This blog is neutral on NAMA. In principle the agency is one feasible way of helping deal with a banking catastrophe by clearly valuing, and then removing loans of doubtful value from banks’ balance sheets in return for nice crisp NAMA bonds, then nursing those loans at the bottom of the cycle and hopefully generating a profit as prices recover. In practice over the past year NAMA has been outflanked and indeed swamped into irrelevance by the size of the losses crystallised in the banks, the loss of liquidity with a mighty bank run that is still ongoing at year end and a property market that has, in the main, continued to dive – all in the context of a credit drought especially for Irish property.
And in 2011, the prediction here is that it will be no different. In Quarter One of 2011 under the watchful eye of the IMF, the banks are required to do a bottom-up (and top-down) review of non-NAMA loans and off balancesheet exposures (derivatives in my book, but there are others). And I predict we will find more losses but am unsure as to the scale but wouldn’t be surprised to see another €20-40bn of losses. Credit unions are beginning to appear more significant on the radar and the betting is that a bailout will be needed to cover bad loans there also. At some point all of those against default may change their minds as the scale of the losses explodes. Who knows – perhaps Olli Rehn might even remember that the other pillar of financial probity in the Stability and Growth Pact is that debt:GDP should not exceed 60%.
However, more bank black holes might in themselves be rendered insignificant by the emerging spectre of a full-scale bank run. Corporate deposits have been fleeing out the door in recent months. And it is clear that the IMF and EU bailout has not put a stop to the flight. Despite Minister for Finance, Brian Lenihan’s assertions that as an island we will not see deposit flight, how long will it be before there are queues outside the six Irish banks to withdraw nearly €100bn of personal deposits and place the spondoolicks under the mattress or in non-Irish financial institutions? And what happens if the ECB stops shoring up the flight of deposits? And how much longer can we continue with the miracle that is the Central Bank of Ireland creating funding (backed by a State guarantee, natch) to replace fleeing deposits? Yes indeed, NAMA may well be insignificant in 2011, but let’s examine its prospects anyway – here’s what I think will be the Top 10 NAMA stories in 2011
(1) Bank of Ireland’s haircut – 42% according to NAMA in September, 2010. 40% according to Minister for Finance, Brian Lenihan in Octobr 2010. To me it just looks unrealistically low because (a) it is so out of line with other NAMA Participating Institutions (AIB 60%, Anglo 67%, EBS 60% and INBS 70%) and (b) the only publicised losses on Bank of Ireland development loans concerned McDaid Developments which saw 85% lossses and (c) credible claims reaching this blog suggest that BoI was no better than other Participating Institutions with their credit practices during the latter stages of the boom. Deeper losses in BoI loans may be confirmed as NAMA undertakes a granular review of due diligence and loan by loan valuation in Quarter One. Will BoI need more capital? Will the State be the only source of capital? We already own 36.5% of BoI and if the February 2011 dividend on our remaining preference shares is paid in ordinary shares in lieu of cash then we just might end up with 50%+ and that is before we are called upon for any additional capital injections (€2.199bn needed in total by the end of February 2011)
(2) Just as Gerry Gannon and the missus stuffing the ample bootspace of the Range Rover with Brown Thomas shopping bags is likely to become an iconic image of the phoney impoverishment of developers, I think the sight of the first bulldozer demolishing the rotting fruit of the Celtic Tiger will also be memorable.
(3) Fianna Fail might be prepared to protect the confidentiality of NAMA’s operations but FF is unlikely to be in government after the general election (though I wouldn’t be surprised to see the election take place far later than is currently assumed. UPDATE 13th February, 2011. Cabinet member, Mary Hanafin admits that it was FF’s hope to “get the year” but blames the Green Party for pulling the rug from beneath the coalition). Neither Labour nor Fine Gael is expected to make dramatic changes to NAMA but they might effect some transparency measures that they have been vociferous about in opposition. Sinn Fein (riding in the mid-teens in the polls) would scrap NAMA and you would have to say there is an outside chance they will be in a coalition with Labour. Of course Fianna Fail might also end up as junior partners in a Fine Gael administration. The mind boggles but regardless, it is fair to say we have political uncertainty and certain political outcomes might change NAMA.
(4) Third party suppliers – and NAMA has engaged armies of them – should throw up a scandal or two during the year. NAMA’s “master loan service provider”, for example, is Capita and in the UK, the Capita parent has been a rich source of cock-up and intrigue. And despite NAMA’s claims about value for money, expect a few stories on what might be considered outrageous fees, conflicts of interest and traditional shenanigans.
(5) It can’t be emphasised enough that NAMA has only 100 staff, 42 of which are dedicated to managing loans. With an estimated €90bn of loans at par value en route to NAMA, the agency can’t possibly cope even with the assistance of teams at the five Participating Institutions and Capita. NAMA will be directly managing 175 developers representing some €50bn of loans at par value. It’s ludicrous and NAMA is setting itself up for failure. Expect frustration at NAMA’s slow decision making and possibly a tale or two of NAMA selling assets well below value.
(6) The NAMA Act anticipated that NAMA would have up to €5bn of funding available for, essentially, finishing out projects. NAMA launched its funding programmes in September 2010 but as far as I can tell they have been scrapped through presumably someone thought of mentioning the need for NAMA development funding to the IMF/EU in November? Both the securing of development funding and divvying it up amongst household-name developers in 2011 is likely to be newsworthy.
(7) So far NAMA has successfully sought a judgment against Paddy Shovlin and the Fitzpatrick brothers. Apparently 22 other actions have been initiated by the Participating Institutions on behalf of NAMA. But as the Prime Time Investigates programme before Christmas showed, NAMA will have its plate full with pursuing assets and unravelling corporate and legal structures designed to protect wealth. And of course NAMA will be liquidating and foreclosing – already NAMA has appointed receivers to Bernard McNamara companies and just before Christmas to Paddy Doyle and Paddy Burke companies. Pierse and the Whelan group are in liquidation and NAMA is a key creditor to both and in early January we will find out McInerney’s fate where again, NAMA is a key creditor.
(8) Paddy McKillen, the developer valued at some €75m by the Sunday Times in 2009 sought the help of the courts in stopping NAMA taking over his loans. He comprehensively lost in the High Court here in November and the betting is that he will lose his appeal at the Supreme Court which is due to issue a judgment early in the New Year. Will he appeal to Europe if he loses? More importantly why on earth has NAMA not already quickly moved to absorb his loans. Of course should Paddy see some success from his appeal, it may have ramifications for NAMA’s general operation.
(9) My prediction is that the Irish residential prices will drop 5% this year (unemployment, falling wages, increased taxes, upward pressure on mortgage rates, repossessions and distressed sales, emigration, overhang in supply, anaemic GDP growth, stamp duty for first time buyers, a continuing mortgage drought more than offsetting a decline in new build, reduction in stamp duty for movers, wealth and income in some pockets of the economy). I predict commercial will drop 10% as capital values catch up with the blindingly obvious fact that rents dropping like stones will drag capital values down. Residential prices in the UK will remain stagnant with minor growth in London and a 5-10% decline in Northern Ireland. I expect UK commercial to grow by less than 5% though London’s growth may skew the average which might see stagnation across much of the UK. So NAMA which has a target of reducing its loans by 40% by 2013 will have its work cut out in planning how to manage loans and prioritising disposals.
(10) The unknown unknown in Donald Rumsfeld’s parlance. With €90bn of loans, 100-odd employees, political administration, short-term rollover funding of NAMA bonds which depend on the ECB for continuing support, global property assets, poor transparency, €5bn of development funding, annual operating costs of €200m and crises elsewhere in the domestic economy and in Europe, there is more than enough scope for something spectacular.
NAMA Wine Lake 
I think we had enough of ‘spectacular’ for a lifetime in 2010.
I fear you may be right though.
Thanks for a year of excellent insights on this blog, keep up the fantastic work.
Yes indeed this site is one of my favourites not to mention the wealth of information and analysis. What I also appreciate very much, is the way there is an attempt to ‘tease things out’ which in the current climate is probably even more important than quoting raw data chapter and verse.
Happy new year!
“This blog is neutral on NAMA. In principle the agency is one feasible way of helping deal with a banking catastrophe by clearly valuing, and then removing loans of doubtful value from banks’ balance sheets in return for nice crisp NAMA bonds, then nursing those loans at the bottom of the cycle and hopefully generating a profit as prices recover.“
Permit me, please, to challenge this neutrality, firstly with reference to residential property.
The “value” of, for example, residential property, is comprised of two elements, cost of both delivery of the structure and of the land upon which it is built. Some will cherish the “home” place, some will crave for “exclusivity” while most of us settle for wherever we can afford. Delivery costs will vary dependent upon size, technique, quality of finish, facilities included and so on. Typical costs range from €1,000 to €2,000 per square meter.
Affordability is a function of savings plus leverage. In saner times, lenders would advance perhaps three times annual purchaser income. Savings also derive directly from income, that is, net disposable income times the number of years one was inclined to save thus. Often, savings are augmented with the net proceeds of another property and by such means, affordability can enjoy a little “stretch” beyond that dictated by income alone. So it is therefore that as between a modest starter home and a more ambitious holding, the income link begins to fade a little.
Applying such relationships, residential property can be valued with direct reference to average incomes. Taking the latter to be €36k pa and a likely saving interval of three years, a basic starter home enjoying a modest location proximate to a centre of population is likely to enjoy a value of four times that, say €144k. Now let us assume that cost of delivery is €100k. From this we can infer that the sum of €44k remains to provide for costs of sale, value-added-tax, development contributions and some element of profit for the deliverers’ effort. Taking one thing with another, the “site” value is likely to be of the order of c.€30k. As one progresses and income increases, propensity to consume will increase both in line with income and with the increase in equity of such as the property aforesaid. Since delivery costs are likely to increase, mirroring consumption propensity, any tendency for land values to increase must yield somewhat to make way for the same. Thus we can observe that residential site value is less than or equal to the annual income of the purchaser.
“hopefully generating a profit as prices recover.“ Aye but there’s the rub. For “prices” we need only be concerned with “land prices” and since as aforesaid, such land prices are a product of average income levels, NAMA must await an increase in average incomes for such profit to be generated. Putting this another way, residential land is to be held back from the market until such time as incomes rise to meet NAMA’s expectations. It is to be hoped that any other organisation engaging in such activity would suffer the wrath of the Competition Authority.
Now let us consider an alternative; why not simply release such lands – and lands upon which dwellings are already substantially built – back into the market place, susceptible to prices driven by current average income levels ? Indeed why not short-circuit matters and fund such purchases out of NAMA bonds, with purchasers obliged in the normal way of borrowing, to repay both interest and principal ?
Similarly there is no reason why, as the current overhang of completed dwellings was thus cleared from the market, local authorities could not be re-empowered as in the past, to develop and farm out to small builders, parcels of ten or so sites – subject to certificates of reasonable value regimes – the better to restart our construction industry at the micro level. Fully 40% of residential construction costs return to the State in taxes. Including VAT inflows and social protection savings, the State would likely secure inflows equal to about 60% of such construction costs. It should not be beyond the wit of even our mini-minded mandarins to bridge that funding gap, minimising builders’ working capital requirements, further facilitating the necessary revival.
Such regimes would restore equilibrium to the residential property market at all levels but would leave unresolved, the problems of those in negative equity. It is too easy to say that such people were terribly foolish, badly advised, greedy or insane and that they should stew in their own juice. 150,000 families are not dispensable on any terms. I suggest a cunning plan.
Residential mortgage holders, subject to election on or before, let us say the 1st February 2011, should be permitted to offset against income tax, the entire of their pre-existing interest obligations in return for removing their dwellings from capital gains tax exemption. Such properties could then be subject to a special rate of capital gains tax, let us say 50%, with the baseline cost set at the value of the mortgage outstanding at the date of election for relief. Let us now move to a future date upon which sale of the subject property is proposed. Two options would present. Either; transfer the property (though only for use as a principal private residence) complete with both the outstanding balance of the initial mortgage and the special taxation arrangements or transfer subject to full discharge then of the mortgage in the normal way together with payment of capital gains tax on any gain presenting. Such arrangements would be likely to:
• Render such properties transferrable, albeit possibly from those who could not to those who could benefit from tax relief;
• Create, in effect, shared ownership of the equity as it emerged over time;
• Allow the State, absent any borrowing whatsoever, to part-finance such troubled mortgages;
• Enable such persons to revert to a property acquired for a “normal” consideration – see above;
• Re-grade many challenged mortgages, certainly those which are currently most likely to default, thus averting the fall of the next banking crisis boot.
Let us now move briefly beyond residential mortgages.
Commercial property is also subject to the impact of average earnings levels, whether as to the extent that it may garner such income, as in the case of retail property or in the case of office and industrial property where the issue of pay rates is likely of some importance. Such properties are unworthy of any direct “State” fix but would gain from increases in net disposable incomes for so long as such increases arose absent increased pay rates or, better again, with something of a lowering of such rates. For most of us, the cost of housing is the abiding challenge, income wise. Restore that to something approaching the reasonable, and such reasonableness is likely to prove contagious.
Whether or which, there is no reason for NAMA to mess around with commercial property – we surely know that the State was long since immunised against any propensity to manage commercial operations in a commercial way. There is every reason to now release such properties also into the market place. At market rates. Again NAMA itself has the capacity to provide the funding but in such cases, some element of purchaser equity – 20% would be good – would both provide inflows to NAMA and ensure the commitment of purchasers to such projects. If these various properties are brought into rate-paying, income generating use, then the economic consequences will be benign and considerable.
Your instant prognostication provides ample justification for the proposition that, if it were never to do anything, The banks have been given as much as ever they should have been in such fashion. NAMA should be wound up. Post hoc.
NAMA neutral ? Go on ? You were having a laugh ? Weren’t you ?
All the best to all,
Eric Doyle-Higgins.
Hi Eric and a Happy New Year to you,
Putting on my valuer’s hat, the value of a property is “that which is agreed between a willing buyer and willing seller both being in possession of perfect market information”. Of course the factors you outline below *should* influence values but history tells us that they are just as likely to be ignored.
Take Burlington Plaza which Paddy Kelly says was valued by NAMA’s John Mulcahy at €350m in 2007 and is now worth a fraction of that valuation. Did John Mulcahy value the property wrongly? Take a look at other transactions close-by at the same time (link below) and you will see that John’s valuation at the time was in the same range as was being achieved in that neighbourhood. So as a valuer, you would say he valued correctly even if the property is now worth a fraction of that valuation.
There are all sorts of methods to sanity check a valuation (rental yields, replacement costs, average salaries for examples) but the true means for valuing a property is to assess what similar properties in the same area at the same time are fetching on the open market and relate that to the subject property. And that is why you had average house prices at 10x average wages and 2% rental yields during the boom – the open market supported those high prices.
Separately, I agree with you regarding price discovery & finding a bottom from which an industry can be resuscitated with some degree of future certainty. So far NAMA has prevented such discovery and our outgoing Minister for Justice has failed to put in place a House Price Database which might give confidence to the market about the true level of house prices (Permanent TSB have <5% of the mortgage market which is depressed in overall terms and cash transactions are anecdotally significant so I would treat PTSB’s series with caution).
I like the novelty of your plan for those in negative equity but for the nation, the effect will be to reduce income tax and in the short term at least there will be no offset with increased capital gains. So who is going to plug that hole this year? The rest of society that didn’t buy during the boom paying more tax? Can you see any problems with that?
And yes I still maintain neutrality on NAMA as a concept though obviously in its implementation there will be much to criticise but look back over the entries during the past year and you will find praise for NAMA (acquiring colossal loan books and obtaining EU approval for valuations, ably defending itself against Paddy McKillen, avoiding significant scandal and some good communication for examples).
Ballsbridge property deals – https://namawinelake.wordpress.com/2010/08/05/the-most-expensive-land-in-the-state-finally-gets-planning-permission/
Two predictions for 2011:
– the last NAMA-neutral earthling is abducted for study on a distant galaxy where green scaly critters are looking for something odd to study.
– public outrage (irrationall as it is) finally has it’s day.
After thousands of words of reading, I am back to the same three conclusions as when I first studied NAMA.
NAMA is too complicated – and it is maybe impossible for an understaffed group from a really dodgy public sector pool to make it succeed in it’s entirity.
NAMA is an open invitation for corruption, itself being the epicenter of the next cute-hoorism earthquake
LETV is the most ridiculous thing I have ever heard. My prize for absolute bullscutter of the year – (make that ever). And LTEV really is a foundation stone of NAMA strategy. This is a disaster. A fatal flaw, innate and ring fenced by law.
Thank you NWL and all fellow contributors for top quality reasoned discussion. I look forward to more in 2011. The information here is superior to National Media in every single regard ( bar Miriam o’ Callaghan’s endlessly impressive wardrobe selections)
“Thank you NWL and all fellow contributors”
“Thank you NWL and fellow ‘comment posters’ that is.
My prediction is that our new overlords “IMF and EU/ECB” will ensure that any cronyisim/cute hoorism intended in this crock of shit called NAMA will be neutered.
Z**K H**L Frau Merkel.
When men speak of the future, the Gods laugh. (Chinese Proverb)
It is always wise to look ahead, but difficult to look further than you can see. (Sir Winston Churchill)
Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. (Peter Drucker)
To predict the future, we need logic; but we also need faith and imagination, which can sometimes defy logic itself. Arthur C Clarke
It is better to know some of the questions than all of the answers. (James Thurber)
Prediction is very difficult, especially about the future. (Neils Bohr)
[…] am an avid reader of https://namawinelake.wordpress.com – a blog that specialises on analysis of NAMA and it’s […]
@ Brian
you would make a good defense attorney for Met Eireann.
‘Lo NWL and Many Happy Returns !
Responding observations as follows:
“There are all sorts of methods to sanity check a valuation (rental yields, replacement costs, average salaries for examples) but the true means for valuing a property is to assess what similar properties in the same area at the same time are fetching on the open market and relate that to the subject property. And that is why you had average house prices at 10x average wages and 2% rental yields during the boom – the open market supported those high prices.”
Yes, I agree that a valuer acting for a client would certainly be required to take this approach, and with indifference to whether he is confronting bubble conditions.
Some years ago I found myself at lunch, surrounded by “heavy hitters”, all of whom were entranced by the emerging property bubble. One of the company told how he had then recently been obliged either to pay €156 / sq ft pa for his bagel bar in a certain shopping centre or to lose the stand. I am nothing if not impudent and I asked him how much he would pay his operatives therein. I think it was shock that caused him to confirm their lot as the “minimum wage” and before he had time to fully focus on me as if I had two heads, I asked him whether such persons would be able to afford €7 for a coffee and a bagel. Our host intervened before I could take matters further though in later informal conversation it clearly emerged that most of my companions were quite unable, or perhaps unwilling, to accept that high rents may only be supported by high prices, high prices by high pay rates and high pay rates by competitiveness, the key to our export-based prosperity.
This is true whether we talk about offices, hotels, factories or dwellings or the land upon which to build them. What is also true is that the prices to which you refer were not, in fact, market clearing prices. The most obvious verifying example comprises the “ghost estates” where only a small proportion of the dwellings are occupied and where the last price paid certainly was not a market-clearing price. I understand the same may now be said of Aylesbury Road. There can be no doubt but that we moved off baselines set with reference to average earnings levels and firmly into Asset Bubble territory. We will return to the former baselines, with prices (or, if you like, values) grounded as I have outlined. This was so after 1979 and it will be so after 2006 – we are moving there already. Is it suggested that NAMA should be retained in its present form while we await the next Bubble ?
To answer your question; an acre is 40,000 square feet. If you’re lucky you may cover 25,000 square feet. Do so times eight floors and you have yourself 200,000 square feet. Deduct 20,000 square feet for circulation and you have 180,000 square feet or 180 so-called luxury apartments. Mid-rise high-spec costs will be of the order of €200 per square foot, no less. Let us venture that each such apartment might sell for €1.5m. By my heuristic, it would be desirable to have income of c.€375k pa to support such a purchase on borrowed money. Deduct €900,000 for VAT, selling and finance expenses, development contribution, construction cost, builder’s profit, planning and other regulatory consultancy and costs of acquisition per se and the maximum possible land value per dwelling is of the order of €600,000, that is €108m per acre. If memory serves me, many of the high-profile purchases in the Ballsbridge area were actually below that level and I think the real problem is that the market for such units is perhaps some hundreds at best, not the thousands that the speculators assumed. Whether or which, the economic link is certainly earnings levels though for this sort of project we must think also in terms of income distribution and the actual level of unmet need. Any valuation which failed to control for these considerations would be flawed.
On the question of Market Discovery, yes I absolutely agree. These various Ballsbridge properties should be returned to market now on the basis of profit-sharing building license arrangements. Let us suppose that my units preceding sold merely for €1m well then, €50k for NAMA and €50k for the builder (though some adjustment would have to be made in this for the benefit of sunk costs, planning and so forth). As I have already stated the inflow to the State out of construction operations is very considerable moreover the State’s involvement should start and end with the granting of the license and should certainly not concern itself with such as business plans and so forth. Such matters are best left in the sole discretion of bad, evil and wicked capitalists like me.
“I like the novelty of your plan for those in negative equity but for the nation, the effect will be to reduce income tax and in the short term at least there will be no offset with increased capital gains. So who is going to plug that hole this year? The rest of society that didn’t buy during the boom paying more tax? Can you see any problems with that?”
Reducing income tax; again the sums. 150,000 persons x €300,000 mortgage x 5% interest x 41% tax, all worst case scenarios; total gross cost per annum: €922.5m. Now let’s do another sum: 75,000 persons x €300,000 mortgage x 50% default rate; loss to financial institutions: €11.25b. Just taking matters so far, at present yields, 9.1%, it would cost the State, assuming the markets were prepared to advance such a sum, €1.023b per annum to finance such a default, which cost would persist into the indefinite future. On the other hand, when eventually our subject properties were sold at a profit absent any continuation of election, the State would recover at least some of the tax foregone. Remember; my proposal, in effect, calls for the sharing of equity as between the troubled householder and the State, this is no insignificant imposition. Moreover, the relief proposed would only persist for the life of the challenged mortgage so that and unlike with any borrowing in aid of financial institutions, the cost would taper off consistently over, at worst, the outstanding term while the capital gains tax obligation would persist indefinitely.
The question is not who plugs the hole, it is a matter of how wide a hole would you like to plug.
The people we are talking about did not buy for speculative purposes. They sought to put a roof over their heads and in circumstances which we, all of us, from Bertie Ahern down, landed them in queer street. They, or at least the ones in most trouble, are most likely families. We cannot allow them to sink or if we do, in one way or another the total cost will be billed in due course. We already commit to paying half-a-million people, weekly, on the strict condition that they do nothing, absolutely nothing productive. This is cack-handed assistance which, nevertheless, no right-thinking person would withhold. Therefore my proposal does not bear down upon any principle which is not already made redundant by consensus. On the contrary, it proposes that we reach out to those who thus far have merely stumbled. If we draw them erect once more then there is every likelihood that by restoring to them a normal burden in terms of living costs, they will be in a position to help more of their fellow citizens back into gainful employment.
Again, do the sums; 150,000 persons x €300,000 mortgage x 5% interest x 41% tax, all worst case scenarios; total increase in net disposable incomes per annum: €922.5m. Dividing by €36k and assuming an employment multiplier effect of 0.6, we may calculate that the proposal would return c.63,000 persons to the workforce at average earnings. Even with import leakage, it is very likely that at least 40,000 persons would find employment as a direct consequence of my proposals. At €20k pa per person re-employed, including both social protection savings and direct tax contribution, the likely combined State saving and inflow would be of the order of €800m pa.
Speaking more generally; our thinking on these things has been paralysed into inactivity but we must reverse this. Against the problems which confront us currently, our most powerful weapons are our ability to trade, to do business, to work and to take risks and we are opposed by nothing more strongly than our own fear, our lack of confidence in ourselves. My modest proposal as to negative equity is merely one example of how two solutions can be obliged to emerge from the one problem.
NAMA is the gift of mutton-headed fools. It was the wrong way to go but we are there now. NAMA can either be yet another State-sponsored money furnace or it can be an engine for the resurgence of growth in key areas of our economy both by normalising the construction industry, a key element in reducing unemployment, but also by re-opening doors that closed upon us through the excessive cost of offices, factories, warehouses and other commercial buildings. NAMA offers a golden opportunity to reset a major portion of our costs. It remains to be seen whether it will be obliged to mess around, awaiting another Bubble or whether and by relentless exposure to market forces, key elements of our productive apparatus are brought back to use.
With every good wish to all,
Sincerely,
Eric.
__________________________________________________
Following the ‘Cantona Appeal’ for a massive popular withdrawal of cash from the banks, John Perkins and ZeitGeist BankRun Crash inspired by The Order of Malta are plotting to engineer a Crash on January 6 and take advantage of Chaos.
For Conspiracy Theorists:
1 / (911) = 611 = January 6, 2011;
Reminder the time when the crash took place on the North Tower of the World Trade Center it was 8:46 New York Time. The plane that crashed into the Pentagon did so at 9:37 am The New York Stock Exchange had just opened.
Now we know the place, the date, and the time.
☮ La Nouvelle Économie.
Instructions you must follow to insure your personal and economic security in view of the January 6 Crash. Read carefully.
The Revolution is Very Simple … to Make.
__________________________________________________
Great discussion. There is a lot here that I completely agree with – and a lot that I would question.
For example; I cannot fault all three of sf ca writers conclusions. Especially his forecast that “NAMA is an open invitation for corruption, itself being the epicenter of the next cute-hoorism earthquake”. – Ain’t that the truth!
And Eric’s conclusion that – “NAMA offers a golden opportunity to reset a major portion of our costs. It remains to be seen whether it will be obliged to mess around, awaiting another Bubble or whether and by relentless exposure to market forces, key elements of our productive apparatus are brought back to use.” – is the key to the revival of the economy.
But, who is listening, Eric? everyone is fixated on spin, the “blame game” and revenge.
On areas where I have difficulty, IMHO the question of residential land values, is not as simple as set out. There is of course a mean historical ratio between earnings and house prices. The problem is that prices gyrate wildly above and below that mean.
The fact is that in Ireland we do not have a reliable index of residential sales prices going back any length of time, does not help to give it credibility as a tool for assessing value – which is a pity. Obviously, if a sales price is above or below the historical mean, it helps establish whether or not the price on offer represents value. All of this is further complicated by subsets such as location, type of residence (apartment, house, etc) and quality of construction.
Residential land price is a residual “value” and is determined by the retail sales price of the completed unit. I have researched prices of new residential construction going back over the past 50 years and the following broad yardstick applies as a mean percentage value after deduction of VAT from the sales price.
Pure on-site construction: = 50%
Ancillary Development: = 10%
Sales, legal, design, Interest: = 10%
Overheads & Profit: = 15%
Residual Land Value: = 15%
On a historical basis, when the price of land rises above 15% of the net retail price of the home, we are in overvalued territory – and vice-versa.
I have a problem with Eric’s figures in relation to the apartments in Ballsbridge. To sell an apartment for an average €1.5 million there is impossible. You would be very lucky if it made €600,000 at present and to build to a luxury finish that would enable one to ask anything like €1.5 million would be north of €300 per sq. ft. rather than the €200 quoted. I won’t go any deeper into the figures than that.
NWL commented correctly that Paddy Kelly stated in Glenties that John Mulcahy valued Burlington Plaza at €350 million. If the statement is correct, John did not value the property correctly – and he has questions to answer. When he valued it, there were no tenants and no pre-lets. So he valued empty buildings of 240,000 sq. ft. net (290,000 gross). (There are two buildings one of 165,000 sq. ft., the other 75,000 sq. ft. net)
To achieve a value of €350 million he would have had to assume a future rent roll of €65 per sq. ft. and a yield of 4% after a tight 1 year letting period and a 2 year rental void as an inducement to a prospective tenant.
Word on the street is that Bank of Ireland is taking the 75,000 sq. ft. building as its new head office. The rent has not been disclosed but is VERY likely to be in the region of €30 per sq. ft. This is less than 50% of John’s assumed level…… And that is the problem. He should never have made such an assumption. He was not valuing what existed – an empty building (actually, it was just a site at the time). He was valuing “pie in the sky”, something that might happen in the future… maybe. And it didn’t.
Paddy would have been better consulting Gypsy Rose Lee and ask her to look into her crystal ball.
She would have been a lot cheaper too!
G’day WSTT,
Permit me to compliment you on your clarity. I certainly would not take gross issue with your proportions. On the question of gyration about the mean, I suggest there has always been a stimulant to such movements. In 1977, for example, there was the £1,000 first-time-purchaser’s grant which in the space of two years pushed starter prices from c.£11k to c.£17k. In the naughties, as we are all painfully aware, the stimulant was cheap money, to end-users and land speculators alike. Similarly, during the 1980’s, the “Certificate of Reasonable Value” regime checked prices such that a starter home at c.£18k in 1981 was doing very well to make c.£23k in 1987 despite radical inflation in the interval.
On the question of Ballsbridge prices, you may well be on the money but if so then some way has to be found to harness such demand whether by cutting back on specification, decreasing unit size and/or increasing density and so on. The unpalatable truth is that NAMA comprises a shed-load of our money and some way must be found to liquidate it, preferably now.
As ever, all the best to all,
Sincerely,
Eric.
Apologies, it was late last night when I wrote the above and I missed making my main point on John Mulcahy’s valuation of Burlington Plaza.
John’s major mistake in projecting the future value of the building was that, in an overheated market, he projected the realisable value of the project based on “bubble” rents and yields.
He should have known that the market was overvalued based on mean historical values, and used those mean historical values to assess what the real end value would be. Anything above or below that would be market swings into over or under-valued territory.
There are lessons for valuers in this presently, where agents are putting fire-sale values on properties where there is only a distressed market – if one at all.
As an example, I am personally aware of one office building in Mayfair that was valued in 2006 at £90 million, in early 2009 it was valued at £47 million, in the Spring of 2010 it was revalued at £65 million and last month was valued at £72 million. Where is the real value?
The only long-term guide we have is the historical mean in terms of yield and a smoothed moving average of the construction price graph.
In giving an assessment, agents should point out where the current market level sits when measured against those norms.
BTW, Eric, I agree with you. From first time buyer grants, Certificates of reasonable Value, Capital Allowances, Section 23s….. all the way to NAMA, government interference in the market has been a disaster.
Hi WSTT
“John’s [Mulcahy] major mistake in projecting the future value of the building was that, in an overheated market, he projected the realisable value of the project based on “bubble” rents and yields. ”
I’d disagree with you. Putting on a valuer’s hat again, one of the most important aspects of any valuation is the valuation date. NAMA’s valuation date is 30th November, 2009 for example. In NAMA’s case what that means is that when valuing the current market value of the property, you are artificially prevented from using events after 30th November, 2009. Of course if you find out on 2nd December, 2009 that a property sold on 15th November 2009 then you would be entitled to use that information. And if a property sold on 15th December, 2009 you could legitimately claim that it was relevant but it wouldn’t be as good as evidence available at the valuation date. And the valuation date for Burlington Plaza was not 2010, it was 2007.
And when valuing it is worth bearing in mind the maxim “valuation is an art, not a science though it’s not astrology either”. So a valuer will set out the evidence upon which they base their valuation at the valuation date. And in the case of Burlington Plaza, that would have included the valuer’s knowledge of recent relevant transactions. So valuers don’t stick their finger in the air and guess a number, they gather evidence upon which they will base their estimate.
It is not generally the valuer’s job to play Gypsy Rose Lee and predict prices in a year or decade though of course NAMA famously includes the Long Term Economic Value in its valuations but it sets out in some detail how the LTEV or LEV is to be calculated by reference to certain information.
As I understand it John Mulcahy’s €350m valuation which Paddy Kelly claimed was provided to him for Burlington Plaza was the current value of the property in 2007. I haven’t seen any valuation report. Perhaps it made reference to the rents being well above long term averages, I don’t know. But it would generally not be a valuer’s job to say that in x years time the property would be worth y. If valuers had that gift of predicting the future then why would they labour in the relatively unprofitable professional services game when you could be making billions on the back of leveraged purchases?
If the valuation was a future realisable value then a valuation report will have made clear the assumptions and evidence used to arrive at the valuation. It might have even included scenarios based on key criteria such as rent. So overall I’m not sure that on the face of it, you can lay any fault at John Mulcahy’s door for valuing a property in 2007 at a level which has now declined.
@ Eric
I like the bagel story, and the pride of your capitalism.
stragihtforward question ahead for anyone….
When people talk of underwater residential mortgages in Ireland there is debate how big the problem could become. A lot of informed opinion says it is (will become) a serious problem.
So, what of small businesses where investment capital, savings and – in some cases everything- is tied up with mortgage payments agreed upon since 1998 or so.
These are among the people we are looking to for growth. Many of them pay the mortgage then look behind the couch for spare change, finding not even enough for a Twix never mind a Bagel.
What scale of a problem is the number of small businesses in negative equity relative to the myriad of other problems Ireland faces right now?
Good Afternoon sf_ca_writer,
Indeed this is a very real problem for many but I think the way to help them is, firstly to give then an envoronment in which they can function to the nth of their potential and then secondly to provide them with empowered customers.
The problems are even greater for those who set out in business within the last decade, often acting in anticipation of “super” demand and too often finding that their particular venture had over-reached the extent of actual demand. In some cases at least, an unfavourable outcome is unavoidable.
I am conscious that some such persons may be reading this. I do not wish to add to their worries but I believe it will always be good advice in such circumstances to confront the financial realities in all their unpleasantness; sheet of paper, line down the middle, debts on the left, assets on the right. Then act.
It may be possible to salvage something. It may even be possible to approach the creditors, tell them the facts and invite them to make their best possible contribution, all the while remembering that, odds on, some at least of such persons will be in precisely similar circumstances.
Perhaps there is another, more modest way in which to continue in business. Or it may be necessary to call it a day for now.
But always, always, get your hands on a good, experienced, hard-bitten accountant and listen to her advice. Most decent scouts will give an hour for free to anybody in great difficulty.
Given the considerable difficulties presenting currently, there is no shame in honest failure. If you must confront it, pick yourself up, dust yourself down, bide your time and as circumstances improve, try again. Most good business people I know came pretty close to this point at least once.
I hope these observations may be of some assistance.
With all the best to all,
Sincerely,
Eric.
I can’t comment on the SMEs, but… “How big is the underwater mortgage problem?”
IMO, somewhere between €30 and €60 billion – probably closer to the higher level of €60 billion.
The reasoning? There were more than 300,000 newly built homes erected over the period of the property bubble. These were mainly highly leveraged and would have lost 50% of their value. Assuming that the loss is conservative – a minimum of €100,000 to a maximum of €200,000, it gives us a range of €30 to €60 billion. If we allow the average of €45 billion and add a third for existing home sales that would have had greater equity injected on their purchase (from the sale of existing properties) then the figure is likely to be in the region of €60 billion.
Hi Eric,
Your last posting is sage and invaluable advice for anyone in financial trouble. I imagine that it will be utlised many, many times over the next few years. The question is, “will the banks respond realistically?” If they do we may at last achieve a bottom and see signs of a recovery. If they don’t… I despair!
G’day WSTT,
We can only estimate as you have done and while I suppose matters could be as bad as you suggest, I prefer a more benign estimate. 300,000 purchases yes but not all will be underwater, only the larger, more recent purchasers and those not supported by initial extra equity as you suggest.
My guess is that problem cases arise at an average mortgage level of €300,000, that there are about 150,000 purchasers who are in negative equity but that only about half of them are likely to be in trouble – because they simply cannot make their full payments – and that they could default to the extent of 50%.
This would leave us with a €11.25b problem, that is, this would represent the extent to which default might impinge upon lenders. There will be many persons who, quite rightly, will disregard their equity quotient for so long as they can continue both to live at their present address and fund their repayments.
But-to-let borrowers, on the other hand, offer a more complex estimation problem. Perhaps those with knowledge of the rental market could give some indication of the likely difficulties ?
All the best to all,
Sincerely,
Eric.
Good evening, Eric.
You make a very fair point. It may be my natural pessimism settling in after the New Year celebrations! :-) In any event, I think that a lot will depend on whether we continue in this downward deflationary spiral, or whether there will be liquidity in the market so that we can achieve some growth. The solution may be in the hands of the banks themselves – and that does not inspire confidence.
I see that NAMA have dropped the 22 cases against the developers. Well, well… Who would have thunk it!! (I AM being sarcastic)
http://www.tribune.ie/business/article/2011/jan/02/developers-bow-to-nama-amid-threat-of-foreclosures/
P.S. If you think that the developers buckled, there’s this bridge in Brooklyn…..
2011 predictions ?? “The earth is round so that we cannot see too far down the road” Karen Blixen missive usually starts and stops my predictions dept.
The meandering NAMA threshold is currently set to Zero for AIB and BoI. The Eligible Bank Assets are defined here… http://www.nama.ie/Publications/2010/NAMAEligibleBankAssetRegulation.pdf
Now that we are at Zero does the above include everything right down to small one-off sites? forceful bottom Trawling by NAMA will not be pleasant.
How many people in their 30’s and 40’s will leave this country because their assets will be ‘taken’ and can see no future here. (re-reading Joe Stiglitz affidavit in the PmK case re-enforces the point he made that the ‘common good’ is better served by NAMA not being given control of assets. Pg32, ‘the importance of due process’ is instructive).
How many people in negative equity with lost employment will also leave.
How many people in their late teens and twenties will leave because of the lack of jobs, their friends have already gone and/or they see no future here.
Eires worst Emigration since the Famine could be the big story of ’11 & beyond.
On an (almost) totally separate & non-NAMA note.
Eric, you are right, its all about jobs. How do you stimulate the creation of these?
Adding ‘complexity’ to the system by endless rule changes, loop hole creation, etc adds to business overheads in professional fees (accountancy, audit, tax, legal advisers and consultants). Any change to ‘fix’ a current short term issue creates more changes down the line and around and around we go. Give people, business, etc tax certainty for a 10 year period. Get our politicians fingers out of the ‘revenue raising’ pot.
reduce corpo tax by 0.5% annually for 5 years to 10%.
reduce all other taxes to a standard rate (vat, paye, cat, etc) to one value, say 20%, and then reduce it by 1% per annum to 15% over 5 years. Forget the minimum wage but people should be allow to earn a minimum of 12k per year before paying any paye tax. Then fix taxs and only allow change via a referendum.
Essentially reduce the size of government, take way politicians ‘ability’ to bribe us with our own money and our ‘ability’ to reward the ones who bribe us the best with our own money.
‘short’ on government & ‘long’ on people.
HNY to all.
Good Evening JR,
How do you create jobs ? Oh well, that’s the simplest thing in the world. Acquire the ability to leave customers not just satisfied but delighted while showing a cash surplus. Render that ability sustainable into the indefinite future and you won’t be able to help yourself for making jobs. In our situation however, we have to think beyond that simple recipe.
In the modern world with rapid technology transfer between markets, the only truly sustainable competitive advantage is the ability to acquire and apply knowledge. Knowledge does not reside in computers or miracle pills or milk-based infant formula – as welcome as such exports are – but rather in the people who make them and in the people who understand how their production is organised, how the end-user market is developing and changing and how the competition is comporting itself. In short, the “knowledge economy”, most recent buzz phrase to have been taken in charge by the mini-minds in the Public Sector, is all about having the right people, getting them to think clearly, to hone their thoughts into commercial challenges and to formulate the means whereby these challenges can be met.
The most abiding negative of the so-called Tiger era is that too many people were siphoned off into unnecessary construction and now that their labours thus are not currently in demand, many are ill-fitted to make the transition to other, potentially viable areas. In my comments preceding I have instanced a small number of ways in which people can be brought back to productive effort in the construction industry and such efforts will have a cumulative effect as the services sector, as everybody from barbers to bar-persons come back also to take their little share.
As to those who remain unemployed and those now just joining the workforce, it is absolutely vital that we give them opportunity and encouragement to self-assess, to ponder whether they might not prefer some other calling and to make that transition. Some will indeed have the sort of new and sustainable ideas that can prosper. Some will limit their involvement to making themselves available for participation in such efforts and it is important that REAL training opportunities are offered to them. Those willing and able to return to full-time study must be facilitated by being offered placing in sectors that may reasonably be calculated to align with emerging opportunities.
Costs ? Again as I have said previously, think of the hundreds of thousands who currently are paid on the expressed condition that they sit, week to week, totally unproductive. Let such benefits serve as stipend in the short term. In any sane ordering of our affairs, they would be required to undertake such efforts but I do not believe that compulsion would be a common necessity.
Think also of those included in the league of the compulsorily non-productive who would willingly lend their skills to such efforts, teachers who can and should give us as many hours as they are currently being paid for, to help in the overall effort, craftspersons whose skills are vanishing for want of organised perpetuation. I don’t care if the best we can offer to some is a course in creative writing ! Artists are workers too and can make a productive contribution.
In short, we must husband and manage our resources of knowledge, our people and their capacity and their willingness to work. We must ensure that no willing worker is left idle, that no job worth doing is left undone.
Out of such a disposition comes hope and the confidence to do a little more and a little more until finally and as the little sparks of acumen click into place, we begin once more to make economically measurable progress as well.
That, is how we must proceed to make jobs.
Of course there comes a point at which finance is an issue and there is no easy answer to that one but you may rest assured that such was always the case for many entrepreneurs. Sometimes the solution was the three effs, friends, family and fools and sometimes, somehow, the little bit of credit, the few Euro on the plastic was sufficient to fund working capital. The State could certainly help by the institution of a voluntary intern scheme, with benefits continued for a brief interval to those willing to trial an opportunity.
Non-NAMA you say ? Anything but. This is the whole and substance of our quandary. True entrepreneurs are not given to surrender in any circumstances and, again as I have observed elsewhere, I can see clear evidence of movement in aid of fresh efforts. But, of course, that will get us only so far. This is why we so desperately need to move now to create a source of working capital.
One thing which has struck me of late is the destination of all of those deposits taken out of the “protected” institutions. I have reason to believe that at least some of it is in their “non-protected” fellows and that it is finding its way back into the economy, though the major share, I guess, comprises multinational current account balances which are off-shore, at least for now.
You may recall preceding, my suggestion that NAMA might itself finance the purchase of many vacant new dwellings, with transfers at realistic prices subject to mortgage obligations that were wholly viable. Now, suppose we were to expand that a little, into something of a deposit taking institution. And suppose we were to provide a capital fund out of a small hair-do on each mortgage (you know, adding it on, rather than haircutting it off…) thereby providing a fraction capable of supporting a deposit liability.
€10k on 50,000 mortgages would provide us with €500m. Now, park that anywhere you want, in German Bonds if you feel the need to. Then, offer a savings facility to the ordinary fellow but with a vested guarantee of up to €20,000 per account. I calculate that total savings of €500m would be sufficient to provide working capital for 150,000 jobs. Duly lent on overdraft, even if the whole total were to vaporise, the capital would be sufficient to meet all demands. For security I suggest the guarantee of promoters, secured on their entitlement to a State pension, would work nicely.
The EU, ECB, IMF and Uncle Tom Cobbly might scream “Unfair State Competition” but hold on now. Who would be the owners – why NAMA of course. And since NAMA is owned by BOI and AIB Bank sure, it’s only the Private Sector at work.
We are asleep, JR, and then some. We can make all the jobs we need and all we need to do to do so is to so organise our affairs that it is done.
With all the best to all, as ever,
Sincerely,
Eric.
Foolishness, thy name is NAMA!
One of the worst aspects of the Irish crash was that it was entirely self inflicted, despite a lot of encouragement from those lately supplying credit to Irish banks that had completely lost the run of themselves. There was no evil President aided by the Fed, lowering interest rates and creating a housing bubble.
The entire basis of the Irish get rich scheme was to sell land to one another and those who were foolish enough to return to Ireland now that the economy was doing well. NAMA is a continuation of that: we pay or suffer the loss of interest on the capital tied up in the land loans etc until there is a recovery of some sort in the area of land. We wait. We borrow the interest needed for as long as we can. There will be lawsuits aplenty depending on whose property is being sold first …. and for everything else.
The increases in land value will occur, eventually. Despite increasing taxes on land. And on income. And capital. This is an expensive way of wasting time!!!
Hi NWl, Re:John Mulcahy’s (purported) valuation of Burlington Plaza.
I basically agree with all that you say, with one exception. [I hate taking issue with anything you write ;-) ]
When JM valued Burlington Plaza he was projecting a value on a building that was yet to be completed. It was in early course of construction. There were no pre-lets, no tenants and in 2007 it should have been obvious to anyone in the Estate Agency business that we were in for a decline.
The extent of that decline may not have been obvious, but its imminence certainly was. So in that scenario, John was projecting values forward on an empty unfinished building, to the time when it would be completed and let.
To reach his valuation level, he would have had to be very bullish with both rental levels and yields. He picked a forward rental level that was in excess of the market and a yield that was below the historic norm in a market on the brink of collapse.
As a property specialist (probably one of the best) he should have known that any empty building, commercial or residential, is a liability rather than an asset, if it is not producing income.
If, at the time, he was making a current valuation, he would have had to value an empty unlet building in the course of construction. Clearly he did not do that.
So his valuation was a projected one (reading the tea leaves). He got this prediction wrong. (I haven’t seen the valuation, but I will try to get a copy and come back to you.)
Two things have gone against his forecast valuation. The rental levels have fallen in excess of 50% and yields have increased in excess of 50%. With a projected income of say €8 million, Burlington Plaza is probably worth closer to €120 million (being generous here) rather than €350 million as John predicted.
Down two thirds. That’s very wrong!
Hi WSTT,
I see where you’re coming from (and dissent, within the usual legal bounds, is positively welcomed, life would be boring if there was agreement on everything)
As you say NAMA’s John Mulcahy’s involvement in the Burlington Plaza valuation is alleged, in this case by Paddy Kelly (you will find a link to the video of Paddy’s speech at the MacGill Summer School last year below where he clearly identifies John as the valuer of that property – oddly enough a week earlier in the joyride with Fintan O’Toole visiting his past glories, Paddy referred to the €350m valuation but didn’t identify the valuer…)
I would still say it’s too much to ask of the valuation profession to predict details of downturns (either the magnitude or timing). Alan Greenspan’s criticism of the stock market in 1996, the “irrational exuberance” was correct, it was just five years early. Rationally the property market should have cooled here in 2004 onwards long before Lehmans. But the boom got boomier. The point is that even the best qualified valuer can’t predict the future with any practical certainty.
And I would come back to the basic core of a valuation – it is what a willing buyer will agree with a willing seller, both being in possession of perfect market information. So if rents in 2007 were high compared with long term values, then a valuation *might* have drawn attention to that fact but ultimately a current market valuation would have included the rents that were pertaining. I would however agree that in what was clearly a boom compared with long term averages that attention should be drawn to sensitivities to declines in what was an investment property to be held for a number of years.
What would the criticism of John Mulcahy be like if he valued the property at €350m in 2007 and in 2008 it was worth €500m, in 2009 was worth €600m and wasn’t until 2011 dropped to €100m? Would people have said he undervalued? Or would they have said he should have known the date and profile of any decline? I would say that’s too much to ask of a valuer.
Paddy Kelly speech at the MacGill Summer School – https://namawinelake.wordpress.com/2010/07/24/burlington-plaza-burlington-rd-2007-%E2%80%98who-signed-off-on-that-as-being-worth-e350-million%E2%80%99/
Paddy Kelly talks to Fintan O’Toole – Burlington Plaza, Burlington Rd, 2007: ‘Who signed off on that as being worth €350 million?’ – http://www.irishtimes.com/newspaper/weekend/2010/0717/1224274880645.html?via=mr
Good morning, NWL. Maybe we should discuss this in more general terms.
I agree that valuing property is not a precise science. So do the courts. A range of values can be reasonable. Indeed, case law to date has suggested that there is a permissible margin of error for valuation work of approximately 10% either side (and on occasion as high as 15%).
The most famous case relating to valuations was Singer & Fredlander –v- John D Wood & Co (1977), in which the learned Judge stated:
“….there is a permissible margin of error, the ‘bracket’ as I have called it. What can properly be expected from a competent valuer using reasonable skill and care is that his valuation falls within this bracket….”
What this suggests is that a valuation falling within the bracket will not be negligent and a valuation falling outside the bracket might imply negligence.
However, downturns in the market are a different issue and IMHO, a volatile market (either bubble or collapsing) is a warning sign and there is an extra onus on a valuer to be prudent and circumspect.
All the above are my personal opinions and are given as general comments only.
Hi WSTT, well this is becoming a well-informed exchange! To quote from the Singer and Friedlander case (link at bottom).
https://docs.google.com/leaf?id=0B1V6jFjykyK6Y2NjNTQ4NzEtZjJkZi00YTExLThlZTItYjMyM2E1N2I1MzRk&hl=en
Take the Irish Glass Bottle site which John’s then-company Jones Lang Lasalle was also involved in (on behalf of the seller). That sold for €412m in late 2006/early 2007. In the open market the consortium that included the DDDA, Bernard McNamara and Derek Quinlan paid €412m. The next highest bid was thought to be Sean Mulryan (link below) who reportedly bid €€312-350m or 15-25% less than the winning bid.
At €412m for 24 acres, the land worked out at some €17m an acre and I understand that some €3m/acre has been spent decontaminating it and it is now more or less ready to develop. At the time prices of up to €197m/acre were being paid in Ballsbridge. Different market in different area of the city albeit, 2kms distant. The IGB land appears to be presently valued at €50m in total. Again I would tend to say that the current market value in 2006 was in the €312-412m range, that’s what willing buyers and sellers were proposing. The fact that it is worth €50m today is largely irrelevant (subsequent facts as stated in the Singer and Friedlander are not directly relevant) . If the valuers advising the buyers were doing their job and if it was within their brief to advise on future values I would have expected some scenario playing with respect to future prices but based on current market values clearly €412m was not completely out of the ballpark.
Sean Mulryan (reportedly), Derek Quinlan and Bernard McNamara were amongst the top developers. And their valuations would appear to have been up to 25% different. In a boom market I would have said that this type of range was permissible as long as the valuer took relevant data into account and made clear their assumptions.
Glass Bottle site purchase and development costs – https://namawinelake.wordpress.com/2010/08/12/the-irish-glass-bottle-site-%E2%80%93-how-the-state-managed-to-end-up-with-e15m-and-dropping-from-a-25-acre-site-worth-e412m/
Sean Mulryan and IGB site – http://www.sbpost.ie/news/glass-bottle-consortium-paid-100mm-ore-than-under-bidder-49594.html
Ballsbridge prices per acre – https://namawinelake.wordpress.com/2010/08/05/the-most-expensive-land-in-the-state-finally-gets-planning-permission/
Singer and Friedlander v John D Wood – http://www.property.org.nz/Folder/Action/Download/Folder_id/File_3DSingerandFriedlanderLtdvJohnDWoodCo19772EGL.pdf