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Archive for June 17th, 2011

It was the late Brian Lenihan who, as former Minister for Finance, drew our attention in September 2009 to historically high Irish property yields which he claimed indicated we were close to the bottom of the market. Alas that was not the case, and tends not to be the case in a severe recession where both rent and capital prices come under pressure. A report yesterday by property company Knight Frank shows that Ireland still has the highest yields (simplistically rent divided by the value of a property) in the EuroZone for prime office space. At 7.25%, we are a shade above fellow PIG, Portugal where prime office rents in Lisbon return a yield of 7%. Top of the table in Europe generally is London’s West End at 4%, where NAMA Top 10 developer, the Cosgraves recently sold a landmark building at a reported yield of 4.4% – if a yield of 4% had been achieved there might have been an extra €20m generated from the sale. The City of London is returning 5.25%. Outside (what was once thought of as) the currency safety of the EuroZone, there are far higher yields available – Kiev where there are a number of Quinn Property assets is returning 12%, Moscow where Avestus (formerly Quinlan Private) was active is returning 9.5%.

Interestingly the report puts prime office rent in Dublin at €376 psm (€35 psf) which makes Dublin more expensive thanMadrid, Vienna, Brussels and Munich. The report’s headline graphic indicates that Dublin is still in for some further correction to rents/capital values.

Elsewhere the report shows that prime shopping centre yields in Irelandare the highest in the EuroZone at 7.75% and fourth highest across all cities surveyed (IMFed, politically-troubled, economically-floored Kiev is at 13%, Moscow at 10.5% andBucharest at 9%). Because Ireland uses the idiosyncratic “Zone A” method for calculating retail rent (first 7 metres of retail space from the front of the store, the next 7 metres is half that rate and so on), it is not possible to see how we compare with other European countries – apart from Ireland, only the UK uses the Zone A metric, maybe it’s time for Ireland to unhitch itself from the UK?

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Earlier this week, NAMA told a gathering in Cork that it had €0.6bn (USD $840m) of loans relating to property in the US. This was the value placed on the loans by NAMA – if the average NAMA acquisition haircut of 58% was to have applied to these loans, then they might have a face value of €1.4bn (USD $2bn). Britain’s Property Week today reports that NAMA is carefully following the progress of portfolio sales by Bank of Ireland and Anglo of their US loan books, and is considering a similar move itself.

NAMA re-iterated this week its self-imposed target of reducing its loan book by 25% in the next 30 months. NAMA has paid €31bn for loans with a face value of €72bn. It’s not exactly clear what a 25% reduction would mean but the most likely interpretation is that NAMA would see 25% of €31bn repaid by the end of 2013.

Less than three weeks ago, it was reported that Allied Irish Banks (AIB) had sold a USD $1bn loan portfolio secured on commercial real estate to the “wait until there’s really blood in the streets” Blackstone, and to Wells Fargo. The price achieved seemed reasonable with only a 7-15% haircut. It is understood that AIB has additional loans of some US $2bn that it is also trying to sell.

Anglo is said to be at an advanced stage in its plans to sell a US $10bn portfolio and Minister for Finance, Michael Noonan has indicated that the sale will have commenced “by Christmas (2011)”.  Details of potential buyers and haircuts have not made it into the public domain so far.

And Bank of Ireland is also selling a US $1.8bn loan book, also thought to be secured on commercial property. There had been rumours that the loan book was close to a sale at 84c in the dollar. Recent reporting states that the bank has engaged Holliday Fenoglio Fowler LP to advise on the sale.

So reports that NAMA is considering the sale of its own portfolio, which would potentially include loans the agency acquired from AIB, Anglo, Bank of Ireland, the Educational Building Society (EBS) and the Irish Nationwide Building Society (INBS), have a ring of credibility to them and may represent a means to secure a one-off substantial sale to assist it in its self-imposed target for debt reduction.

UPDATE: 12th August, 2011. Wells Fargo is reported to have bought Bank of Ireland’s US commercial real estate portfolio of loans. The final par value of the loan portfolio is said to be USD $1.4bn, rather than USD $1.8bn shown above. Elsewhere Anglo is reported by the Irish Independent to have hit snags in its sale of its US portfolio. Again the par value of the portfolio appears to have declined to USD $9.5bn but apparently bids have maxed out at the USD $7bn mark, USD $0.5-1bn less than hoped for but USD $400m more than the USD $6.6bn written-down value at 31st December, 2010 (€6.6bn less €1.9bn provision * 1.42). Bidders for the Anglo portfolio are said by Laura Noonan to include “Deutsche Bank, Goldman Sachs, JP Morgan Chase, Wells Fargo, Lone Star Funds, TPG Capital and Blackstone Group” and it is further reported that bids have been submitted in respect of tranches of the total portfolio.

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