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Archive for August 28th, 2010

Two of the most common questions asked about NAMA is who’s in it and what property is NAMA now in charge of. Given that NAMA has not publicly confirmed the name of any debtor (or developer to you and me), it has been left to informed media speculation and the odd confirmation from the debtor themselves of their involvement with NAMA to build a picture which you can see under “The Developers” tab. This entry examines the assets.
Firstly it should be said that NAMA is taking over loans in the first instance, not the underlying assets though even from the start NAMA will have a say in how the assets are treated. Should developers default on their loans then NAMA’s control will grow perhaps to outright ownership of the assets.

We don’t have specific information on the precise identity of the assets but NAMA has provided aggregated information on the first two tranches transferred from the five financial institutions totalling some €27bn at face value. Of course we know from the EU Decision in February 2010 that NAMA will be taking over loans secured by “art, share portfolios, wine collections; helicopters and life insurance policies.” but in the main the loans are secured by property of one category or other.

One of the confusions about NAMA is that its primary objective is to take over  “land and development” loans. This was because the assets securing “land and development” loans were seen as being the most highly impaired following our property crash. What confuses is that people think this means NAMA is taking over all property loans. But NAMA was not primarily intended to take over investment property loans for example (loans to buy completed hotels, offices, shopping centres, warehouses, student buildings for example – note the word completed, if they were still being built then they would be classed as development). And the additional confusion is that NAMA is allowed take over “associated loans” of developers who have an eligible development loan. So take Paddy McKillen for example, it is claimed that he has a very small €5-10m development loan but that the bulk of his loans (over €800m) relate to what might be classed investment property (the Maybourne group of hotels that include Claridges, the Berkeley and Connaught is the main recipient of loans). Paddy as we know is fighting NAMA but NAMA’s position is that all of his loans should be absorbed. Two other sources of confusion are that NAMA is only taking over the loans of five Irish financial institutions (Anglo Irish Bank, Allied Irish Banks, Bank of Ireland, the Educational Building Society and Irish Nationwide Building Society) so even if a developer has an eligible development loan with another bank operating in the State, that loan will not be absorbed by NAMA. And lastly NAMA has a minimum limit on the value of loans being absorbed but that minimum limit of €5m per loan only applies to Anglo, AIB and BoI – there is no minimum for EBS or INBS.

So how does NAMA end up with wine collections and helicopters? Generally in one of two ways – loans were obtained by developers for their purchase and the same developer has an eligible “land and development” loan with a NAMA bank or these assets were pledged as part of personal guarantees given by developers on eligible loans from the NAMA banks.

So, what do we know about NAMA’s assets and where they’re located. The first table below analyses the loans in the first two tranches by type of asset. As you can see NAMA has taken over “Land and Development” of some €7.1bn out of a total of €27.1bn – so much for NAMA’s primary aim to take over “land and development” loans, at least on the basis of the first two tranches. The other loans relate to completed homes ready for sale, investment property and hotels. Confusingly it is understood that the hotels are investment property as it is rumoured that most of the value of the hotels in tranche 2 relates to an operating UK hotel chain. We don’t know a lot about the final expected profile of loans but NAMA said in their June 2010 Business Plan that investment property would make up 30% of the final portfolio. A question to be asked at this stage to NAMA is why, if their raison d’etre was to take over land and development loans, why less than 30% of their portfolio is land and development. A more general question is, if NAMA is mostly taking over completed property (housing, hotels, investment property) then why are we leaving €36bn of commercial non-NAMA loans, much of which is property related in Anglo?

The next table shows the geographical spread of the assets underpinning NAMA loans. The draft Business Plan breakdown and the consequences of the statement in the June 2010 Business Plan that the profile of tranche 1 (which didn’t include any Northern Irish loans) would be the same as the profile of the final portfolio are shown alongside the tranche 1 and 2 data provided by NAMA.

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