The NAMA CEO, Brendan McDonagh is set to appear before the Committee of Public Accounts in the Oireachtas this coming Wednesday 26th October where the discussion topic is billed as “Annual Report and Financial Statements 2010”. Proceedings are expected to get underway at 10am on Wednesday in Committee Room 1 and live video streaming should be available online here. The Committee comprises the following members : Paul Connaughton, John Deasy, Paschal Donohoe, Anne Ferris, Simon Harris, Michael McCarthy, Mary Lou McDonald, Seán Fleming, John McGuinness, Eoghan Murphy, Derek Nolan, Kieran O’Donnell and Shane Ross. The chairman is Fianna Fail’s John McGuinness.
The following open letter was submitted to the Committee this morning
“Dear Mr McEnery,
I understand that NAMA is to appear before the Committee this coming Wednesday. I would be most grateful if you might place the following before the Committee.
This is an open submission from the NAMA winelakeblog, an online blog which reports on NAMA and associated subjects. This submission is being published online on Monday 24th October at http://www.namawinelake.wordpress.com
Whilst there are myriad questions that beg to be asked about the operation of the Agency and its report and accounts for 2010, I would submit that the most pressing concern is the lack of information on the way in which the Agency is disposing of its assets which prevents any timely assessment of the Agency’s performance.
In the 36 months from the end of 2010 to the end of 2013, NAMA has set itself a target of disposing of €7.5bn of assets – loans and properties – which equates to €200m on average a month, every month. And remember these NAMA assets represent loans which were acquired from the banks at an average 58% discount. So in terms of original value at the banks, the disposals are worth an average of €500m a month, every single month. This is the scale of the enterprise over which your Committee has oversight; it is colossal. And remember these disposals are not of an homogenous commodity like electricity or gas – these are individual loans, borrowers, properties and buyers in individual locations and countries and generated by individual staff, advisers and consultants.
The accounts from NAMA, both the annual report and the quarterly management accounts do not provide a level of detail which enables you to assess how well NAMA is performing in its disposal of assets. Specifically you cannot assess the following:
(1) The gross profit on the transaction – sale price less loan acquisition cost
(2) The net profit after consultant/adviser/agent fees, loan carrying costs, foreclosure costs, tax on profit including potentially capital gains tax
(3) Evidence that NAMA has marketed the asset – loan or property – so as to maximise profit (and generally the sales price)
(4) Evidence that NAMA has achieved the best price for a particular asset
(5) NAMA’s expertise to ensure the best price is achieved
(6) NAMA’s expertise to determine the best time to dispose of an asset
(7) Estimated carrying costs for a distressed loan or property [In the UK, the standard assumption is 5% of the value of the asset in insurance, maintenance, management and other costs]
There is a compilation of reported NAMA sales on the NAMA winelakeblog but these are but a subset of NAMA’s total sales – based upon press/industry reporting, contacts and other research – as NAMA does not report individual sales.
To make the above questions more tangible, I would ask that you apply them in the forthcoming hearing to a specific NAMA transaction. The obvious transaction is the recent sale of the €800m of loans in the Maybourne hotel group because it is the largest single NAMA transaction to date but given the mutterings about legal action, it might be better to avoid that transaction in preference to the following, which is a common-or-garden property sale by NAMA:
Number 1, King William Street in the City ofLondon was owned by a consortium which featured developer Paddy Shovlin. NAMA appointed receivers GVA Grimley who managed the disposal of the property on NAMA’s behalf. The property is a prestigious office block in the heart of the City, a stone’s throw from the Bank of England. It was widely reported in the press that it sold for GBP 67.5m in June 2011 to Nippon Telegraph & Telephone Corporation, and that the yield achieved on the sale was 5.6%. Yield simplistically means the annual rent on a building divided by its value so if the yield was 5.6% on a GBP 67.5m sale, that just means the annual rent is GBP 3.78m. Now theUK generally, and centralLondon in particular, has a far more transparent market thanIreland, with sales prices and property-related documents readily available from theUK’s Land Registry. And this transparency means that “going rates” are more readily established. The “going rate” for yields in the City ofLondon is 5.25% and if the sales price of the property onKing William Street reflected a 5.25% yield then it would have been GBP 72m not €67.5m. Also at the time, I was unable to locate the property being advertised on GVA Grimley’s website.
So in relation to the above transaction, you might properly ask about the gross and net profit, but also challenge NAMA to justify selling the property for less than the “going rate” yield would have indicated. And you might also challenge NAMA to demonstrate that the property was sufficiently marketed so as to achieve an optimum price. And lastly you might ask if now was the best time to sell the asset, particularly asLondonproperty prices continue to rise.
In response to questions about individual transactions, NAMA will typically remain tight-lipped and will invariably cite client confidentiality which NAMA is obliged to respect pursuant to section 202 of the NAMA Act. But the NAMA CEO said last month at the Corporate Restructuring Summit in Dublin that “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained.” So buyers of NAMA assets are expected to have an idea what NAMA paid for the loans, and frankly given the number of valuers used by NAMA in valuing the loans and the standardised method of valuation, the acquisition value is unlikely to be difficult to establish. Sales prices are publicly available in theUK and some other jurisdictions. NAMA should be able to disclose costs associated with an historical sale. So although, you might encounter a reluctance on NAMA’s part to disclose information on individual sales, that information should be produced unless NAMA can demonstrate it will jeopardize its own business.
The bottom line is that you are going to have to establish some means of overseeing the meat of NAMA’s operation, which is the disposal of assets. Top-line reporting from NAMA will not enable you to determine if NAMA is doing a good job. Even if NAMA reports an overall profit, you will not be able to determine if a higher profit was achievable. So somehow, NAMA’s desire for confidentiality is going to have to square with your duty to oversee the operation of the Agency.
I don’t wish to finish on a harsh note, but it would indeed be unfortunate if a scandal or systemic failing in NAMA were to be uncovered in a couple of years and your constituencies rightly asked how the members of the main Oireachtas committee charged with the oversight of NAMA, failed to challenge the Agency early-on in its existence in a meaningful way which might have prevented such failing.
I wish you all well with the Committee’s important work.”
Nice one, NWL! And just for the record No 1, King William Street, is not the only property where allegations of underselling have been directed at GVA Grimley as receivers for NAMA and the Irish banks.
Another pressing concern is the eagerness to sell income producing assets yielding sigfinicatly above cost of funds and utilizing the proceeds to early retire Nama bonds it’s a significant differential.There is no strategic thinking was this the highest and best use of sales proceeds ?
What happens when they are all sold and all that is left is carrying costs.
To date a junior staff member could have handled all of these sales.
For example if you look at London as one sub portfolio what happens to BPS when all the London income producing properties are sold ?
The company REO controlled by Treasuary Holdings is in no financial position to support the carrying costs and is dependant on Nama.
Will Nama divert Irish rental income or utilize capital proceeds from Irish sales out of the economy to support this London property.
Great letter. Can I ask your thinking on posting this before the meeting? I’m sure someone in NAMA reads this blog and as such aren’t you just giving them an opportunity to invent appropriate spin, red herrings and mis-truths for the Committee of Public Accounts on Wednesday?
@John Foody, there’s no ambush or gotcha with this issue. The Committee must work out some way of having oversight of NAMA’s operations and NAMA needs to work with the Committee.
@WSTT, the full list of the 25-odd NAMA disposals that have been aired so far is here – https://namawinelake.wordpress.com/nama-property-for-sale/
The No 1, King William Street is probably the best one for the Committee to use because it is in London where there are established “going rates”, it is in the UK where sales prices are publicly accessible from the Land Registry and it is completed and doesn’t seem to have any overhang of dispute.
@nwl one could explain away a 50 basis point spread easily enough.
There was a confusing lease clause,the guarantee was never perfected,asbestos in the basement,it’s an all cash offer quick close.
Unfortunately this transaction would fall within reasonably accepted parameters regarding comparable sales as each one has unique characteristics and tolerance of up to 100 basis points is acceptable which gets back to your argument about transparency.
Don’t expect too many revelations regarding a “smoking gun” or nefarious dealings they don’t have the imagination or ambition simple incompetence more like it.
@John, the specifics of no 1, King William Street are less important than the principle that these transactions be open to examination, and that NAMA can be challenged on the way it has disposed of assets. Indeed there might be something which prevented no 1 King William Street reaching its “going rate” price, but let’s hear it. More importantly though, there needs to be an oversight mechanism when the State (though NAMA) is selling €500m of assets each month.
On a separate subject, and as I know the Battersea Power Station is close to your heart, you might be interested to hear that the adjacent site on the opposite side of the road from the BPS is also being redeveloped. The New Covent Garden Market is planning 2,450 homes and other commercial facilities on its 57-acre site.
http://www.costar.co.uk/en/assets/news/2011/October/Plans-lodged-for-57-acre-New-Covent-Garden-Market/
Thanks for that you are well aware the fondness I have for the founders some of it based on personal experience…. in my eagerness to follow the unfolding saga/fiasco and despite it’s complete irrelevance to me I took out a subscription to costar UK but thanks!
I completely agree all properties should be on a web site allowing multiple and international bidders to register avoiding “tire kickers” and promoting offers from qualifying buyers with sale results posted just mirror the FDIC one.
They use a online “war room” in US buyers are pre-qualified by the brokers you execute confi. agreement and gain access everything you need to know is there post closing the selling price is then circulated to anyone who bid to ensure no “hard feelings” and the “war room” is closed down.
After closing Nama could simply open up the “war room” for anyone to take a look.
But without access to the Offering Memorandum or OM its very subjective and impossible to properly analyze any transaction and even then you are relying on brokers representations which are often inaccurate hence due diligence.
It is not just NAMA that has been selling London based UK assets. The Irish banks (AIB in particular) appointed receivers to London assets prior to them being absorbed into NAMA. The thinking being that they could get 90 pence on the Pound in a receiver sale and possibly only 40 pence from NAMA. GVA Grimley were appointed by AIB and didn’t exactly cover themselves in glory.
@nwl not overly familiar with the careers or qualifications of the committee but based on watching last one the mere mention of Discounted Cash Flows,Internal Rates of Return,Beak Clauses,Going In Yields, Incomplete Documentation etc will result in shuffling of feet sipping of water nervous laughter and nodding of heads.
You need a ‘get’ they can all understand cash strapped stressed Irish shoppers spending hard earned money at Dundrum Shopping Center allowing Irish owned stores to pay rent to Nama.
Will Nama divert this IRISH GENERATED INCOME to support/carry BPS and the shenanigans of a ‘character’…. with the prevailing ‘climate’ in Ireland you need to have a scapegoat fortunately we have been provided with a quite a few !
At what point in the disposition process will operating expenses and carrying costs exceed income and when will Nama start transferring CASH out of the Irish economy or have we already arrived there!
When should Irish tenants at Dundrum pay their rent directly to REO to help carry BPS in London and should they start encouraging payment in STERLING in their stores !!!
But i agree with your letter and argument i just think you are overestimating the intelligence of your ‘audience’.
regarding above point.
http://www.fdic.gov/buying/owned/
@wstt is this the reverse of the ‘Paddy Premium’ you highlighted in earlier post!
@John Gallaher, In my opinion – yes. Others may argue the the sub-optimal performance of certain London agents, when appointed by NAMA and the Irish banks has been misfortunate.
Personally, I believe that they realised that the Paddy bankers and NAMA executives have little clue how the market operates as a cartel in London and they took advantage of this, peppering reports, as you say, with terms that the Paddies don’t understand (a NAMA portfolio manager was famously heard to ask “what is an FRR lease?”).
What chance have the NAMA or AIB managers then when they are sent gobbledegook (to them) figures quoting esoteric calculations of yields, cap rates and obscure rental comparisons containing rent-free periods, fit out allowances and residual valuations?
No, the agents were not unlucky or misfortunate. That was the Irish taxpayers – they were misfortunate and unlucky in the quality of the personnel in the banks and NAMA employed to represent their best interests. The London agents have taken advantage of this naiveté and have behaved either with negligence to their Irish vendors and with preference towards their UK clients – the reverse “Paddy premium”, as you say.
Lack of knowledge, negligence or crooked? Take your pick.
Sorry , typo – should read “FRI lease”
@wstt thanks for that clarification you had me too…not the correct forum nor the time but the Irish ‘players’ did not disappoint in New York !
The lack of ambition and ‘outside the box’ thinking is astounding why is Nama not buying DTZ ?
Cut the deadwood and spin it off in a few years and keep ALL the fees in house.
“Nobody else was interested in buying it so far, not even the majority shareholders so it’s going to be really tough for them…..
http://uk.reuters.com/article/2011/10/19/uk-dtz-idUKTRE79I1N420111019
The US ‘sister’ is already BK.
“DTZ Rockwood LLC filed for chapter 11 bankruptcy protection yesterday at the United States Bankruptcy Court for the Southern District of New York. The debtor’s schedules list approximately $1.8 million in assets and $79.7 million in liabilities.”
http://www.chapter11blog.com/chapter11/2009/06/dtz-rockwood-llc-files-for-chapter-11.html
Great Letter! Invaluable work being done! It will be very interesting to hear the response.
Just watching the committee. For crissakes, would someone ever teach McDonagh how to pronounce “billion”!
From the Irish Times online: “We don’t really see any portfolio in Nama that would result in a big payday for any developer in three, four, six years,” said Mr Daly.
Talk about myopia! Every vulture capitalist on earth sees exactly that.