Tuesday, May 20, 2008

Credit Crunch hits Dublin PPP developments?

Shock and horror in Dublin as Bernard McNamara, one of the country’s biggest builders/ developers, pulls out of 5 Public Private Partnership development projects in the city. Under the deals, McNamara was to redevelop existing corporation housing sites, creating a mix of public and private housing/retail.

McNamara’s stated reasons, for withdrawing from the PPP developments, related to the increased costs created by (a) new regulations concerning minimum apartment size imposed by the City Council and (b) significantly increased insulation standards for new builds, imposed by the Dept of Environment.

Clearly both will have a material impact on the construction cost/price of individual units.

However, McNamara made no reference to the credit crunch, which might be an equally important consideration in arriving at his decision if not, in fact, the main one.
McNamara has been a major property/development investor in recent years e.g. his massive site at Merrion Road, hotels etc..

You’d have to speculate that perhaps
(a) he’s borrowed heavily to fund those investments.
(b) he has a lot of unsold units, which he’d anticipated would be unloaded long ago.
(c ) Cashflow/credit availability are likely to be constricted in current market conditions.

So my guess is that Bernard McNamara has looked at his cash flow projections, his revised P&L projections for the PPP builds and his lines of credit and he’s decided to cut his cloth to suit his measure.
Something had to give and the PPPs were the obvious first candidates.

From a PR perspective, best to blame some external interference e.g. Govt/City regulations, than admit that his bank manager was getting cold feet. That might trigger concern among his suppliers and sub-contractors, putting even more pressure on cash flow.

But if the choice is between delaying construction or accepting Zoe Development-type shoeboxes, then my vote is for the former every time.

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