It was interesting that NAMA’s first property for sale with vendor or so-called “staple finance” – that’s where NAMA waives up to 70% of the initial purchase price, converting it into a five year loan at about 4% per annum – was initially sold to a buyer who rejected the staple finance and instead offered cash. But alas the sale of the office block at One Warrington Place to Prudential fell through, and NAMA had to seek another buyer. The new buyer, understood to be an American investor, Northwood is taking advantage of NAMA’s staple finance so perhaps this incentive will be more popular than first thought.
In NAMA’s wide-ranging announcement this morning, conveyed by its chairman Frank Daly at a meeting of certified accountants inGalway, the Agency says
“NAMA expects to lend at least a further €2 billion in the form of vendor finance to acquirers of commercial property.”
This is a staggeringly high figure. Remember that NAMA paid €9.25bn for loans connected to Irish commercial property by reference to values in November 2009 and adding on a so-called “long term economic value” premium. By reference to industry indices, the property underpinning these loans is now worth €6-7bn, so NAMA putting up “at least a further €2bn” in staple finance which equates to €2.9bn if €2bn equates to 70% of the purchase price. That means that nearly half of NAMA’s Irish commercial property will be sold with vendor finance. NAMA charges a 2.5% margin over its cost of funds – which in turn is linked to the 6-month Euribor rate, currently 0.97%. It is theoretically possible that NAMA will offer staple finance outside the Republic of Ireland, but other markets seem to have had better banking recoveries than Ireland.
This announcement by NAMA suggests that the prospects of Irish banks lending for commercial property purchase in the short term are not good. NAMA will also be accused of distorting the true market with its staple finance, but with so much commercial property on its books, and the Irish commercial market worth less than €0.5bn last year, what is NAMA to do?