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.
I look forward to reading about this in the Independent next week.
@nwl the heading is a oxymoron..what possible purpose do these statements serve except to discourage potential buyers.
When JM quotes…..’a not sell an asset where the annual return is projected to be more than 20%’…. who is doing the ‘projections’ did he bring any of his team that worked on the Glass Bottle Site deal…..give it a rest
Nama should be open welcoming and accommodating to any BUYER of Irish property.
‘The sale of the 10-hectare (25-acre) Irish Glass Bottle site – acknowledged as one of the biggest land transactions ever recorded in Ireland – generated huge media coverage as well as a great deal of public comment.
The achievement of the almost record-breaking €412 million sale price would not have been possible had it not been for the Jones Lang LaSalle team’s significant time investment in devising a range of innovative strategies aimed at maximising value on what was quite a complex site.’
http://www.joneslanglasalle.ie/Ireland/EN-IE/Pages/CaseStudyDetail.aspx?ItemId=215
Can you share with us some of those ‘innovative strategies’ with us now that the Irish Taxpayer owns it was the FEE refunded !!!!!!
Great point on REIT’s but hmm who would run them they should also look into mortgage REIT’s they could ‘sell’ performing loans or exit vendor financed deals via that type of vehicle.
A hastily prepared damage limitation spin in the Independent today.
NWL wrote: “….NAMA will sell its assets at a maximum discount of 10% below its acquisition value.”
NAMA rejected this on the basis that “NAMA policy remains to sell assets at the best achievable return; our goal is to realise at least the price the agency paid for the underlying assets.
“If there is any exception to that policy, it will be a tactical decision in the interests of stimulating demand in a quiet market. It will certainly not be typical or widespread.”
http://www.independent.ie/business/irish/agency-will-sell-assets-below-price-it-paid-in-tactical-move-to-aid-market-2915298.html
Which of course was not what NWL wrote at all. He/she said that John Mulcahy stated to a meeting in NCB that the agency was prepared to accept a maximum discount of 10% below acquisition value. Denying a statement that wasn’t made with gobbledegook and spin seems to be a forte of civil servants and politicians…… Weasel words.
And it’s a statement that may come back to haunt him and NAMA. With values already substantially below that target, it won’t be long before sales will be made for much less.
Maybe John was just telling us that “Grandma’s on the roof….” and breaking the bad news gently. I’ve noticed that dogmatic statements made earlier this year in relation to NAMA making a profit have recently become more “sotto voce” aspirations. Next year they will become apologies.
As I said, “Grandma’s on the roof”
An explanation for those without a granny:
This grandson’s parents are away on holiday.
His father phones up to ask how things are going. The son replies “the cat is dead”.
The father gets a shock and is really upset. He says ” Son, you could have put that a bit more subtly….. For example, you could have said that the cat climbed onto the roof. He slipped, and fell. And oh, no, he hit the ground and died”.
Anyway, how’s grandma?
The son replies… “Grandma’s on the roof….”
@WSTT “Grandma’s on the roof”? That’s a new one for me, though a quick internet search indicates it’s a way of letting someone down sympathetically and the following was thrown up as an alternative on Google
“The recruits are in line for role call.
The sargeant announces ” Smith, your mother’s dead”
Smith faints in shock.
The lieutenant takes the sargeant aside, and says “Sarge you should have put that a bit more subtly. These young men are far from home and endure a lot of stress”.
Next day they’re in line-up again for role call. Sargeant says… “all of those with mothers take one step forward. Not so fast Jones!”"
With residential and commercial prices down more than 20% since 30th November 2009 – NAMA’s valuation date – and taking into account the fact that NAMA paid a long term economic value premium which was an average of about 10%, I don’t think that discounts of “up to a maximum of 10%” will result in NAMA’s hands being snapped off; in general that is, there will always be exceptions.
HI NWL. I was trying to make the point that John and NAMA are trying to break the news gently that they will not achieve the much heralded profit.
Hard to achieve anything swanning around at conventions pontificating about riots in England.
What is a ” projected” return the buyer may also have access to mezzanine financing has Nama decided if it will allow secondary yield enhancing debt behind it’s staple piece ?
@John Gallaher. Excellent point, John. One I was going to keep to myself! Add a bit of mezzanine at 10% to 12% and you have a return on your equity of 30% plus – before yield compression.
Now, how do they measure that against the statement that “we will not allow anyone more than a projected annual 20% return”.
I keep coming back to naiveté or inexperience within the ranks. However, John Mulcahy should know better. He is neither naive nor inexperienced. But maybe he just has to spout the party political line. Forget reality, it’s all about perception
http://www.dailymail.co.uk/news/article-1297450/Did-Nama-officer-spend-holiday-developers-yacht-Agency-refuses-answer-questions-alleged-trip-Mulcahy-Glass-Bottle-millionaires-boat.html
@Beal Bócht. Yes he did. But that is well known news at this point.
‘Ireland Needs Mortgage REITs to Help Cut Leverage, NAMA Says’
“It’s a way of helping not just NAMA, but other banks deleverage,” McDonagh said in an interview in Dublin. Mortgage REITS have helped replace mortgage-backed securities in the U.S. and the U.K. is considering their introduction, he said.”
http://www.businessweek.com/news/2011-11-02/ireland-needs-mortgage-reits-to-help-cut-leverage-nama-says.html
http://www.businessweek.com/news/2011-11-02/ireland-s-nama-likely-to-sell-42-billion-loan-book-by-borrower.html