Wednesday, June 6, 2012

How the State got screwed on Dublin Docks

It beggars belief that the State owned the entire controversial Irish Glass Bottle site at Poolbeg, through Dublin Port Company, in 2005. But the following year, after the freehold title was acquired by a subsidiary of the tenant under a loophole in the provisions of the Landlord and Tenant (Ground Rents) No 2 Act 1978, the site was offered for sale by public tender with the State having a 33.3% share of the sale proceeds, not the more typical 50:50 share that had been the custom in instances where long-term commercial leases were being disposed of in a similar context.

The site was sold to a consortium that included Dublin Docklands Development Authority (DDDA) as a 26% shareholder, developers Bernard McNamara and Derek Quinlan in late 2006 for a consideration of €411 million. The State stood to recoup one-third of this (€140 million) but ought to have recouped a further €65.5 million had the customary landlord/tenant 50:50 split applied.

DDDA sought the permission of its supervising minister, Dick Roche to enter the joint venture and to increase its borrowing capacity to €127 million, the maximum allowable under governing legislation; permission to enter a joint venture and indicated on 12 October 2006 that the cost of the proposed transaction in respect of which the loan powers were sought would be €220 million.

Mary Moylan, an Assistant Secretary from the Environment Department, with line responsibility for DDDA, was an Executive Board member who participated in 12 of the 15 board meetings that took place in 2006. Ministerial approval was received on 24 October 2006. Ten days later, on 3 November, the Executive Board of DDDA agreed a tender bid of €411 million but Moylan’s Minister and Secretary-General was not informed of the massive and fundamental change in the terms of engagement.

The assessment of the site value was left to Bernard McNamara, in recognition ‘of his expertise and experience and if he had some additional information which convinced him that the bid should be increased then the Executive Board of DDDA agreed that McNamara could be allowed to increase the bid as he saw fit to a maximum of €437 million’.

A professional valuation of the site was not obtained in advance of determining this bid although one was obtained the day after the decision to submit with an application for loan finance to Anglo Irish Bank, two of whose directors, Lar Bradshaw and Seán FitzPatrick, were members of the 8-person Executive Board of DDDA, Bradshaw was chair of the Executive Board and FitzPatrick was his predecessor in that role.

The stated objectives for the involvement of DDDA in this joint venture was to (1) ensure that the site would be developed imminently (2) expedite the planning process (3) advance its social amenity and less commercially desirable agenda and (4) input to the architectural design and tone of the development.

DDDA operated on the basis of creating a Master Plan for parcels of the 500+ hectares within its jurisdiction. The 2003 iteration of this for the Poolbeg Peninsula had not been completed when this deal was executed in 2006 but they had broad stroke ambitions to have facilities in place for research and development and industrial and commercial usage. The promoters of the joint venture envisaged a return of 15% on their investment. A substantial portion of this would have comprised 1-bedroom apartments overlooking an incinerator and selling for prices up to €1 million each. But no detailed analysis was carried out by the Executive Board or management of DDDA for a proposition that was supposed to have a ceiling of €35 million for DDDA.

The negotiation of funding for this splurge took place with Anglo Irish Bank and Bank of Ireland. Bradshaw and FitzPatrick were both directors of each organisation while another member of the esteemed executive Board, Declan McCourt was a director of Bank of Ireland, as well as being a director of the vehicle importer and distributor, OHM Group. While these three absented themselves from the actual discussion of the funding issue at the board meetings it was Bradshaw who signed the loan guarantees with Anglo Irish Bank.

By 2010 DDDA had a potential exposure of €81.9 million but after a settlement was reached with NAMA, which acquired the lending banks’ loan assets, its actual exposure was €52.1 million.

Some €36.3 million was allocated to site remediation. The value of this 10 hectare site, on which €431 million was spent before taking account of remediation costs, was put at €45 million at the end of 2010.

There has been never been evidence that the scale of this splurge was ever made known to the Minister for the Environment, Community and Local Government and in May 2012 the current Minister, Phil Hogan, announced the shuttering of DDDA. Moylan remains an Assistant Secretary in charge of finance and central services. The five other member of the Executive Board in 2006 were Angela Cavendish from Raglan Road Ballsbridge, a director of Alexsam Limited, Donall Curtin a director of Byrne, Curtin Kelly an accountancy practice, Niamh O’Sullivan from Ranelagh, a director of Arup Consulting Engineers and Joan O’Connor formerly a director of Interactive Project Managers Limited.

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