Archive for November 12th, 2010

Today sees the publication of the UK October IPD Monthly Property Index – the index covering UK commercial property up to the end of October 2010. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values are increasing but at a vastly reduced rate than earlier in the year. The Index rose by 0.1% in October 2010 compared with September 2010. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 9.7%. Commercial prices in the UK are now 35.3% off their peak in June 2007. On an annual basis prices are up by 12.3%.

The EU stress test of selected banks published in July 2010 had a benchmark scenario of 0% growth in 2010 in UK commercial prices. Year to date, we are up 6.4% (the data at the top of this page is from Nov 2009 – NAMA’s Valuation Date – not Jan 2010) which would imply that the final two months of the year will see an overall drop of 6.4% if the EU stress test was accurate.

Given that NAMA has valued the loans it is acquiring at 30th November, 2009 it would seem to make sense if it disposed of UK property first given the pressure the agency is under to generate cashflow and some sales – it hardly makes sense to sell off Irish property which has dropped by 10% since last November unless the assessment is that it might continue to fall and not recover for a considerable period, possibly beyond NAMA’s life expectancy (or that a future recovery in UK property would exceed any falls in Irish property). There is speculation that the sale of Derek Quinlan’s Audley Square Car Park on South Audley Street has fallen through.

It now appears the case that AIB will not dispose of its UK operations imminently though it claims to be keeping the decision under review. UK lending had provisions for impairment of 6% in the 2009 AIB accounts compared with 20% provisions for the Irish loans so the implication is that they have been performing better than the Irish loans.

The first table below shows the month-on-month % change in commercial property capital values since 30th November, 2009. The IPD index is broken down into three components – retail, office and commercial.  The second table shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner. Overall it shows that commercial property in the UK is worth 9.7% more at the end of October 2010 compared with the end of November 2009.

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Some positive developments for a change this morning with news that Wandsworth Borough Council has approved plans for the redevelopment of the Battersea Power Station site, the most valuable single asset in the NAMA-controlled portfolio. The site is owned by Real Estates Opportunities (REO) PLC which is controlled by Treasury, one of the NAMA Top 10 developers. The approval should serve to enhance the value of the asset and increase the likelihood that the loans securing the asset will be repaid – REO itself owes NAMA nearly €1bn representing loans on its portfolio of property in the UK and Ireland.

REO has indicated that it will try to spin the Battersea site off into a new corporate entity which might attract investors, and today’s news will only boost those plans. According to REO the approval this morning will be followed by “the next stage of the process [which] will see the application referred to the Mayor of London and the Secretary of State for Communities and Local Government for their consideration.” Mayor of London, Boris Johnson, is supportive of the development though the position of Eric Pickles, the Minister for Communities and Local Government is not so clear.

With NAMA’s own funding plans suffering from uncertainty and possibly contagion from the toxicity of general Irish State debt, new investors may become vital to the future of the site. But a positive development nonetheless. There is extensive reporting on the history and current development of the site on here previously (for example here and here and here).

Separately, (and it seems almost petty to dampen the mood but) word reaching here suggests that the sale of Derek Quinlan’s car park on South Audley Street (the Audley Square Car Park) may have fallen through. The sale has served in recent times to highlight a NAMA success where the amount paid for the loan by NAMA would see NAMA making a handsome profit from the sale that might have been used in part to offset other Quinlan debt.

UPDATE: 9th February, 2011.  Final approval to the planning permission granted by Wandsworth Borough Council in November has today been given by Eric Pickles, Minister for Communities and Local Government. Reuters is reporting that development of the site will commence in 2012. REO’s share price leapt 28% on the news which is also a boost to NAMA’s prospects of recovery of its lending to the Treasury group.

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