It was 19th May, 2011 when NAMA announced its intention to introduce two innovations to help shift property inIreland – a negative equity mortgage product for residential property and so-called “staple financing” for commercial property. Staple financing has long been a means of facilitating commercial transactions; in simple terms it involves the seller financing the sale. So in NAMA’s case, NAMA might sell a property for €10m to a buyer, the buyer might give a deposit of €3m to NAMA and agree to pay the remaining €7m with interest over a five year period. In an Irish market where there is a dearth of financing, staple financing has the potential to get transactions moving. Of course there is a concern that NAMA might distort property prices by not allowing properties to sell for cash or the limited financing that is available.
Sources have claimed that a NAMA developer has sold an office block in Dublin’s docklands and that it is the first sale which features staple financing by NAMA. The property is One Warrington Place (pictured here) at the junction of Northumberland Road and Dublin’s Grand Canal in the heart of the south Docklands and no more than a long stone’s throw from NAMA’s own headquarters at TreasuryBuilding. One Warrington Placeis an ultra-modern 60,000 sq foot glass and steel building developed by David Arnold (pictured here) who was reported to be a NAMA top-20 developer. The property was being jointly marketed by local Cushman and Wakefield partner, Lisney and domestic player, HT Meagher O’Reilly (UPDATE: 21st September, 2011. Although HT Meagher O’Reilly was involved in the renting of the property, it seems that the sale of the property will be handled by Lisney).
Details are sketchy at present with neither the buyer, the price or the details of NAMA’s staple financing being available. A 210,000 sq ft building close-by, Montevetro on Barrow Street was sold by Treasury Holdings under NAMA’s auspices at the start of this year for €99.9m. Commercial property prices in Ireland have dropped by 7% in the first six months of 2011, as a result of credit shortages and continuing uncertainty over the future of upward only rent reviews (the latest on the latter is that the Government said last week that it would publish a Landlord and Tenant (Business Leases Review) Bill before Christmas 2011 to give effect to commitments made in the Programme for Government – it is hoped that outline details of the controversial piece of legislation will become available in coming weeks).
Neither NAMA or Lisney had any comment on the One Warrington Place transaction at time of writing.
Last week, Britain’s CoStar reported that another David Arnold building, the Woolgate Exchange office in the City of London’s Basinghall Street was set to come onto the market after D2 Private, a David Arnold company, reportedly “did not refinance the securitised loan once it defaulted at maturity” in August 2011. It is not clear if NAMA will offer staple financing in the UK, where property finance is more abundant than in Ireland.
UPDATE: 28th September, 2011. Jack Fagan in the Irish Times today writes that the above property is indeed being offered for sale with staple financing available from NAMA. The joint agents will in fact be Lisney and HT Meagher O’Reilly (Ann Hargaden and Deirdre Hayes, respectively). The asking price is expected to be €28m, the current rent from blue-chip tenant, Bord Gais is reported to be €2,138,356 equating to €36.50 psf on this 56,103 sq ft building. There’s a 25-year lease signed in February 2010 which provides for five yearly rent reviews and includes a break clause in year 10. In addition, 31 basement car parking spaces are being rented at two rates, €1,500 and €3,500 per annum. The “net initial yield” is said to be 7%. At €28m the property is claimed to be worth just 37% of its peak price which almost exactly equals the 63-64% declines from peak reported by both JLL and IPD for Q2, 2011 – though figures expected in the next few weeks for Q3, 2011 are unlikely to show any improvement. NAMA’s staple financing is said to be available for 70% of the purchase price at an annual interest rate 2.5% above the “standard bank rate”. Interestingly NAMA was said to have provided a €10m to Fingal council at 4.25% per annum which would also represent a 2.5% margin on NAMA’s estimated cost of funds of 1.7%.
UPDATE: 24th January, 2012. Without citing sources, Simon Carswell in today’s Irish Times claims that the sale was effected without staple finance. Simon claims that “the decision [by the buyer, Prudential, not to avail of NAMA’s offer of staple finance at 2.5% over NAMA’s cost of funds] means NAMA secures a much bigger windfall on the transaction, clearing the outstanding debt on the office block previously owned by developer David Arnold.” Hmmm, NAMA forgoes a profit of 2.5% on provision of funds for a few years whilst holding a 30% security, and that is a “windfall”?
UPDATE: 22nd March, 2012. Informed sources claim that the deal on One Warrington Place with Prudential has “fallen out of bed”. Further information is being sought. Since December 2011, Bord Gais which is the tenant in the building has been lined up for privatisation, Ireland’s economic prospects haven’t markedly improved and indeed information this morning from the CSO shows that we are now back in technical recession with two quarters of declines in GDP, and separately GNP which is a better reflection of Ireland’s domestic economy is contracting at an alarming rate. Although the two commercial property indices for Q4,2011 showed the positive effect of the announcements in Budget 2012, it is clear that underlying pricing is still very shaky indeed and no amount of assuaging and comforting words from NAMA will obviate that fact.
UPDATE: 27th March, 2012. The Irish Times today reports that Prudential has walked away from the deal.
UPDATE (1): 25th April, 2012. The Irish Times reports that the property has now been bought by an un-named US investor for €27m representing an “initial return” of 7.25%
UPDATE (2): 25th April, 2012. This evening US investment group Northwood Investors is being mentioned as the buyer of One Warrington Place and that the sale is subject to NAMA providing staple finance. Northwood seems to be a new player in Ireland but it was one of the companies sniffing around the Maybourne group refinancing in 2010/2011 when up to GBP475m was apparently being offered for the GBP 660m of loans.
As far as I am aware NAMA is only offering staple finance on Irish assets and this is indeed the first sale on which such financing will be offered. The agency (NAMA) is under pressure from the Minister to be seen to be offering finance. It will only be available to those not already in NAMA. (NAMA inmates need not apply)
Two types of financing are being offered. Senior debt up to about 70% of value, or Mezzanine debt of up to approximately 20% over third party (say Bank of Ireland) senior debt.
All this is in an attempt to get the market moving, as nobody else wants to know.
What happens if a party defaults on a NAMA “staple” loan? Does the property go back to NAMA or would it be placed in a bad loan NAMA II institution?
” Of course there is a concern that NAMA might distort property prices by not allowing properties to sell for cash or the limited financing that is available.”
What could possibly go wrong with the state providing financing that the private sector will not touch with a barge poll?
So, Nama is bouldering on regardless with its Mortgage Enhancement Schemes, despite substantial public objection and almost zero public discussion. And it appears that the scheme is being proffered for properties at the more lucrative end of the scale. Curiouser and curiouser.
some market pricing
‘The cost of the senior debt is thought to be more than 400 basis points over LIBOR’
http://www.costar.co.uk//en/assets/news/2011/September/Caring-gets-330m-funding-for-Project-Navy/?dm_i=UQT,JMF9,4KQZWH,1LGKJ,1
NAMA intend to charge between 2.5% to 3% over EURIBOR – most probably the latter – for senior debt.
The rental income on this 56,000 sq.ft. net building is approximately €2 million per annum. At an 8% yield (NAMA may be wishfully thinking that it will do a little better) means that the sale should return about €25 million to the agency. If they lend 70% of that price, they will have received equity of €7.5 million and will be providing a new loan of €17.5 million. The duration of the loan will likely be 5 – 6 years, with a possible 10% capital reduction over period, giving a loan to value of 65% when the loan falls for refinancing in 2016. However, this does not show much of a return for the equity providers if NAMA imposes this level of amortisation on their loan.
I think NAMA may be surprised, but not in a good way.
Perhaps the buyer is an owner occupier? It always struck me as the perfect building to have just one occupier. I have strolled past it many lunch times.
Such a deal would be perfect for a single occupier, who perhaps might be happy to pay a (slight) premium for such a landmark building.
@WSTT – Don’t forget the UORR elephant in the room. At market rents of say €25 a foot the building has an ERV of €17.5m at 8% yield. What the froth of €600k (assuming actual rents are €2m) is worth is anyone’s guess. Implement the proposed legislation and it’s worth nothing at next rent review. Don’t implement the legislation and perhaps it’s worth €6m at 10% yield all depending on when the next break is. I don’t know much about the building but a valuation of €25m seems highly unlikely.
The UORR legislation will only apply to rents established before February 2010. (Don’t ask – I cannot fathom the minds of civil servants or politicians). This building was rented recently (post 02/10). Therefore it will not fall victim to the proposed legislation. It is also probably (as they say in the Carlsberg ad) the finest office building in Dublin. However, you are correct, €25 million seems unlikely, not least because the introduction of any downward review retrospective legislation will see international investors scuttle off elsewhere.
P.S. NAMA’s new wheeze of selling off prime Irish trophy assets at the rate of one per month in order to grab favourable media headlines means that, while the agency may cover their overheads into the future, we will have a long drawn out recession, because we will never have a true market for the next twenty years with this strategy.
@wstt one of the reasons to take or provide seller financing is to juice the yield whatever the amortization schedule they will get positive leverage and achieve a ROE above ten year bonds so most likely low to mid teens via less cash or interest only mezz piece.
@niall: A little premature. It has not yet been sold. It should be marketed this week.
….. It is being sold as an investment wih Bord Gais as tenant.
Uncertainty regarding credit quality may impact yield
http://irishexaminer.com/ireland/government-puts-bord-gais-sale-on-hold-until-2012-167680.html
@wstt looks like Mulcahy follows yours posts !
http://www.independent.ie/business/irish/nama-considers-us-model-of-selling-whole-portfolios-2881164.html
@John,
This tactic of portfolio packaging was covered on here in May 2011 when JLL (John Mulcahy’s old company) put together a high-profile portfolio – the Flagstaff portfolio – in the UK
https://namawinelake.wordpress.com/2011/05/06/pick-%E2%80%98n%E2%80%99-mix-%E2%80%93-a-marketing-strategy-for-nama/
tks nwl so Pears got 11.49 unleveraged on that wow significant implications for Nama is this by the ‘pound’ pricing-looks like the folks at JLL need to sharpen their pencils ask of 60mil achieved 47mil-20% off ‘ask’……used NOI of 5.4mil implied by the 9% yield.
Very large spread between London and secondary UK markets and widening.
“The Cheapside block, which is being sold by property broker CB Richard Ellis Group , provides an income of 7.5 million pounds a year, reflecting an initial yield of 5.5 percent”
http://uk.reuters.com/article/2011/09/08/idUKL5E7K837L20110908
8% here for a ‘trophy’ with high quality tenant market rental rates and notwithstanding the ‘Bord Gais” sale issue appears very reasonable with seller financing.
looks like that gravy train for JLL over oh look time for Nama to start bundling deals just as Lloyds changes direction and agents !!!!
“Lloyds’ strategy has been changing in recent months, driven by new CEO [Antonio Horta-Osorio], look at the contrast from Project Flagstaff to this new loan portfolio. The bank is clearly looking to increase the pace of their divestments; they want to be seen as a bank moving forwards.”
http://www.costar.co.uk//en/assets/news/2011/September/Lloyds-to-sell-1bn-loan-portfolio-in-tight-market/?dm_i=UQT,JO8F,4KQZWH,1LLHU,1
I see that Emmet Oliver of the Indo plagiaries you to such an extent that he even repeats the (very rare) inaccuracies. The Warrington Place property will be offered for sale in the first week of October. It has not yet been sold. It will be supported by NAMA’s first staple loan offer.
For the technical – the Bord Gais lease is for 20 years beginning mid 2010 with breaks from year 10 and every couple of years thereafter. There is an upward / downward rent review in year 5.
NAMA is leading with its best property in order to set a high level marker for the market. Unaffected by the UORR legislation, it will be a fair test of the state of the prime investment market in the core CBD of Dublin.
@WSTT, thanks for that and yes, accepted the sale is not completed.
Interesting that Bord Gais is a tenant to a substantial prime D2 building. Not to belittle the state utility company in any way but I have rarely come across state utility companies in prime city centre property in other countries unless there’s some historical reason, but this is a new building. Couldn’t acceptable premises be sourced for €10-15 psf in other parts of Dublin?
@NWL, They already have offices in Sandyford, where offices can be rented from €8 per sq.ft.
@WSTT, interesting, I suppose that with about 1,000 employees there are a few sites but a 60,000 sq ft office might accommodate what? 400?
Separately, Jack Fagan reports today on a decent-sized letting in one of Sean Dunne’s buildings – the Bloodstone Building on Sir John Rogerson’s Quay; 18,300 sq ft at €26 psf. The building is now under the control of the receiver, Grant Thornton and there is an implied suggestion that the rent may have been discounted to encourage other tenants to take leases in the building.
http://www.irishtimes.com/newspaper/commercialproperty/2011/0921/1224304476903.html
In relation to the Caring transaction let me get this right (clarifications welcomed)
Caring refinances the loan now in NAMA and NAMA gets what they paid AIB from Caring.
He develops the site and sells the 41 flats using the new development finance
He then repays AIB/NAMA what he ows them (i.e. the haircut) on the original loan.
@Barry, if you accept what Simon Carswell writes, citing Reuters,
(1) Richard Caring had a loan from INBS of GBP 330m
(2) The INBS loan was transferred to NAMA for GBP 165m approx
(3) Richard Caring has secured refinancing of GBP 330m comprising GBP 230m from Lloyds, Deutsche Bank and a Singaporean bank called United Overseas Bank and GBP 100m from LaSalle Investment Management and Safanad.
(4) NAMA gets 100% of the loan face value as far as I can see (and consequently a €165m loss, though before breaking out the champers, remember INBS made a €165m loss and we own 100% of INBS).
http://www.irishtimes.com/newspaper/finance/2011/0921/1224304482423.html
@Garfunkel
If an Irish borrower has €330m of loans from NAMA and can find someone to contribute €330m to refinance the loans from NAMA, then I don’t see why NAMA wouldn’t accept that proposition, do you?
Remember you can find background and photographs of the property at the heart of this transaction here where it was exclusively revealed in February 2011 that Richard Caring was acquiring his loans from NAMA
https://namawinelake.wordpress.com/2011/02/23/exclusive-nama-understood-to-have-overseen-e300m-sale-opposite-american-embassy-in-london/
So can the Irish borrowers avail of this refinancing or are they excluded? If so, why?
Thanks for the breakdown NWL ! So that means they will accept what they paid and not the full book value of the lending institution . Interesting.
@Garfunkel, no that’s not right; as far as I can tell from the reporting NAMA gets the face value of the loan (that is to say, the book value of the loan at the original institution – GBP 330m) so in this case, based on Reuters and the IT reporting, NAMA is getting GBP 330m, and the developer, let’s say Richard Caring is repaying (refinancing) every cent owed.
PS I am confused by the IT comment citing NAMA who say they use an independent loans broker to evaluate offers – surely if the original loan was GBP 330m and the developer can refinance 100%, then there’s no “evaluation”.
Word on the street is that this has sold for just under €28 million. It is said that there were 5 bidders in the final cut. All of them were foreign funds. The cap rate works out at just over 7%.
@WSTT, so NAMA (or rather Lisney and HT Meagher O’Reilly) achieved the precise asking price reported in September.
http://www.irishtimes.com/newspaper/commercialproperty/2011/0928/1224304841288.html
Interesting. To commemorate the speculation, new photographs of the building have been added to the blogpost above.
If correct the property will have achieved its asking price without staple finance. A 7% yield on a post February 2010 lease with Bord Gais is quite an achievement in the present market, not needing NAMA’s finance would also be positive.
P.S. Nobody wanted NAMA’s funding – just wanted it out of there. Prospective buyers are concerned that sections of NAMA’s loan book could be sold to third parties who would then look for excuses to declare the loans in default.
Bloomberg (Neil Callanan and Joe Brennan) is reporting that six bids have been received for One Warrington Place (and “at least five” bids were for more than €25m)
http://www.bloomberg.com/news/2011-12-05/nama-s-first-vendor-financed-sale-attracts-prudential-atlas.html
Two companies, which both declined to comment, are identified as bidders
(1) Atlas Capital Group LLC
http://www.atlas-cap.com/
(2) Prudential PLC
But is the report all hot air and has the property in fact sold for €28m, without the NAMA offer of staple financing being taken up?
Atlas did not win it, but were a bidder.
must have enjoyed doing business with Anglo,coming back for some more!

Fun map doing the rounds linked it the greeks,received it ‘confidentially’ so cant comment.
‘The Alex, one of Alexico Group’s three distressed hotels in Manhattan, is facing an $81.7 million foreclosure suit after Anglo Irish Bank sold the note on the property earlier this month.’
http://therealdeal.com/newyork/articles/alex-hotel-faces-82m-foreclosure-suit
‘ Atlas Capital acquired the Flatotel and Alex loans after the previous lender put the distressed notes up for sale. Anglo Irish has been looking to unload much of its distressed debt at the Alex, Flatotel and the Mark, another distressed hotel in the Alexico portfolio. ‘
http://therealdeal.com/newyork/articles/alexico-hit-with-197m-suit-at
Emmet Oliver at the Independent today reports that it is “believed” Prudential has applied for NAMA’s staple finance.
http://www.independent.ie/business/irish/prudential-plc-seeks-nama-loan-finance-deal-2954519.html
The article is so speculative that it’s not even worth an update to the blogpost above.
It’s not speculative, it’s a rewrite of a Bloomberg article using Bloomberg terminology
Some interesting stats coming from the sales of the One Warrington Place and Riverside Two office investments in Dublin that reflect the state of the market as we move into 2012. Due to the variant over rented nature of both properties, the two deals are valued on the basis of equivalent yield as being the most appropriate.
* On the above basis, Riverside II is showing an equivalent yield of 6.85%
against Warrington Place at 6.21%.
* Based upon the assumptions above, capital value per square foot for
Riverside II equates to €487.52 against Warrington Place at €489.71
The following should be noted;
* NAMA provided stapled debt to Warrington Place, which made the deal independent of banking requirements. This was a big advantage. The terms of that debt is unknown and it is also unknown whether it was subsidised below market levels.
* There appears to have been a close relationship between between NAMA and the eventual purchaser, who reputedly bid well in excess of the next nearest bid, and it is not known whether there are other factors influencing the eventual price agreed.
* Warrington Place has a major advantage with a blue chip government tenant
in place. BNY Mellon is also a blue chip, but it known to be seeking to consolidate its operations under one roof.
* Warrington Place is a high profile architecturally impressive building with exceptionally high level of finish and a superior BER rating (important for Bord Gais). Riverside II is closer to what is now the prime core office area.
Gross Sales Prices:
One Warrington Place: €28,400,000
Riverside Two: €37,000,000
Net (after S.D. and Fees):
One Warrington Place: €27,200,000
Riverside Two: €35,500,000
@WSTT, many thanks for that. Do we know anything about the buyers? It was speculated that Prudential was the frontrunner for One Warrington Place. Presumably Riverside II will have had similar potential buyers as it seems a relatively straightforward prime office building – the sale was previewed here
https://namawinelake.wordpress.com/2011/08/17/sale-of-e35m-landmark-dublin-office-block-to-test-market/
Could you explain what is meant by “equivalent yield” in the above context.
But €65m in commercial sales is most welcome. Shame the Exchequer lost €2.6m with the recent reduction is stamp duty from 6% to 2%.
@NWL,
Rumoured buyers:
Warrington Place: Prudential
Riverside Two: Primerica (out of their German office)
Will comment on “equivalent yield” later – have to sing “Jingle Bells” on Grafton Street! Never busked before!
Equivalent yield is defined as follows:
“The net weighted average income return a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the external Valuers) assume rent received annually in arrears and on values before deducting prospective purchaser’s costs.”
It really just fudges the yields to make them look better from a vendor’s viewpoint. In reality, the true initial yield of say Riverside Two is 8.63%
The definition of initial yield is: “The annualised net rents generated by the portfolio expressed as a percentage of the portfolio valuation, excluding development properties.”
So if you are the vendor’s agent and want to make yourself look good – you quote the “equivalent yield”. As I keep repeating, it’s all about “spin”. The mushroom treatment for the masses…..Keep them in the dark and feed them sh*t.
… or bullsh*t baffles brains.
All this Christmas business means it takes me 3 posts to say what I should be saying in one!
I ignore the three card tricks of the agents and just assess the TRUE yield on the basis of the annual rental return divided by the total purchase price, inclusive of all ancillary costs PAID BY THE PURCHASER on the closing of the sale, i.e. the actual cost of purchase. The rest is nonsense and irrelevant spin . On this basis the real yields for the two investment sales in 2011 (well, one sale and one pending sale) are as follows:
Warrington Place: 7.80%
Riverside Two: 8.98%
Not exactly yields to make the vendors proud.
@WSTT as always great skinny any idea of the terms on the VTB… Vendor Take Back.. mortgage,I may be able to throw a auld pencil at it.
Yikes 9 on the ‘river’ so assuming positive leverage mid teens return on equity.
With most hedge funds barely threading water this year quite a compelling return.