Back to square one

Once rated the best shopping mall in Europe, the Square was overtaken during the boom by newer, shinier rivals in Dundrum, Blanchardstown and Liffey Valley. Furlong bristles at the suggestion, but these other centres, with bigger units and higher rents, are better at attracting shoppers from outside their immediate catchment areas.

Attempts to close the gap have been thwarted by a civil war between some of the country’s biggest developers. Noel Smyth, the developer who controls the Square, says he plans to press ahead with a €250m scheme to extend it. But those ambitions have been mired in an extraordinary and unresolved row with two former partners and rival Liam Carroll.

The fate of the centre looks destined to be decided by the National Asset Management Agency (Nama).

SMYTH recently lost a €130m High Court case against his long-time rival Carroll and two other developers, Tom McFeely and Larry O’Mahony. He accused them of violating an agreement with him to redevelop the centre.

The Sunday Times has obtained a full copy of the reserved judgment, which was delivered by Justice Brian McGovern during the summer. It details a litany of double-dealing and deceit that has shackled the centre’s expansion plans.

In 2003, Smyth struck a deal with the other landlords who are shareholders in the Square for him to extend the centre. Most of the development was to have taken place on a nearby car park. To do this, Smyth would have to acquire and extinguish any licences held over the car park.

One licence was held by Lowe Taverns (Tallaght), a company bought by O’Mahony and McFeely, a former IRA hunger striker, from the auctioneer Sean Davin in 2005 for €55m. Lowe also owned the nearby Tuansgate development, but the licence for the car park was valued at an incredible €30m.

McFeely and O’Mahony, through their company Aifca, had effectively bought a ransom strip against the Square’s future development. Smyth agreed to give them half the new development in return for Lowe, although the deal was never closed.

McFeely and O’Mahony bought Lowe Taverns with 100% finance from Bank of Scotland (Ireland) (BoSI). In 2006 they were struggling to repay it. The bank threatened to put in a receiver, so Smyth negotiated an extension for them.

According to the judgment, Smyth also secretly tried to buy out Aifca’s loan from Mark Duffy, BoSI’s chief executive, although he failed to mention this in his original affidavit to the court.

As their new repayment date approached, McFeely and O’Mahony were running out of options. To stay afloat, they did a secret deal with Carroll, who owned the nearby Glashaus development and who had ousted Smyth from a company called Dunloe Ewart in a bitter battle years before.

Carroll paid off their loans to BoSI and took just over 50% of Aifca, giving him effective control of the Lowe ransom strip.

In the meantime, Smyth paid €52m for the nearby UCI cinema complex, owned by the brothers Colum and Ciaran Butler, which also had a licence for the car park.

When asked in court if he had received consent from McFeely and O’Mahony’ to do this, he replied that “consent mightn’t be the correct word”. Smyth had looked for a contribution from his two partners, but they refused, believing the price to be “outrageous”. The underbidder on UCI was Liam Carroll.

In the months leading up to their secret deal with Carroll, McFeely and O’Mahony struck a revised deal with Smyth, facilitated by the former BoSI chairman Phil Flynn, which gave each party buyout rights over the other.

But even after they signed the secret Carroll deal, McFeely and O’Mahony continued to tell Smyth that they would stick to the Phil Flynn deal. According to the judge, “they were trying to have it every way”.

South Dublin county council had to change its local development plan to allow Smyth’s Square expansion to go ahead. The council, however, did not want McFeely and O’Mahony involved and stipulated that Smyth must go it alone. Smyth failed to tell the council that he had already struck a deal with the men.

According to the judge, Smyth tried to sideline the council’s lawyer, Eoghan Clear, when he objected to McFeely and O’Mahony’s involvement.

What he didn’t know was that Carroll was lurking in the background.

Smyth had arranged funding with Anglo Irish Bank, which also objected to McFeely and O’Mahony. It is believed that McFeely had had a previous falling out with an Anglo official.

The council demanded to see a copy of the loan approval, which included a side letter blacklisting McFeely and O’Mahony. Smyth showed the council the approval, but deliberately withheld the side letter. He was buying himself more time.

In April 2007, McFeely and O’Mahony confessed that they had no intention of honouring the Phil Flynn agreement. Smyth apparently became “upset” and the foundations were laid for their legal battle.

Smyth still only found out about Carroll’s involvement in the lead-up to the case.

Smyth sued McFeely and O’Mahony for damages for allegedly breaching their original agreement in a case that took more than 60 days in the High Court. He also sued Carroll for allegedly inducing them to breach it. Smyth lost, but is now appealing to the Supreme Court.

In the meantime, the loan that Carroll used to take control of Lowe has gone to Nama. Tuansgate is only worth a fraction of the outstanding loan, so Nama now effectively controls the Lowe licence, and with it, the Square’s future.

SO WHAT are the prospects for what was once Ireland’s premier shopping centre? With the economy in the lurch and the banks broke, any redevelopment will have to take place over several years, with finance only released as stores are pre-let.

According to the retail consultant Eddie Shanahan, Tallaght has disappeared “off the radar”.

It still attracts 250,000 visitors a week, however, according to Furlong.

“The Square has lost the battle for hearts and minds of many people. Dundrum would pull me across the city, but Tallaght wouldn’t,” said Shanahan.

He says the centre will struggle to attract entirely new brands such as Banana Republic or Old Navy, which he says would be ripe to enter the Irish market if the right location were available.

“The Square’s big challenge is to totally re-invent itself. If something takes five or 10 years to do, by the time the last bit is done, the first bit is starting to look old,” said Shanahan.

Furlong says he is sick of people “knocking” the Square and Tallaght. He pointed to a recent agreement signed by cut-price retailer Penneys to take a store. “We have spent €20m on an upgrade of the existing centre,” said Furlong. “There is not a retailer out there that doesn’t want to come in to the Square.”

Furlong concedes that the redevelopment that he and Smyth are championing cannot go ahead without control of the Lowe ransom strip.

“But those plans will go ahead. I am fully confident of that.” In the meantime, Furlong says that a separate expansion is planned on lands apart from the car park, which doesn’t involve the Lowe licence. Last week, a deal was struck with Ward Anderson, the cinema operating chain, to re-open the cinema at the site.

Smyth is believed to have tried to strike a last-gasp deal with Carroll to redevelop the Square together at the end of 2008 and the beginning of 2009. But the bid failed. Carroll did not attend the Square hearings on medical grounds.

THE Square is destined to be an early test for Nama. With all the parties likely to be surrendering loans to the agency, it will ultimately hold all the cards.

One of the selling points of Nama was that it would be able to facilitate developments by marrying separately owned sites together.

One dilemma for Nama, though, is that Bernard McNamara is seeking permission to go ahead with a €100m development, including a multiplex cinema, right beside the Square.

Furlong is bullish. “Within the next five years, the plans will come to fruition,” he said. “The Square will leave Dundrum in the shade.”

Whether he is right or wrong, The Square is the taxpayers’ baby now.