Archive for June 22nd, 2011

It’s been almost two months since NAMA was publicly banging its shields and warning that the loans of up to five Top 30 developers may be at risk of enforcement action. News coming through from credible sources that NAMA has failed to agree a memorandum of understanding with (EDIT) David Daly, the 61-year old north Dubliner (pictured here with his wife, Mary) who cut his teeth at Joe Moran’s Manor Park development company,  and that administrators are about to be appointed to its UK assets which include the 15,000 sq ft Louis Vuitton flagship store at 160 new Bold Street valued at GBP £200m last year and 26 acres in Slough, west of London (reportedly worth GBP £45m) owned by David’s Kelobridge Limited where planning permission for 300 homes was apparently granted in 2009.

Its Irish developments include Greenwood (Coolock, Dublin), Prospect Manor (Rathfarnham, Dublin), Swords Demesne (Swords, Dublin), Swords Downs (Co. Dublin), Blanchardstown Heath (Dublin), Castleview (Swords, Dublin), Holywell  (between Malahide and Swords, north Dublin), Clare Village (Malahide Road), Abbeystone  (between Malahide and Swords, north Dublin).

It is understood that NAMA served receivership/enforcement papers today but that an application may be made for an injunction tomorrow morning. If confirmed, this receivership would mark the first major enforcement action by NAMA since the messy Grehan receivership at the start of May 2011.

UPDATE: 23rd June, 2011. Britain’s Property Week is reporting that “the loans of Daly’s house building group, Albany Homes, one of the largest housebuilders in Ireland, are not part of the [enforcement] process” and that there remains the possibility of a deal being struck between NAMA and David Daly. Property Week goes on to describe what is likely to be David Daly’s most valuable asset, the GBP £200m Louis Vuitton flagship store at 17-20 New Bond Street.

UPDATE: 25th June, 2011. RTE reports that David Daly is fighting back. He engaged Michael Cush SC to seek an injunction in Dublin’s High Court. There is no word of an action in the UK. Michael Cush SC might be best known in recent times for substantially winning Paddy McKillen’s case against NAMA. RTE further reports that Jim Hamilton of BDO Simpson Xavier has been appointed by NAMA as receiver in Ireland. In the UK Shay Bannon and Sarah Rayment of BDO have been appointed Law of Property Act administrators (LPAs, akin to property receivers and certainly cheaper than corporate receivers). RTE points out that NAMA’s actions do not relate to Albany Homes but to property owned personally by David Daly, though apparently the High Court application has been made in the names of three individuals (1) David Daly (2) Joanne Daly (presumably David’s daughter) and (3) Paul Daly (presumably David’s son). There is no mention of David’s wife, Mary Daly.

UPDATE: 27th June, 2011. RTE reports that  application by David Daly and his two children Joanne and Paul was considered in Dublin’s High Court today and the upshot is that it has been set down for Thursday this week for mention/directions. Today NAMA assured the court that it has no plans to sell the property to which it has appointed receivers on Friday last. Interestingly the properties include the Airside Business Park in Dublin. It is understood that the Airside Retail Park is owned by David’s wife, Mary who doesn’t appear to have been part of the NAMA receivership action last week. NAMA was represented by James Doherty which is a new name in the context of  NAMA.

UPDATE: 28th June, 2011. The Irish Independent today provides additional reporting on yesterday’s proceedings in Dublin’s High Court and claims that the hearing this Thursday (30th June) will be a substantive hearing and that affadavits are to be exchanged beforehand. In terms of the grounds for the application, they include the claim that the loans were not repayable on demand but possibly of more importance, particularly given the past involvement of Michael Cush SC in Paddy McKillen’s case – David Daly has engaged Michael Cush – is the claim that NAMA’s actions are offensive to the European Convention on Human Rights. This case may prove to have stronger legs than the Grehan brothers’ recent (failed) case against NAMA.

UPDATE: 5th July, 2011. The parties were back in court yesterday and proceedings are reported in today’s Irish Times and Independent . In terms of detail it is curious that David Daly claims the values of his properties is €457m which is the sum claimed by NAMA on the loans. The €457m is comprised GBP £269m in the UK (€299m at this morning’s exchange rates) and €158m in Ireland. Also of note is that once news broke of NAMA’s foreclosure action, David Daly reports contact from potential buyers but describes any offers as below value. NAMA has undertaken not to dispose of the properties without providing 24 hours notice to David Daly and at present NAMA’s stance seems to be to hold onto the properties and collect lucrative rent. In terms of the case itself, a full four-day hearing has been set down for next Wednesday, 13th July in the Commercial Court division of Dublin’s High Court – the case is already detailed in the Court’s Legal Diary. It seems that Judge Kelly might be presiding, which might mean some forthright questionning and comment.

UPDATE: 16th July, 2011. The hearing on David Daly’s application (ref 2011/5766 P) began on Wednesday 13th July, 2011 in Dublin’s High Court before Mr Justice Michael Peart. David Daly, 66  is joined in the application by his daughter Joanne, and son Paul. The respondents are National Asset Loan Management Limited (NAMA), the State, the Attorney General and AIB PLC – some reporting suggests the receivers, Jim Hamilton of BDO Simpson Xavier in Ireland and Shay Bannon and Sarah Rayment of BDO in the UK, are also respondents but that doesn’t appear to be the case from the court record. The Dalys are represented by solicitors LK Shields and their lead barrister is Michael Cush SC, who you might recall was Paddy McKillen’s barrister in the recently concluded legal battle royale with NAMA. NAMA is represented by A&L Goodbody. The State and the Attorney General are represent by the Chief State Solicitor, David J O’Hagan and AIB is represented by Maples and Calder. The respondents are represented by barrister, Paul Sreenan. In the following David Daly will be used as shorthand for the applicants and NAMA as shorthand for the respondents.

The hearing which lasted three days this week and is scheduled to continue on Tuesday next 19th July relates to the first of two applications by David. This hearing is to seek an injunction preventing NAMA taking control of the assets which secure the loans pending the hearing of the second application. The second application is challenging the receivership.

This week we heard the Daly’s claim that German bank Deutsche Bank had been interested in acquiring, for “hundred of millions” the €457m of loans owing to NAMA. NAMA’s action will have put an end to David’s involvement in those talks which he had initiated. Oddly enough Deutsche Bank was the bank cited by Paddy McKillen’s Maybourne group last year as being a candidate to re-finance that group’s loans which were NAMA-bound. According to RTE, the court was told by David’s barrister that he had always had a good relationship with AIB and never missed a payment and ominously perhaps for NAMA, that there were similarities between David’s business and Paddy McKillen’s. Like Paddy, David’s properties generated enough rent to cover interest payments and like Paddy, David had no opportunity to make representations to NAMA before his loans were acquired.

And yesterday, perhaps to coincide with the conclusion of the Paddy McKillen saga, NAMA is reported to have argued that remedies that might have been available to Paddy McKillen to stop NAMA acting, were not available to David Daly since he didn’t allegedly object to NAMA’s acquisition of the loans last year. Which seems incredibly shaky. If NAMA had not made a valid decision to acquire David’s loans then it is surely arguable that NAMA’s subsequent actions are not lawful. Yesterday’s proceedings are also reported by Mary Carolan in the Irish Times.

The case continues on Tuesday next 19th July, 2011.

UPDATE: 19th July, 2011. The hearing of this case continues at 11am this morning in Court 9. It was originally scheduled for four days which might mean today sees a conclusion. Judgment likely to be reserved to a future date but given the urgency of the application, it might be quicker than usual.

UPDATE: 12th September, 2011. Extensive, if a little muddled, reporting by RTE today. Qualified success for David in that the High Court has granted him the right to challenge NAMA’s actions at a full court hearing. However David has failed to get an injunction overturning the appointment of receivers and administrators and the judge seems to have concluded that David’s loans were in fact repayable on demand which might undermine David’s hearing. What happens next? David ‘s application (No 2011 5766 P) will now proceed to  a hearing where David will have a full opportunity to air his objections to NAMA’s actions. Meantime NAMA has control over his assets. From today’s judgment (133-pages apparently according to RTE but not yet available from the courts.ie website) relations between David and NAMA broke down when David didn’t reverse a transfer of assets and cash to his wife in 2009. The transfer, reported to be include cash and assets of €80m, included €17m of cash and David’s wife was to have transferred some part of this back but there seems to have been some breakdown in relations. For this and other reasons, NAMA chose to act. So in conclusion, David gets to have his day in court but NAMA would seem to have the upper hand at this stage and certainly continues to control David’s assets through the appointed receivers/administrators.

UPDATE: 13th September 2011. The judgment is now available here (137-page MS Word 2003 document). There will be analysis tomorrow. Commenters are reminded of their responsibilities in commenting on here, which are particularly relevant when commenting on what is an ongoing legal case.

UPDATE: 14th September, 2011. Possibly stung by criticism at the perception that NAMA was allowing a NAMA wife keep 7m in cash from a spousal transfer in 2009, Emmet Oliver at the Irish Independent writes today that it “understands” NAMA has taken any previous deals off the table. Hardly surprising really given the keenness of the Dalys to now pursue the legal route.

UPDATE (1): 19th December, 2011. As commented on here last week, it is now confirmed as  Mary Carolan at the Irish Times reports that the Dalys’ case against NAMA has been settled save as to the issue of costs – and on the issue of costs it is reported there is to be no costs order against NAMA which doesn’t look very promising for the Dalys. Apparently neither side is commenting and the terms of the settlement are confidential. So there! But what this means is that NAMA is now apparently unencumbered in any sale of the Daly assets to which receivers were appointed six months ago. And in the very near term, it might mean that 17-20 Bond Street is sold by receivers possibly to existing tenant, Louis Vuitton Moet Hennessy (LVMH). Speculation about the price suggests the property may fetch €350m (GBP 300m)

UPDATE (2): 19th December, 2011. NAMA has made a statement “NAMA and David Daly confirm that David Daly and his family have reached a settlement with the Receiver (BDO) and NAMA, whereby the sale of certain properties has been completed and the Daly family have settled the residual NAMA personal debt which has been the subject of recent litigation. As part of this agreement, all litigation between the Daly Family and NAMA has been withdrawn”

UPDATE (1): 20th December, 2011. The Irish Times has the inside track today on the Daly settlement (1) 17-20 Bond Street has indeed, according to the newspaper, been sold to LVMH for €350m (GBP 300m, chances are that the GBP 300m is correct and at current exchange rates the price tag is €358m) and (2) the Dalys have handed back €80m of assets to NAMA which had previously, reportedly, been transferred by the Dalys outside the ownership of the specific borrowers  and (3) the €80m handed back includes €17m in cash which was reportedly transferred by David Daly to his wife, Mary.  The Irish Times reports that the settlement means ” NAMA has recovered the €457 million debt owed by Mr Daly and his family” but that statement presupposes the assets recovered by NAMA are worth the difference between the €457m face value of the loans and the €350m-odd proceeds from the 17-20 Bond Street sale to LVMH.  However, this is beginning to look like a solid success for NAMA if (a) it has recovered the face value of loans which it bought at a discount from AIB and (b) NAMA didn’t lose the Daly challenge about consultation and (c) NAMA is not stuck with what are likely to be substantial legal costs – on this last point we should find out in January 2012 what is happening to costs.

UPDATE (2): 20th December, 2011. RTE is now reporting that it is the LVMH chief executive, Bernard Arnault, in his personal capacity who is buying the Bond Street property and additionally says that the GBP 300m price tag is in fact for the 17-20 Bond Street Louis Vuitton store plus Smythson which is at 40 New Bond Street and next door Coach at 41 New Bond Street.


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Just to boost your rage-levels which might be flagging mid-week, there has been an announcement today by Minister for Public Expenditure and Reform, Brendan Howlin about what RTE refers to as the

(1) “general” pay level for

(2) “future” appointments to

(3) “higher positions” in the public service

The pay will apparently be capped at €200,000 but for chief executives the cap will be €250,000. For existing employees and office holders, the government is to seek voluntary reductions to these two cap levels. There is surprisingly no commitment to publish the names of those who volunteer reductions – presumably those good people would be quite happy to have their names published. Given that there are moves afoot to hold a referendum to reduce the salaries of judges including sitting judges, it is not clear why the scope of the referendum is amended with a couple of sentences to encompass all public servants.

One of the most common criticisms leveled atIrelandand our complaints about austerity is that our public servants appear to be paid extravagantly for what is a modest economy. The bugbear on here is Mary McAleese who as head of state might have been expected to lead by example by volunteering a significant cut to her €292,500 plus expenses salary. At today’s exchange rates she earns USD $421,000 per annum, USD $21,000 more thanUSpresident Barack Obama. Not to belittle President McAleese who is, by all accounts, a charming and intelligent woman who bridged differences in Northern Ireland, particularly during the 1990s, but she is essentially a “smile and wave” ceremonial head of state that refers new legislation to her Council of  State or the Supreme Court once in a blue moon, and has appeared uncaring for her people during the present financial crisis. That the State has to borrow €6,000 per week just to pay her salary is little short of obscene. (UPDATE: 26th June, 2011. The president did in fact take two cuts to her salary, one of 10% or €32,500 to her €325,000 salary in 2008 , and a second in December 2010 when she volunteered to reduce the salary from €292,500 to €250,000 which equates to USD $360,000)

Below is the regularly updated list of salaries above the Taoiseach’s (reduced from €214,000 to €200,000 at the Taoiseach’s behest upon assuming office). Of note is that the NAMA CEO’s salary includes the notional maximum bonus of €258,000 which was waived by Brendan McDonagh last year as were other NTMA officers and senior employees. Also of note is the 20% voluntary reduction offered up by governor of the Central Bank ofIreland, Patrick Honohan which places the Governor’s salary some €50,000 below that of the Financial Regulator, Matthew Elderfield who is junior to the Governor in the Bank. The following is sorted by salary high-to-low, and includes at the bottom three notable appointees earning less than An Taoiseach.

And here is a list of some other senior public sector appointees whose salaries have not yet made it into the public domain, though presumably that is set to change in the coming months with the commitment to include senior salaries in all public sector annual reports. The list is by no means at all, exhaustive.

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Well that seems about right. The above is from Joan Henry, head of research at Savills in Ireland and she is referring to Irish residential property development following the publication of Savills latest summary of development land values in Ireland – available here. Still, the assessment is sobering; that it might be 2015 or indeed maybe 2017/8 before there is further major speculative residential development. Mind you, with 23-33,000 vacant dwellings in Ghost Estates plus an overhang of vacant property of more than 100,000 dwellings and a population that appears to be stagnating with a high birth rate and low death rate mostly offset by high net outward migration and with what is likely to be a below-average obsolescence rate not to mention building costs that are still twice those in Northern Ireland, it’s difficult to come to any conclusion other than in the short term at least, it doesn’t make a lot of sense to build more residential property. Unless it is pre-sold.

That said, there are a number of major schemes apparently progressing which will deliver new housing in and around Dublin in the next couple of years. Reputed NAMA Top 10 developer, the Cosgraves are developing 600 dwellings on the site of the former Dun Laoghaire Golf Course and Sispar (consortium including Park Developments) are to build 375  dwellings at Greystones Harbour, for examples.

The Savills report today is also noteworthy for pointing out that prime property in D2, D4, D6 and south suburbs should not be setting you back more than €400/psf which represents a fall of up to 64% from peak. Nominal site values are back at 1999 levels and there is evidence that the collapse in site values of 75-90%+ affects all locations including prime – so that field in Athlone has seen the same % fall as the most gentrified leafy locale in Dublin, although the field in Athlone is probably only worth agricultural prices whereas an acre in D4 might still fetch €2-4m, according to Savills.

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This morning has seen the publication of the third CSO residential property price indices for Ireland. The inaugural series was published by the CSO on 13th May 2011 and covered the period from January 2005 to March 2011. This morning’s release covers the month of May 2011. Here’s the summary showing the index at its peak, November 2009 (the NAMA valuation date), May 2010 (12 months ago), December 2010 (end of year, start of this year) and March 2011.

Now that the Permanent TSB/ESRI has abandoned its quarterly house price index, the CSO isIreland’s premier index for mortgage-based transactions. Mortgage transactions at eight financial institutions are analysed : Allied Irish Banks, Bank of Ireland, ICS Building Society (part of the Bank ofIrelandgroup), the Educational Building Society, Permanent TSB, Belgian-owned KBC, Danish-owned National Irish Bank and Irish Nationwide Building Society. The index is hedonic in the sense it firstly groups transactions on a like-for-like basis (location, property type, floor area, number of bedrooms, new or old and first

time buyer or not) and then assigns weightings to each group dependent on their value to the total value of all transactions. The index is an average of three-month rolling transactions.

As for the key questions:

How much does property now cost in Ireland? The CSO deliberately don’t produce average prices. The former PTSB/ESRI index did and claimed the average price of a property nationally at peak in February 2007 was €313,998, in Dublin at peak in April 2007 was €431,016 and outside Dublin at peak in January 2007 was €267,987. If, and it is a big “if”, you were to take PTSB/ESRI figures as sound and comparable to the CSO series, then the average today nationally would be €185,993, in Dublin would be €226,884 and outside Dublin would be €167,075. I don’t think the CSO would be happy with this approach but it seems to me that the PTSB/ESRI series as represented by its indices closes matches the performance of the CSO indices.

What’s surprising about the latest release? Houses in Dublin increased by 0.3% in the month of May, the first increase since August 2010. Odd enough apartments in Dublin fell 0.3% in the month yet all Dublin property is up 0.4% (a query has been lodged with the CSO).  Outside Dublin all property fell by 2.1% in the month which would equate to more than 24% annually – has the long awaited provincial catch-up started?

Are prices still falling? Yes generally but with the single exception of Dublin houses. Property nationally fell by 1.2% in the past month (up from 1% in April 2011), 6.5% since the start of 2011 and 12.2% since May 2010 (same as the 12-month drop last month). Dublin houses increased by 0.3% in the past month, but all other categories continue to show declines with non-Dublin property showing a significant monthly decline of 2.1%

How far off the peak are we? Nationally 40.8%%. Interestingly, as revealed here last month,Northern Ireland is some 44% from peak. Is forbearance by mortgage lenders, a draconian bankruptcy regime and NAMA distorting the market. Or are cash transactions which are not captured by the CSO index so significant today that if they were captured, the decline in the Republic would be even greater?

How much further will prices drop? Indeed, will prices continue to drop? Who knows, I would say the general consensus is that prices will continue to drop. This is what I believe to be a comprehensive list of forecasts and projections for Irish residential property.

What does this morning’s news mean for NAMA? The CSO index is used to calculate the NWL Index shown at the top of this page which aims to provide a composite reflection of price movements in NAMA’s key markets since 30th November 2009, the NAMA valuation date. The latest results from the CSO bring the index to 884 (13.1%) meaning that NAMA will need see a blended average increase of 13.1% in its various property markets to break even at a gross profit level.

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A little while ago on here there was an entry here which examined the so-called “Paddy premium”, the suspicion that Irish property investors were overcharged in their foray into the British property market in the 2000s, and the “NAMA knock-down”, the suspicion that NAMA would take what it could for property and that buyers would expect and demand a discount to the market value. Two recent sales tend to show that this might be the case. It should be emphasized that with the first sale, 197-213 Oxford Street in London’s West End, the developer was the Cosgraves who are reportedly NAMA Top 10 developers but there has been no confirmation whatsoever that the property on Oxford Street was subject to a NAMA loan so the sale might not have had any NAMA involvement whatsoever. The second property 1 King William Street in the heart of the City of London was owned by Paddy Shovlin and the two Fitzpatrick brothers, Patrick and Tony and property receivers GVA Grimley was appointed by NAMA to sell that property last year. Here are the sale details as reported by Property Week for the Oxford Street property and the Irish Independent for the King William Street property.

The standard yield in London at present is 4% for the West End and there is evidence of pressure on yields to tighten, and the standard yield in the City of London is 5.25% and the evidence is that this is remaining stable. By the way, the yield approximates to the rent on a building divided by the value of the building. This is simplistic but I think adequate for here; so a building worth €1m generating annual rent of €50,000 would have a 5% yield. Low yields are indicative of prime property assets where prices are at worst expected to remain stable and at best likely to rise more than non-prime.

The two sales above indicate that the sellers have taken discounts to the market value by reference to market yields. Of course there may well have been special circumstances which might have naturally led to reductions to the standard market price, issues with leases or tenants, planning issues etc. That said, the UK is a transparent market, certainly in comparison with Ireland and although NAMA is a big fish in Dublin, in London it is a significant player but in a sea with a large number of significant players. So information on NAMA sales will eventually seep out and it will be interesting to see if NAMA sales are consistently below what might be regarded as market value, particularly for prime assets.

A spokesman for NAMA had no comment on either reported sale. And it should again be stressed that it is not confirmed that the Oxford Street sale involved NAMA at all.

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