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Archive for March 16th, 2011

NAMA awards IT systems contract

If there’s one combination of words that should strike fear into the heart of any taxpayer, it is “public sector” and “IT system procurement”. It’s not just an Irish phenomenon though, and governments around the world have found themselves with egg on their faces as IT projects went vastly over budget, delivered late, not doing what they were supposed to do and often with shenanigans uncovered in the procurement phase.

NAMA has just announced that it has awarded a contract for the “provision of a portfolio management system” to Ergo Services Limited, the Dublin-based IT firm founded in 1993. Today it employs 175 people and its chief executive is John Purdy. It was recently voted a “best managed company” in a competition organised by NAMA’s internal auditor, Deloitte.

The value of the IT contract has not been disclosed. Nor is it clear why NAMA is not using industry software to manage its portfolio. Nor is it clear why NAMA is just now awarding the contract given that the agency has supposedly been managing billions of euros of loans since last March/April 2010. And it is also not clear why NAMA is not using the same software as that used by Capita to manage the smaller value loans at the Participating Institutions.

NAMA of course is handling a colossal volume of data. For example, we are expecting to see large numbers of charges registered against NAMA properties in the very near future which will be viewable at the Land Registry. Decent systems will be critical to NAMA’s success.

By all accounts, Ergo is a competent company that has fairly won the contract, but I have a feeling in my waters that this procurement and the resulting IT system will be a subject of interest at a future Committee of Public Accounts hearing.

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Well, that’s what Jack Fagan calls it in today’s Irish Times as he provides a valuable picture of rents in Dundrum Town Centre shopping complex owned and managed by Joe O’Reilly’s Chartered Land/Crossridge Investments, Joe being reported to be one of the NAMA Top 10 developers whose loans were acquired by the agency in Mar-May 2010. Personally I would have said that the Treasury controlled 37-acre Battersea Power Station site on the south bank of the Thames in London would vie for the title of most valuable NAMA asset, especially now that it has full planning permission for a €7bn development.

Who needs a commercial rents database when you have Jack Fagan whose reporting of rents in Dundrum is summarised below:

Jack reckons that the Dundrum centre is currently generating an annual rent of €55m which might value it at €600-800m using 7-9.5% yields. Interestingly the Liffey Valley Shopping Centre failed to sell recently at €350m and it has a rent roll of €30m today that was projected to rise to €34m imminently (representing a 9.7% yield at €34m). Sources claim that, today, Liffey Valley would realise €300m “on a good day” which would indicate a yield of 11%. Apply 11% to Dundrum’s €55m reported rent roll and its value comes down to €500m. The reason claimed for the abandonment of the Liffey Valley sale was the FG/Labour manifesto pledges on rent reviews in upward-only leases which the Society of Chartered Surveyors says will reduce commercial values by 20% on average – for shopping centres like Dundrum where leases were entered into during a pre-let period from 2003, the effect on the centre’s value could be devastating. The following are the going rates for Zone A rents in Dundrum, Liffey Value and Blanchardstown shopping centres according to Jack Fagan in today’s Irish Times.

Dundrum Town Centre was opened in 2005 having been built by Anglo “Golden Circle” member Joe O’Reilly and fellow Longford man, the late Liam Maye. The site was reportedly bought for €10.2m. With 79,000 sq metres it claims to be the biggest shopping centre in the State. It is reported to contribute some €7m per annum in local authority rates to DunLaoghaire-Rathdown County Council. The Irish Times claims that the centre had a footfall of 19m, that is 19m visitors, last year and further claims “a great many of them from the affluent south Dublin suburbs”. Phase II of the centre has been given the green light by planning authorities but its future is in doubt against the backdrop of the economic crisis – Phase II was to have been a €600m development which would have seen 101,000 sq metres of space added making the shopping centre the largest in Europe.

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We are still waiting for further progress in the Paddy McKillen case. To remind you,

3rd February, 2011 – Ireland’s Supreme Court issues a part ruling in the appeal which judges the decision by NAMA to acquire Paddy’s loans in December 2009 to have been invalid because it was made prior to NAMA coming into legal existence. The ruling left three strands to Paddy’s appeal unjudged.

9th February, 2011 – NAMA said that it would make a decision over the following two weeks as to whether it would make a fresh valid decision to acquire Paddy’s loans. The Supreme Court indicated on the same day that it would not wait for NAMA to make a decision and accordingly we are still waiting for the Supreme Court to rule on the remaining three strands of Paddy’s appeal which are to do with the constitutionality and fairness of the NAMA Act and NAMA’s procedures.

It might be that the incoming government will have something to say on the question of Paddy’s loans transferring to NAMA given the commitment in the Programme for Government to “end further asset transfers to NAMA, which are unlikely to improve market confidence in either the banks or the State” and it might also be that the transfers are rendered meaningless anyway by transactions involving Paddy’s loans (eg refinancing or sale of the loans by the original banks).

Paddy’s case was seen as landmark last year in Ireland but another less prominent case was disposed of yesterday in London’s High Court which could have had just as big an impact on NAMA as Paddy’s case. The Carey Group was trying to prevent NAMA acquiring its loans and had sought injunctions in the High Court in London to stop NAMA, on the grounds that NAMA’s acquisition of the loans would breach an existing loan agreement and was an unlawful intrusion by a foreign power in the affairs of a UK business. The hearing was on 8th March, 2011 and the judgment was handed down yesterday and is available in full here.

Of note from the judgment is the following:

(1) Though not asked to determine the matter, the judge in the High Court did make it clear that he disagreed with the proposition that NAMA’s ambit was limited to Ireland.

(2) When one of NAMA’s Participating Institutions (PIs – AIB, Anglo, Bank of Ireland, EBS and INBS) elected to participate in the NAMA scheme then that election encompassed foreign subsidiaries even if the local management objected (as seems to be the case with AIB UK)

(3) The Carey Group claimed its loans were not toxic and were performing. AIB UK had objected to the acquisition, by NAMA, of the Carey Group loans.

(4) An overdraft facility was to be brought to an end by AIB UK before the transfer which would mean that NAMA was not obliged to provide such a facility

(5) It was claimed by the Carey Group that NAMA was “neither a successor, an assignee or transferee (sic)”. The judge ruled that “a party is entitled to assign, transfer, share or otherwise confer the economic benefit of a contract as it pleases, unless restrained by the contract itself, or by statute”

(6) Assignment of a contract under dictation from a third party was examined and might have become significant since AIB UK was clearly objecting to the assignment of the loan to NAMA but the judge ruled that the parent company (AIB in Ireland) had agreed to the assignment.

(7) The judge held that the UK subsidiary of AIB which was objecting to the transfers was at liberty to voluntarily comply with the demands of a foreign power (NAMA) and that by signing up to be a Participating Institution that AIB UK was accordingly volunteering to be subject to provisions of the NAMA Act.

The Carey Group was established over 35 years ago by the three Carey brothers from Tipperary, John (now 68), Tom and Pat and today has “four main service areas”, namely construction, civil engineering, demolition and plant hire. In the UK the company has been a prominent developer of residential property in the Home Counties. Its head office is in London though it has offices in Northamptonshire and at Dardistown, Co Dublin and claims to have a 500-strong workforce. In Ireland the company was behind the construction of the Ikea Store in Ballymun and Ballymun regeneration.

So a good result for NAMA which establishes some legal ground rules which might deter the remaining €4-5bn value NAMA objectors from proceeding with their objections through UK courts.

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