery in Irish property prices, the big question for Ulster Bank therefore will not be whether it brings the Dunner down over the known €566m exposure but whether it will “throw good money after bad” by lending the Dunner the €500m he will need to build out his ‘Knightsbridge’ dream in Ballsbridge.
One option could be to find another big developer to take control as AIB did with Owen O’Cailaghan at Liffey Valley. This will be an almost impossible call for Ulster Bank to make on its own but even if the Central Bank managed to get all the Irish banks to work together to fund the Dunner’s project, it is unlikely they would ever all agree to leave him in charge of building it out. The final result may well be a less controversial development, probably a long way from Dunne’s controversial vision which, at least, has the benefit of some coherence and integrity.
IN THE RING WITH SEAN DUNNE **
WHILE Sean Dunne ponders the fate of his plan to bring Knightsbridge to Ballsbridge, he has plenty of other issues on his plate. Most significant perhaps is the ongoing spat with the Dublin Docklands Development Authority (DDDA) and his old sparring partner, Liam Carroll. This row, which is heading for the High Court, involves accusations that DDDA has shown favouritism to developer Carroll and that a “covert” agreement between the two parties has added significantly to the value of the latter’s North Lotts site.
There is a battle royale going on down on the docks between the main developers in place there - Dunne, Carroll, and Treasury Holdings - with competition for big clients reaching fever pitch. Carroll has, however, stolen a lead and has already signed up Anglo Irish Bank and solicitors O’Donnell Sweeney, while Bank of Ireland and AIB Capital Markets are in exclusive discussions with him. It is easy to see why the Dunner has got the hump here and called in the legal eagles.
Happily for Sean Dunne’s expensive solicitors, Arthur Cox, he has quite a history of getting involved in scraps and has fallen out with many of his erstwhile partners. Recently, for example, there was the high profile row with Kevin Warren over the Whitewater shopping center in Kildare. But the Dunner’s first big venture - with the Davy’s boys and Paul Coulson in Booterstown - also ended in litigation. On that occasion Dunne walked away from the St Helens project with an estimated €4m payoff.
Others he has fallen out with include Noel Smyth, whose planning applications for a property in the K Club were objected to by an offshore Dunne company called Traviata Ltd (see The Phoenix, 23/4/04). This company also initiated High Court proceedings against the K Club (Bessilton Holdings) although these were subsequently settled.
One of Smyth’s own sparring partners - Tom McFeely - is another to have ended up requiring legal advice as a result of a run in with the Dunner. In this case the former IRA hunger striker turned millionaire property developer sold a property (No 3 Shrewsbury Road) to a company called Rivertree Development Company, the ownership of which was a closely guarded secret. However, as Goldhawk noted at the time (see The Phoenix, 26/1/07), it was understood to be a Sean Dunne operation. Documents filed in the Companies Registration Office last month reveal that the directors are indeed the Dunner’s right hand men, Peter Halpenny and Ross Connolly, who are also directors of DCD Builders and other Dunne ventures. Rivertree (which had also purchased No 1 Shrewsbury Road) sued McFeely in relation to the deal but there was a last minute settlement involving the payment of a sum to McFeely and his legal costs.
Shrewsbury Road was also the scene for a clash in 2000 with Dunne’s neighbour Niall ‘Blacktie’ O’Farrell, who purchased a site beside the College of Pharmacology to develop two properties. Dunne immediately objected to amendments sought and, unsurprisingly perhaps, the legal eagles were called in before a settlement was eventually reached.
Dunne is still involved in litigation with one Gina Farrell, a former cleaner who was the subject of rather lurid reporting in the Sindo last year, involving claims that Dunne had been the subject of a bizarre ‘honey trap’. Papers were lodged in the High Court in April this year.
Then there’s Dunne’s ongoing row with Dermot Desmond, which saw the developer pen a letter to the Aer Lingus board seeking to prevent
DD’s appointment as chairman. There are those who would make a strenuous effort to avoid a row with Dermot Desmond, but the Dunner is not one to shirk a fight and the Kaiser’s appeal against the Ballsbridge scheme (he has accused the Dunner, ironically perhaps, of trying to “maximise profit”) was like a red rag to a bull.
In the Ballsbridge site, of course, there have already been a couple of rows between Dunne and the operators of both the hotels and bar operations. First into the ring was John Brennan of the Kenmare Park Hotel, who ran the old Jurys and Berkeley Court hotels under the D4 Hotels brand. At the start of this year he had a falling out with the Dunner who, given his whopping interest bill in Ballsbridge, badly needs a serious return from his 600 beds. Charlie Chawke, to whom the bar operations were franchised out, has also failed to stay onside with the Dunner and the two boys now rowing over rent increases.
With the pressure only set to grow (along with the €33m pa interest bill) Dunne watchers will be keeping an eye on events at Ballsbridge, which is the front line for the hapless developer. Further rows are attracting short odds.