Just four weeks ago the NAMA CEO, Brendan McDonagh took a thinly-disguised swipe at vulture funds and bottom-feeders when he said at the Corporate Restructuring Summit in Dublin “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”
Thanks to a presentation given by NAMA’s Head of Portfolio Management, John Mulcahy to NCB last week, we now know that NAMA will sell its assets at a maximum discount of 10% below its acquisition value. So if there was a €100m loan in Anglo which NAMA acquired for €40m then NAMA will sell you the loan or the underlying asset for no less than €36m, that is a 10% discount on the €40m acquisition price. Good to know.
Of course inIreland, both commercial and residential prices have dropped by 20% since NAMA’s valuation date of 30th November, 2009 and of course NAMA paid a Long Term Economic Value premium to the banks which averaged 10% of the valuation. In other words, a loan acquired by NAMA at €40m might only be worth €29m today – NAMA is not exactly doing any buyer of Irish property a favour by offering a maximum 10% discount on what it paid!!
John’s presentation to NCB also revealed that NAMA will not sell an asset where the annual return is projected to be more than 20%. So Steve “wait for the blood on the streets” Schwarzman of Blackstone who seemed to be seeking 30% returns from distressed property assets in Europe might have to put away his USD 4bn (€2.9bn) real estate war-chest unless he lowers his sights. What is meant by a 20% annual return? Imagine buying a NAMA property for €10m and getting €2m rent per annum – that would be a 20% return. Remember that in some instances, NAMA will be prepared to lend you up to 75% of the purchase price at an annual interest rate of 4-4.5%. So you might buy the property for €10m, pay €2.5m cash and get NAMA to loan you the remaining €7.5m at 4% per annum. In order for you to generate a 20% return on your €2.5m you would need rent the property for €0.8m per annum [€0.8m rent less €0.3m paid to NAMA as interest, equals €0.5m which is 20% of your €2.5m investment]
What was absent from the presentation was criticism of the glacially slow progress being made by this Government in introducing legislation to give effect to Real Estate Investment Trusts (REITs). REIT legislation was sign-posted in the Fine Gael election manifesto in February 2011 “We are open to considering new types of investment vehicles – such as U.S. style Real Estate Investment Trusts – that can help create a new, liquid investment market in commercial property for Irish pension funds and smaller investors” There are still some locals in Ireland with some cash and they might welcome the opportunity to invest, for up to 20% annual returns, particularly within the managed, tax-efficient REIT framework.