Having sat dormant for 18 years, a battle has broken out in recent weeks for a stake in the City Arts Centre on Dublin’s City Quay, which was put on the market in April by agent Savills on the behalf of receiver Ken Tyrell of PWC.

Eight serious bids were made for the property, which opened in 1989 and was once a thriving multi-purpose arts centre – it even had a fully equipped rehearsal space for unsigned bands in the basement paid for by U2. But for the last two decades, the building has been derelict, covered in graffiti and damaged by a fire that broke out inside the building in 2011.

It was all a long way from its origins when a community arts group called Grapevine bought the three-storey former shipping terminus on Moss Street for £250,000 in 1988.

There had been great hopes for it when the centre was opened by the then Taoiseach Charles Haughey. Lord Henry Mountcharles, Peter Sheridan and Paul McGuinness all sat on its board at one stage or another and for its first decade at least the venue was a success. 

But by 2000 it was facing difficulties. Artists were complaining that the building was run-down. Internally, questions were being asked about its finances. Some staff were threatening to strike, and there was more competition from rival artistic spaces. 

Meanwhile, the value of property around the City Arts Centre was now rocketing especially after Ulster Bank opened its striking pyramid-like headquarters nearby. 

Declan McGonagle, a former director of the Irish Museum of Modern Art, was appointed by its board in October 2001 to conduct a review to try and determine what should happen next.

“It’s like a completely fresh start and that is very energising and very exciting from my point of view,” McGonagle said on his appointment.

The centre’s building went into somewhat hibernation while this review took place. Twenty-one of its staff were laid off. Then in June 2003, the board of City Arts Centre decided to sell its building and move elsewhere.

The building was sold for €4.2 million in 2003 to a Celtic Tiger era consortium that included Paddy Kelly, the McCormack family, Philip Monaghan and Pat Ryan. But then the crash came, and the building was never developed. It became instead a lingering eyesore overlooking the Liffey.

Colony Capital became involved when it acquired debts associated with Kelly as part of a larger portfolio from Nama. Colony thought about redeveloping it, but due to its own internal issues, it later decided to sell its Irish interests which included the City Arts Centre.

In August 2020, Monaghan and Ryan sought a High Court injunction preventing Colony from taking control of the building by appointing PWC as a receiver. This delayed the sale, and it was only after this matter was resolved that Colony’s receiver was free to place it on the market in April of this year.

It was at that stage that the next dramatic act in its history unfurled.

*****

When Savills put the City Arts Centre on the market it guided a price of €35 million. Most of the major developers in Dublin submitted a bid including Ronan Group Real Estate, Marlet Property Group and Simon Kelly’s RQTwo.

Also eyeing a bid was KC Capital, a company founded by 30-year-old developer David Kennan.

KC Capital is working on just one significant development, albeit a good one, called the Greenside Building on Cuffe Street in Dublin 2. 

It hadn’t been the easiest project, as a high-end boxing club, run by Karl Bennett, a former Irish national kickboxing champion, part occupied the building using its top two floors

KC Capital had bought the building in 2019, but Bennett had signed a 20-year lease with the former owners of the building in 2014. Both sides had tried to do a deal but had been unable to agree on terms for various reasons.

KC Capital eventually issued a forfeiture notice citing fire safety, service charges and planning issues. While the boxing gym was in good condition, other parts of the building required renovation. A narrow staircase and small elevator were the only way to get around the building leading to fire safety officers expressing serious concerns.

To address these concerns would cost millions, which neither side was prepared to fund.

Bennett went to the High Court in November 2019 seeking an injunction preventing his gym from being asked to exit. It is not clear how the matter resolved itself exactly, but the end result was clear, KC Capital took over the building and began to redevelop it as a grade A office space, significantly increasing its value.

It is in a prime location too, just a short walk from St Stephen’s Green and not far from the Royal College of Surgeons Ireland. Renamed the Greenside Building, the project is due to be completed in the first quarter of 2022. It has been described as “pandemic proofed” due to its high-end air filtration system and antibacterial protection and it has a striking design. 

With Greenside on-site and progressing, when the City Arts Centre came up, Kennan was interested. He was reported early on to have teamed up with Derek McGrath’s Core Capital to submit a bid.

McGrath has been for years a low-profile force in Dublin, and he is a very experienced property investor. He has been involved in dozens of deals with various partners including the McKillen family, the Brennan family and others.

He has also worked with institutional investors like Europa Capital, and Core is part of the consortium working with this fund on developing a new Clerys Quarter on O’Connell Street. All told, Core is working on projects worth €1 billion with many different partners.

Its managing director McGrath was friendly with the younger Kennan, and the two would discuss business together. But they’d never teamed up before.

KC Capital and Core submitted a joint bid of €40.54 million. There was a cluster of bids around the €40 million mark, but when the bids were unsealed, they were highest.

A company had been formed specially to make the bid, and the challenge now was to raise the debt and equity required to close the deal within a four-week exclusivity period. This tight time frame is an important factor in what happened next.

Bids and disagreements

KC Capital approached a number of parties to try and fund the deal, and it discussed what to do with Core.

Angelo Gordon, a multi-billion London fund founded by two ex-Rothschild executives, took a serious look at getting involved, but in the end, it didn’t.

Kennan also approached Barry English, a successful businessman who made his fortune as the founder of engineering firm Winthrop.

English was friendly with McGrath too, and he had originally met Kennan with him sometime earlier at a social event. All three men were now talking about what to do, against an ever-shortening deadline. 

About €14 million in equity was required to do the deal from overseas institutional lenders interested in funding the debt side of the deal.

English said he would put up €7 million in equity, but said the other half needed to come from either Core or KC Capital, or both. Understandably he didn’t want to be the sole investor. McGrath did not find the terms on offer acceptable, but Kennan was prepared to go for it.

It is from here that disagreements began to arise. Kennan knew he had created significant value in Cuffe Street, and he had another interest that also had equity in it.

His loan-to-value ratios were good, so he asked his bankers, an alternative lender, if he could leverage up by borrowing money from someone else against the equity he had created.

His lender agreed and expressed interest in providing development finance to the City Arts Centre building, a significant attraction. 

Kennan then asked English if he would lend him the €7 million in equity required to close the sale, in return for giving him a second charge on his property assets including Greenside.

English agreed, and now the money was there to close the sale just days before the preferred bidder status of the company set up to buy the centre would have lapsed, sending it back to the market.

However, McGrath wasn’t happy. He believed his reputation and experience had been important in securing preferred bidder status.

He maintained this should be recognised, and that he should get a stake in the deal or an option to buy into the deal at a later stage for a nominal sum to reflect this.

Things began to heat up. There were various messages flying back and forth between Core and KC Capital, but an agreement wasn’t reached.

In the third week of July, a company called Tracare, which is part of the Marlet Group, wrote to PWC submitting a new bid for the City Arts Centre. It said that the winner in the previous process should not be allowed to close as it alleged it was now a different group as English was involved, and Core was not. 

Tracare said it had now teamed up with Core to make a revised bid, and it said that PWC should accept this offer instead. It followed up this approach with a letter from Arthur Cox setting out its legal position. This offer was considered by PWC, but ultimately it decided to allow the sale to continue.  

Ultimately, the rights and wrongs of what occurred may be heading to court or perhaps a deal will be reached to satisfy all parties.

On July 30, 2021, Arthur Cox wrote to KC Capital and English on Core’s behalf.

This letter set out what happened as McGrath saw it and included what it claimed were supporting Whatsapp messages and correspondence.

Core said it believed it had an entitlement to a 20 per cent option in the joint venture vehicle acquiring the property. It alleged that it only agreed to what had occurred in return for this option. 

Maples Group, on behalf of KC Capital, wrote back denying any such option or deal existed.

It went through the correspondence sent by Arthur Cox and explained why its client disagreed with Core.

Maples said its client’s position was that Core had not procured the required funding to close the deal, but that KC Capital and English had – and therefore the deal had proceeded without it.

Legal letters were now flying back and forth. Last week, KC Capital and English pushed on with closing the purchase of the City Arts Centre from PWC, securing the building.

It is already working on plans to redevelop the building which under the Local Area Plan can become a building of between six and nine storeys high.

A feasibility study by RKD Architects has concluded the site could host a 145,000 square feet office block subject to planning. But it has the potential too for other uses, in an area that is undergoing further regeneration. 

Core however is not backing down. On Friday, August 13, Arthur Cox wrote again stating that its client was entitled to a 20 per cent shareholding in the joint venture vehicle which was to acquire the property.

Ultimately, the rights and wrongs of what occurred may be heading to court or perhaps a deal will be reached to satisfy all parties. What is for certain is that after 18 years derelict, the future of the City Arts Centre finds itself again centre stage.