As NAMA gets stuck into its asset management phase, we should be coming across far more individual properties where the Agency is deploying one of its five strategies (1) sell (2) rent (3) develop (4) mothball and (5) demolish. Of course, these five strategies will be refined with third party risk-financing and the “sell” might be of the actual loan or the underlying property.
You can’t really improve on Jack Fagan’s report in today’s Irish Times (assuming all the facts and claims are correct). He reports that part of Bernard McNamara’s former portfolio on Grafton Street is being developed, specifically two adjoining buildings at 57/58 Grafton Street are being merged so as to give a flagship 8,000 sq ft footplate. There will be two upper floors of offices as well. The cost of the development is put at €1.5m.
What about the economics of it? Apparently Bernard bought the two buildings as part of his grand “Monopoly style” design to own a new street in central Dublin which would be built between Grafton Street west to South William Street. The purchase price is reported to have been €25m. It’s not known what NAMA paid for the loan, but it had receivers, RSM Farrell Grant Sparks appointed as receivers.
It seems that NAMA might be reacting to the paucity of larger footplate outlets on Grafton Street – if you’ve walked down that street recently, it ain’t Bond Street with newsagents, juicebars, sandwich shops, mobile phone shops, fast food outlets, gift shops and other low-rent outlets. There are at least two vacant units also, Korky’s old store at 47 Grafton Street and an adjoining unit. The thinking behind NAMA’s development is that a large footplate store might attract a flagship retail outlet, Boots is mentioned.
The enlarged shop should rent for €750,000 or just under €100 psf reports Jack Fagan and Savills will be marketing the property. So the strategy is to develop and rent (and hope capital values recover to enable a sale later on).
NAMA has committed to investing €2bn in its properties in the four years up to 2016. This is on top of other working capital advances. So far, we know about NAMA funding the Bailey brothers’ Charlestown shopping centre in Finglas, the Cosgraves’ Dun Laoghaire Golf Club, but we are all waiting to hear if NAMA will take the plunge and commit to develop a 100,000 sq ft plus office in the city centre.
UPDATE: 3rd April, 2013. News this afternoon via the Daily Business Post that Savills is offering the HMV store on Grafton Street for rent at €1m per annum. HMV went into receivership in January 2013, and the 19,000 sq ft premises is said to be the biggest retail footplate presently available on Grafton Street. The rent works out at €53 psf and there was talk recently that Hilco, the Dublin based company that took over the remnants of HMV would try to renegotiate the rent at €700-800,000 (or €37-€42 psf).
one wonders do they have a calculator at treasury buildings..maybe johnny lent them his as its of no use to him,not that he used it much…
quick and ‘dirty’ numbers.
assume 50% discount on loan purchase so..
PP 12.5 million
reno 1.5 million-appears LOW
cost basis 14 million
PROJECTED RENT-750,000
return on cost 5.4%-WTF- that’s one hell of a competitive advantage NAMA has with its almost ‘free’ money…whats the exit strategy here…not including leasing commission,cost of funds.
a 4.5% cap…gets you 16.66million before sale costs.
what if they paid more than 50% for a Grafton Street loan..5% RETURN ON COST really !
with more vacancies imminent due to NAMA’s staunch and trenchant opposition to the abolition of UORR-expect further downward pressure on rents.
this is NOT asset management by any metric-NAMA continues to distort the market by engaging in uneconomic deals they should never have lobbied to preserve UORR,hobbling Irish retailers and other current tenants-granting new entrants an unfair advantage.
http://www.businesspost.ie/#!story/Home/News/COMMENT%3A+Horror+on+the+High+Street/id/19410615-5218-50fe-5e6e-e0b373488593
@John, was unable to establish when Bernard bought these two adjoining buildings – “during the boom” appears to be the best out there. Commercial, and retail in particular is down about 70% from peak, so NAMA’s purchase price might only have been 30% of $25m + 10% say Long Term Economic Value, or €8.25m. Add the €1.5m development cost, and a little contingency to get a nice round €10m.
Jack’s report today is unclear as to whether the €750,000 is for the shop only (8,000 sq ft) or the shop AND The office space (one floor over one unit and two over the other as far as I can see). But either way, a 7.5% gross yield when NAMA is paying a little over 0.75% on its cost of funds, makes sense. Makes even more sense if the offices are on top of the €750,000 rent quoted.
@NWL extrapolating your math over the remainder of the portfolio..and the numbers for the ‘buy in’ simply don’t work-70% discount on prime trophy core retail,what would have been utilized say in Sligo,Waterford or Tullamore..
Every time they sell a piece of land then they must lose lots of money !
“Two farmers from Mallow, County Cork, in west Ireland, paid about 2.25 million euros last year to buy 180 acres of land from a developer who paid them 40 million euros for it in 2004.
“It suited my pocket,” said one of the farmers, 76-year old John Cronin. “I know quite a number of farmers that are looking out for land. There’s a great love for it.”
http://uk.reuters.com/article/2013/01/18/uk-ireland-property-idUKLNE90H00E20130118
But we are in the minority after that rogue NTMA,employee ‘enda’ leaked all the numbers pretty much everyone else in RE knows the basis here.
So NAMA is into spec development these days then…NAMA would have to have accrued the lost interest on that loan,legal fees,receiver fees etc too.
Lets also keep in mind before the spin and misinformation campaign begins in earnest,the net result for the state using your math is still a loss to the taxpayer here of well over 10 million on prime Grafton Street…
They should release the ‘metric’ they are applying in these situations..or is that also a ‘secret’….or do they use any at all.
Not sure of Apple’s footprint requirements in Ireland but ‘word’ is they were looking..
NAMA overpaid for the loans-it was a further bailout for the banks and is now desperately trying make ANY deal work-Joan Burton will be proven correct in the long run.
You can’t build 24,000 sq. ft. (3 floors * 8,000 sq.ft. footplate) in Grafton Street for €1.5 million. It will cost more like €7 million. Where do these figures come from? Hey NAMA….. Shoorly sum misteak?
@WSTT, the responsibility for the confusion might be here, the 8,000 sq ft is, I believe, the square footage that will be available for the two floors of retail, so nearer 2 floor *4,000 sq ft. though another (less likely) interpretation of Jack Fagan’s report is that the office square footage and rents will be included in the 8,000 sq ft and €750,000.