Archive for October 12th, 2011

Back in March 2011, there was a blogpost here on what Jack Fagan at the Irish Times called “by far the most valuable asset under NAMA’s control”, the Dundrum Town Centre shopping centre which was seemingly valued at around €600m. The view on here was that the Battersea Power Station was more valuable even if it was in the same valuation ballpark, but as it turns out we were both proved wrong when NAMA announced a €800m sale of loans in the Maybourne group two weeks ago. The March 2011 blogpost was prompted by reporting of imminent rent reviews in the Dundrum Town Centre and today Jack Fagan writing in the Irish Times provides some results which make for very interesting reading, and the view on here is that Dundrum might only be worth half the valuations being bandied about previously.

To recap, Dundrum Town Centre (pictured here) claims to be the largest shopping centre in the State with 79,000 sq meters. Built by NAMA Top-10 developer, Joe O’Reilly and the late Liam Maye, it is understood that loans underpinning the development are now in NAMA. Back in 2005, tenants were enticed with teaser introductory rents and it is these rents that have now been coming up for review. As was normal back in 2005, the lease agreements in Dundrum have Upward Only Rent Review (UORR) terms which mean that the reviews now can either increase the rent or keep the rent at existing contract levels, there is no right yet for tenants to have the rent set at levels below the existing rent, though as reported here last week this is set to change in the coming weeks.

The expectation in Dundrum was that the current rent reviews would result in substantially higher rents than the so-called teaser rents. That is not turning out to be the case according to today’s Irish Times article. Rents for the anchor tenants, House of Fraser and Marks and Spencer remain the same; indeed were it not for the presence of UORR lease terms, M&S’s rent would actually fall. Penneys has been asked to pay €50,000 per annum more on the existing rent of €1.8m (a measly increase of 2.8%). The smaller units will, however, be paying more – between 20% and 55% more according to Jack Fagan. There is no mention whatsoever of the 85% increases reportedly being sought at the start of this year. There is also no update to the estimated rent roll of €55m, but  will that headline total have been reduced as a result of the anchors keeping their rents flat? And will the €55m be affected by the forthcoming changes to UORR lease terms?

Of course this won’t be scientific because smaller units are likely to be paying higher rents per square foot but I note that House of Fraser, Marks and Spencer and Penneys which together hold 30,000 sq metres (325,000 sq ft) will be paying €7.75m per annum, and this may fall after the UORR changes are made into law. I believe Dundrum has 80,00 sq metres of rentable space which on a pro-rata basis would put the rent roll at about €20m per annum. At an 8% yield that indicates a capital valuation of €250m. According to Jack Fagan’s article today there’s a queue of retailers waiting to rent space at Dundrum which indicates the centre is 100% rented, and it may be that the smaller units generate higher rents which might result in an overall capital value well over €250m.

In April 2011, NAMA was reported to have sold a shopping centre in Blackpool in northernEngland, half the size of Dundrum with 82% of the footfall for €112m. My money is still on Battersea being more valuable than Dundrum.


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The BBC is today reporting that Parker Green International – the property development company which boasted former Taoiseach Bertie Ahern as a member of its “International Advisory Board” up to October 2010 – has secured planning permission for a substantial GBP 35m (€40m) extension to an existing shopping centre, The Quays, in Newry, Co. Down.

The BBC says that Parker Green’s accounts confirm that some loans owed by the company have now been taken over by NAMA.  It is not clear if either the existing shopping centre in Newry or the extension is being funded by NAMA.

The Quays shopping centre will no doubt continue to be familiar to many on this side of the border, particularly if consumer costs in this State fail to fall at the same pace as incomes. The planning permission granted today allows for the addition of 12,500 sq metres (135,000 sq ft) which the BBC says will involve a separate structure connected to the existing shopping centre with a glass walkway.

The existing shopping centre was opened in 1999 and today houses over 50 retail units including Sainsbury’s, Next and Debenhams.

Parker Green International is controlled by Dr Gerard O’Hare who, according to the Independent Rich-List last year, was estimated to be worth €160m, and who controls commercial property in Northern Ireland, the UK, Eastern Europe and the USA.

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I must admit that I was deeply sceptical when Minister Noonan announced out of nowhere at the end of August 2011 that there was an inter-departmental group under the tutelage of a seconded KPMG consultant, Declan Keane, looking at the mortgage arrears crisis. The announcement came just days after the 18th August, 2011 when Professor Morgan Kelly had drawn attention to the crisis and at the time when MP Mac Domhnaill from Kerry wrote his heart-breaking letter to the Irish Times.

When the group was announced in the last week of August, I asked Joan Burton’s Department for Social Protection on 30th August for details of the group and its workings, the names and qualifications of its members, its terms of reference, its deliverables, the resources that would be made available to it. There was no response.

And last weekend, at the Dublin Castle, Irish Diaspora Get-together or the Global Irish Economic Forum as it was grandly called, the star speaker, former US president Bill Clinton said, after an hour-long meeting with Taoiseach Kenny, that the mortgage crisis was the biggest challenge facing Ireland; not a euro break-up, not a sovereign debt crisis, not global economic downturn, not our 14.3% unemployment rate, not the return of Irish emigration but the mortgage crisis. And the former US president indicated that today’s report, about which he had obviously been briefed, would contain 15 recommendations for dealing with the crisis. For his part at the gathering last Saturday, Taoiseach Kenny elevated the status of the mortgage expert group to that of “specialist commission”, and indeed he is still referring to the group off-and-on as a “commission”.

The report published this morning by the Department of Finance provides some answers to the scepticism. There were 15 items that comprised the terms of reference, maybe that’s where Bill Clinton got his “15”. The group says it has been at work “formally” since 29th July 2011. So apparently it wasn’t some hastily cobbled-together knee-jerk response to an issue which had caught the nation’s attention. The group comprised 22 members whose names are shown in an appendix to the report. There is no information on their qualifications or background other than the ministry for which they now work. There were two members from outside government departments, one from AIB and one from EBS (which of course was recently merged with AIB). There is no information on the resources available to the group, or anything on deliverables other than the terms of reference.

It is a dreadful report.

Remembering that 56,000 households were in arrears to the end of June 2011 and that is likely to be over 60,000 today. And there are an estimated 40,000 households, in addition, which have had their mortgage “re-structured” which can mean anything from going to interest-only to a complete moratorium on any payment. There are about 19,000 households in receipt of a mortgage interest supplement welfare payment though some of those might be restructured mortgages. So conservatively, that means 100,000 households, which will represent about 270,000 people on average, are in difficulty. Some people are being forcibly evicted from their homes, though overall repossessions are tiny. Considering the three most important factors influencing arrears, the housing market is moribund and prices are down 43% on average and seem to be continuing on a downward slope, unemployment is 14.3% representing just over 300,000 people and is projected to remain elevated for the next two years and incomes are being squeezed as a result of interest rate rises/taxes/reduced gross pay. And remember the mortgage crisis doesn’t just affect borrowers, it is a drag on the rest of the economy which is spooked into conserving income.

Although it was surprising to hear Bill Clinton say it, perhaps he is right that the mortgage crisis is the most serious challenge facing the country.

So then, what does today’s report do to tackle the urgent crisis? With little evidence of any in-depth research the report produces a number of generalised recommendations which will be debated in the Oireachtas next week. All of the solutions require someone, somewhere to pick up a tab, and I can say right here that sorting out the funding is not even touched upon. Remembering the country is the recipient of one of the biggest bailouts anywhere ever and is still running a large annual deficit that will be €15-18bn this year depending on how you count it, the report doesn’t say who is going to fund the new quango – the independent mortgage advice service – who is going to fund the purchase of homes from distressed borrowers, even if we could force our covered banks to play ball who will force local units of foreign banks to take hits on their loans, who will fund the additional cost of housing those who the report says will inevitably lose their homes?

And because we have been kicking the can down the road for so long, how will any new quango cope with the tsunami of distressed mortgage cases, how will new bankruptcy legislation cope with an estimated 5-10,000 cases in its first year, how will non-judicial bankruptcy processes (seem to be modelled on the UK’s Individual Voluntary Arrangement) cope with the colossal scale of problems.

There is practically nothing in this report that we didn’t know already. The recommendations seem take the scatter-gun approach and cover everything; although there is a rejection of “blanket debt forgiveness” there is no indication of how far-reaching the measures will be. Will they just deal with those presently in arrears, what about those suffering dreadfully just about making their mortgage payments, at the expense of other basic necessities?

The position on here is that personal bankruptcy legislation be introduced without delay, that a template from elsewhere – probably theUKwhose legislation is generally similar to ours – be imported so as to expedite the enacting of reforms and reduce problems with interfacing with our own legal system. And our legal system needs to be resourced to deal with the temporary tsunami of urgent cases that our can-kicking has created. Because of the unique aspects of the Irish property and credit bubble, it is likely that additional measures will be needed, but without a basic bankruptcy process, we will end up creating some convoluted Irish innovation which may cost colossal sums and have unintended financial and societal consequences. The two-day debate next week should be abandoned and be replaced by a two-day debate on new bankruptcy legislation. We need action, not reports and certainly not reports that don’t tell us anything we didn’t know already.

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Despite holding only three auctions to date, I think it’s fair to say that the Allsop Space joint venture has changed the Irish auctioneering business for good. By conventional standards the auctions are colossal, there is a lot of marketing beforehand, there is great transparency and the proceedings on the day are deftly managed. In addition there is the concept of the “maximum reserve” which gives buyers a degree of certainty about prices, and to date the venture has had a 90%+ success rate.

Yesterday Allsop Space produced a statistical analysis of the first three auctions (April 15th, July 7th and September 23rd) which is available for download here; there’s a mine of interesting facts and figures about the auctions, the properties and the buyers. Here are my top five:

(1) 57% of buyers are investors (2) 86% of buyers are cash buyers (3) Only 13% of buyers are from overseas (4) 18% of property auctioned has been commercial (5) the average yield has been 9.4%

And lastly, you’d need to be eagle-eyed but an image from the report seems to show that former developers, now both in NAMA, are showing an interest in the auctions, though there is no evidence that they made any purchases….

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