It was 19th May, 2011 when NAMA announced its intention to introduce two innovations to help shift property inIreland – a negative equity mortgage product for residential property and so-called “staple financing” for commercial property. Staple financing has long been a means of facilitating commercial transactions; in simple terms it involves the seller financing the sale. So in NAMA’s case, NAMA might sell a property for €10m to a buyer, the buyer might give a deposit of €3m to NAMA and agree to pay the remaining €7m with interest over a five year period. In an Irish market where there is a dearth of financing, staple financing has the potential to get transactions moving. Of course there is a concern that NAMA might distort property prices by not allowing properties to sell for cash or the limited financing that is available.
Sources have claimed that a NAMA developer has sold an office block in Dublin’s docklands and that it is the first sale which features staple financing by NAMA. The property is One Warrington Place (pictured here) at the junction of Northumberland Road and Dublin’s Grand Canal in the heart of the south Docklands and no more than a long stone’s throw from NAMA’s own headquarters at TreasuryBuilding. One Warrington Placeis an ultra-modern 60,000 sq foot glass and steel building developed by David Arnold (pictured here) who was reported to be a NAMA top-20 developer. The property was being jointly marketed by local Cushman and Wakefield partner, Lisney and domestic player, HT Meagher O’Reilly (UPDATE: 21st September, 2011. Although HT Meagher O’Reilly was involved in the renting of the property, it seems that the sale of the property will be handled by Lisney).
Details are sketchy at present with neither the buyer, the price or the details of NAMA’s staple financing being available. A 210,000 sq ft building close-by, Montevetro on Barrow Street was sold by Treasury Holdings under NAMA’s auspices at the start of this year for €99.9m. Commercial property prices in Ireland have dropped by 7% in the first six months of 2011, as a result of credit shortages and continuing uncertainty over the future of upward only rent reviews (the latest on the latter is that the Government said last week that it would publish a Landlord and Tenant (Business Leases Review) Bill before Christmas 2011 to give effect to commitments made in the Programme for Government – it is hoped that outline details of the controversial piece of legislation will become available in coming weeks).
Neither NAMA or Lisney had any comment on the One Warrington Place transaction at time of writing.
Last week, Britain’s CoStar reported that another David Arnold building, the Woolgate Exchange office in the City of London’s Basinghall Street was set to come onto the market after D2 Private, a David Arnold company, reportedly “did not refinance the securitised loan once it defaulted at maturity” in August 2011. It is not clear if NAMA will offer staple financing in the UK, where property finance is more abundant than in Ireland.
UPDATE: 28th September, 2011. Jack Fagan in the Irish Times today writes that the above property is indeed being offered for sale with staple financing available from NAMA. The joint agents will in fact be Lisney and HT Meagher O’Reilly (Ann Hargaden and Deirdre Hayes, respectively). The asking price is expected to be €28m, the current rent from blue-chip tenant, Bord Gais is reported to be €2,138,356 equating to €36.50 psf on this 56,103 sq ft building. There’s a 25-year lease signed in February 2010 which provides for five yearly rent reviews and includes a break clause in year 10. In addition, 31 basement car parking spaces are being rented at two rates, €1,500 and €3,500 per annum. The “net initial yield” is said to be 7%. At €28m the property is claimed to be worth just 37% of its peak price which almost exactly equals the 63-64% declines from peak reported by both JLL and IPD for Q2, 2011 – though figures expected in the next few weeks for Q3, 2011 are unlikely to show any improvement. NAMA’s staple financing is said to be available for 70% of the purchase price at an annual interest rate 2.5% above the “standard bank rate”. Interestingly NAMA was said to have provided a €10m to Fingal council at 4.25% per annum which would also represent a 2.5% margin on NAMA’s estimated cost of funds of 1.7%.
UPDATE: 24th January, 2012. Without citing sources, Simon Carswell in today’s Irish Times claims that the sale was effected without staple finance. Simon claims that “the decision [by the buyer, Prudential, not to avail of NAMA's offer of staple finance at 2.5% over NAMA's cost of funds] means NAMA secures a much bigger windfall on the transaction, clearing the outstanding debt on the office block previously owned by developer David Arnold.” Hmmm, NAMA forgoes a profit of 2.5% on provision of funds for a few years whilst holding a 30% security, and that is a “windfall”?
UPDATE: 22nd March, 2012. Informed sources claim that the deal on One Warrington Place with Prudential has “fallen out of bed”. Further information is being sought. Since December 2011, Bord Gais which is the tenant in the building has been lined up for privatisation, Ireland’s economic prospects haven’t markedly improved and indeed information this morning from the CSO shows that we are now back in technical recession with two quarters of declines in GDP, and separately GNP which is a better reflection of Ireland’s domestic economy is contracting at an alarming rate. Although the two commercial property indices for Q4,2011 showed the positive effect of the announcements in Budget 2012, it is clear that underlying pricing is still very shaky indeed and no amount of assuaging and comforting words from NAMA will obviate that fact.
UPDATE: 27th March, 2012. The Irish Times today reports that Prudential has walked away from the deal.
UPDATE (1): 25th April, 2012. The Irish Times reports that the property has now been bought by an un-named US investor for €27m representing an “initial return” of 7.25%
UPDATE (2): 25th April, 2012. This evening US investment group Northwood Investors is being mentioned as the buyer of One Warrington Place and that the sale is subject to NAMA providing staple finance. Northwood seems to be a new player in Ireland but it was one of the companies sniffing around the Maybourne group refinancing in 2010/2011 when up to GBP475m was apparently being offered for the GBP 660m of loans.