The Elysian Tower in Cork in many ways symbolises the rise and fall of the Celtic Tiger and now, potentially, the developers behind the landmark project.
The plush apartment block certainly made a statement. It was the tallest building in the country and unfortunately for O’Flynn Construction, it came to the market just as Ireland’s decade-long credit wheeze was about to come to an unedifying end.
However, the company’s main shareholders, Michael and John O’Flynn, defied all expectations. Most high-profile property developers of that gilded era were quickly toppled by the State’s bad bank, Nama. Bernard McNamara and Sean Dunne among others went to foreign jurisdictions to go through the bankruptcy process.
Not the O’Flynn Construction group however. The company went into Nama and became one of its biggest co-operating debtors.
Its €1.8bn in debts is testament to how big the Cork-based company grew over the past 15 years. When Nama sold its loans to Blackstone in May, the UK property website, CoStar Finance gave a breakdown of the underlying assets. These included:
- A €266m UK-led student accommodation portfolio, comprising 11 assets in the UK and one each in Germany and Spain. The loans mature in March 2018;
- Another €540m sub and performing pool secured by 23 UK investment properties, five UK development schemes and six German investment properties. The majority of the loans mature in March 2018, while a smaller pool of underwater UK-secured loans mature between March 2014 and March 2016;
- Another €1.02bn portfolio of 21 investment properties, 67 residential and commercial developments and 27 land banks throughout Ireland. Included in this is the Elysian Tower, a shopping centre in Ballincollig and commercial and residential developments in Mallow and Crosshaven.
Blackstone is one of the biggest private equity companies in the world and knows a good opportunity when its sees one. It acquired the €1.8bn of O’Flynn Construction Group loans for just over €1bn. However, O’Flynn Construction still owed the par value of these loans.
Ireland is a growing economy and both residential and commercial property prices have risen significantly over the past year. Blackstone has the capital to develop the assets against which the O’Flynn loans are held as security.
As a company it obviously feels it can get a much better return if it takes control of these assets directly.
When Nama sold the O’Flynn loans to Blackstone, Michael O’Flynn welcomed the move. He believed Blackstone would “assist us in responding to the opportunities we see in our markets in Ireland, the UK and Europe.
“In the Irish market in particular, there is a need for strong players in the property sector to address acute supply issues.”
It depends on the outcome of the examinership what will happen from here. Blackstone appear intent on getting control of the O’Flynn brothers’ shareholding of the group and have called in their “substantial” personal debts. It told the court it has no intention to appointing receivers to the wider group.
Acknowledging liquidity problems, the US company said it believed the construction firm had a future although this would require new investment and a debt restructuring.
Michael O’Flynn has issued a statement saying that both his business and personal loans are performing and this move is unwarranted. He is consulting his legal team.
The court will decide what role, if any, the O’Flynn brothers play in the future of the company they founded. It would be a cruel twist of fate indeed if the O’Flynns were to lose control of their company now. Nama is accelerating its wind down to take advantage of relatively buoyant property conditions.
And developers such as Bernard McNamara, who have come through the bankruptcy process, are now free to take advantage of new development opportunities.
But expect a number of bruising legal encounters before any resolution is reached.
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