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Archive for February 2nd, 2011

Or given we’re in a 28-day month, and what the report precisely says is that Limerick city has enough vacant housing to last 1.1 months in terms of new demand, I guess that means on 3rd March, 2011 we’ll be back to the Angela’s Ashes era with families co-habiting in the same house.

The latest rubbish from the Construction Industry Federation (CIF) went on-line earlier today and aims to show empty property alongside expected population growth (and hence housing demand). Whilst you can sympathise with a sector in the economy which has suffered more than any other in terms of collapse in revenues and employment, it does not help the sector’s cause to see this raimeis.

And why such criticism? On the housing supply side, the report uses the Department of Environment Housing and Local Government “Ghost Estates” review in October 2010 which you might recall excluded empty housing on complete or near complete estates and one-off housing. Whilst there are variations between other sources (DKM, NIRSA, UCD, Goodbody and 2Pack at thepropertypin.com) it seems agreed that the overhang of empty property is in excess of 100,000 homes, not the 23-33,000 that the partial Ghost Estates review examined.

And on the other side of the equation, population is more or less static in the State, growing by an estimated 11,000 in the year to 30 April, 2010 and likely to be more or less flat for the current year with net outward migration offsetting our healthy natural growth (high birth rate less low death rate). Of course obsolescence should see an extra 6,000 dwellings needed each year, but with a relatively high average household size of 2.75 souls we should only need about 5,000 additional dwellings per annum so 11,000 in total. And whilst the demand for new housing won’t be evenly spread throughout the State (the population of Dublin city fell in the year to April 2010 for example whilst the population of surrounding counties rose), it does mean that we are likely to be a few years away from needing any marked increase in new construction (it is difficult to assess new construction but it was estimated at 7,500 in 2010 though by reference to new utility connections it was nearly 15,000). CIF used Regional Planning Guidelines for 2010-2022 which are based on DoEHLG 2009 population projection estimates which are now woefully out of date because the economic collapse and consequent emigration were not apparent in 2009. And I note the DoEHLG did not update its population projections in 2010.

As suggested on IrelandafterNAMA, CIF’s energies might be better directed toward infrastructure development or conversion of property to more desirable uses.

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Perhaps it is because we have had wall-to-wall coverage of the financial crisis for more than two years, perhaps it is because we have sunk so far into the morass, perhaps it is the reflection forced upon us by the forthcoming election but I must say that Michael Lewis’ feature article in this week’s Vanity Fair is as good a perspective of the financial crisis from 2007 to mid November 2010 as I have seen. The full article is available from Vanity Fair here. Put to one side the lesbian prime ministers, the Band-Aids attached to specially cultivated rotten eggs that Gary Keogh lobbed at the AIB AGM, the South African that compares our weather to living beneath an elephant and many other entertaining nuggets and there is a well-written 14,000-word piece that places events in context.

Plainly there needs to be a full and forensic analysis of events leading up to the bank guarantee in September 2008. Patrick Honohan’s report is not it, the Regling/Watson report is not it nor is the Nyberg report due in March 2011. And nor is this Vanity Fair article but it is an excellent and readable summary.

To extract but one small detail that has relevance today : in March 2008 a Merrill Lynch analyst penned a note on Irish banking/property lending which painted a worrying picture for ML’s banking and construction clients. The article claims the research note was softened by ML but that the note originally said (to quote the Vanity Fair article)

“The Irish banks were making far riskier loans in Ireland than they were in Britain, but even in Britain, the report revealed, they were the nuttiest lenders around: in that category, Anglo Irish, Bank of Ireland, and A.I.B. came, in that order, first, second, and third.”

Even at this late stage, I am at a loss as to why Bank of Ireland’s NAMA loans will only attract a 40/42% haircut/discount compared to 60% estimated at AIB,  67% at Anglo, 60% at EBS and 70% at INBS. The above extract relates to BoI’s operations in the UK which has suffered less than Ireland it is true, but it seems incredible that BoI’s NAMA loans will be so much better overall than the four other NAMA Participating Institutions. Central Bank of Ireland Governor, Patrick Honohan said last week that he expected loan losses to be slightly higher than previously expected. I fully expect BoI to feature prominently in any additional unprovisioned losses.

UPDATE: 9th February, 2011. BusinessInsider has the story on the ML analyst whose research note in March 2008 was scotched following angry intervention by ML clients and the site has produced the front of the original and revised note.

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Jack Fagan in today’s Irish Times reports on the sale by Royal Liver Assurance of one of the 16 properties that comprised its €120m portfolio whose sale to Green Property/TPG Capital fell through before Christmas in the aftermath of the IMF/EU bailout. Although the buyer of 22-25 Clare Street in Dublin 2 has special status as the existing tenant of the property and with a upward/downward rent review backdated to July 2010 in progress, the price paid confirms that prices have dropped some 70% from peak. Below are the details of the sale and the previous sale of the property in May 2006 when Royal Liver acquired the property (the second Feb 2011 column relates to the new rent suggested in the Irish Times article).

The peak of the commercial market was in Q3, 2007 according to Jones Lang LaSalle, so the €18m price tag in May 2006 might have been expected to increase. That would indicate that the drop from peak has been more than 70%. The latest JLL index for Q4, 2010 showed a 60.2% drop from peak, so arguably prices have continued to decline. But the special purchaser status in this case might mean that the decline is not as steep as might be suggested by the bald figures.

Of interest is the rent for what is a prime located property just around the corner from Kildare Street and practically opposite Trinity College. It is suggested however that the accommodation is “dated”. The rent today is €33.50 psf (that is €670,000 divided by 20,000 sq ft) but it is suggested by the Irish Times that this might reduce to €20 psf with a rent review. This is still slightly above the €18 psf available for prime office property in Belfast (according to CBRE a fortnight ago) and of course there would need to be an adjustment for updating the property but it does seem to indicate that prices in Dublin are coming into line with Belfast. The latest JLL index series suggested that rents were still falling at an annualised rate in excess of 20%.

The sale price of €280 psf compares with the €450 psf which sources have suggested has been achieved at the spanking-new Montevetro building just around the corner on Barrow Street. However you would have to accept that the special purchaser status in the Clare Street transaction might have depressed the price achieved to some extent.

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Today the Independent reports that NAMA has put another company into liquidation –  Bernard McNamara’s Cicol Limited. 13 months after its creation, NAMA is beginning to rack up a sizeable tally of receiverships and liquidations. An updated spreadsheet will be available under the Developers TAB later today. Receiverships to date are:

(1) Michael McNamara & Company Construction (associated with Bernard McNamara)
(2) Radora Developments (associated with Bernard McNamara and Jerry O’Reilly/David Courtney)
(3) Paddy Burke Builders (associated with Paddy Burke)
(4) Arcadia Developments (associated with Paddy Doyle)
(5) Mellview Estates (associated with Paddy Doyle)
(6) Mellview Properties (associated with Paddy Doyle)
(7) Mellview Contractors (associated with Paddy Doyle)
(8) Lyndonbarry Properties (associated with Paddy Doyle)
(9) Lyndonbarry Estates (associated with Paddy Doyle)
(10) McEnaney Construction (associated with John McCann)

Liquidations in which NAMA is involved are

(1) Pierse companies
(2) the Whelan group
(3) Cicol Limited (associated with Bernard McNamara)

Recovery action against individuals

(1) Paddy Shovlin, Patrick Fitzpatrick, Anthony Fitzpatrick

It should be emphasized that NAMA Participating Institutions (AIB, Anglo, BoI, EBS, INBS) may also have taken recovery action under the auspices of NAMA on loans that were NAMA-eligible but had yet to transfer. We do not have a list of these at present but will work to examine judgments for evidence that actions were NAMA-directed. And lastly there will be recovery actions by non-NAMA banks but NAMA may be a creditor and again we will work to examine these actions to explore any NAMA involvement.

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