Archive for October 24th, 2011

“The receiver was not hidebound by any views of Nama concerning purchase offers made by Mansfield interests or by persons introduced to the receiver by those interests, the judge [Judge Kelly] added. There was no evidence the receiver would do the agency’s bidding.” – Mary Carolan reporting the Jim Mansfield case in the Irish Times

Breaking news this afternoon that a Dublin court has granted a €74m liability order in favour of NAMA against developer Jim Mansfield; nothing unexpected about that at all, and indeed next month Bank of Scotland (Ireland) is likely to secure an order for an additional €204m against the 72-year old developer, perhaps most associated with the Citywest development in west Dublin and Weston Airport (formerly Weston Aerodrome). Together the liability orders are understood to be the largest ever in the State which is interesting enough. But what was really interesting about the case today was what the judge reportedly had to say about NAMA’s receivers.

The judge in theMansfieldcase was Judge Peter Kelly, perhaps the most prominent commercial judge in the country. Jim Mansfield had opposed the application by NAMA for a liability order on a number of grounds, one of which was reported by the Irish Times to be the rejection by the NAMA-appointed receiver of “an offer of about €11.9million for Palmerston House and estate and concerning any sale of Weston Aerodrome and West Park apartments” The Irish Times reports that Jim was claiming that NAMA would not accept offers on foreclosed property from parties connected with the Mansfield group. There seems to have been a claim that this rejection was in violation of a NAMA code of practice.

The Irish Times reports the judge’s response to this defence which is reproduced at the top of this blogpost, and although there’s no claim that the judge is being quoted verbatim, “hidebound” is the sort of term that Judge Kelly would use. But if Judge Kelly is correct then the NAMA receiver might not in this case, or indeed any other case, need “do the agency’s bidding”. The implication is that a party associated with a developer may indeed be able to purchase assets from a NAMA receiver even if the developer is in default. Section 172 of the NAMA Act was supposed to stop this but on a strict reading of that section and also Section 70 which defines an “associated debtor”, it could well be argued that certain associates of Jim Mansfield are allowed in law to purchase foreclosed properties.

Sadly this issue seems not to have had a full airing in this case, as the judge held that Jim hadn’t sought to remove the receiver, so the receiver’s actions appeared to be moot. So we appear not to have NAMA’s side of the story, but on the face of it, the judge’s comments might be significant in future cases.

NAMA had previously appointed Kieran Wallace of KPMG as receiver to assets in several companies controlled by Jim Mansfield. The receivership is described in detail here.

UPDATE (1): 21st December, 2011. It is being reported that Jim Mansfield has appealed the NAMA judgment to the Supreme Court and that NAMA has apparently agreed not to seek Jim’s bankruptcy pending the outcome of that appeal, Meantime, Bank of Scotland (Ireland) has this morning secured a €214m judgment against Jim in respect of personal guarantees given to three companies – HSS, Jeffel and Park Associates Limited. Judge Kelly who was dealing with the case rejected Jim’s claim that he incurred loss following what Jim claimed was a commitment by BoSI to give him development advances – the Judge said there was no evidence of any contractual commitment to that effect.

UPDATE (2): 21st December, 2011. Judge Kelly’s judgment is now available online, in which he considers – and then dismisses – Jim Mansfield’s arguments advanced to support his wish to have a full hearing of the claim. Judge Kelly granted summary judgment in favour of Bank of Scotland (Ireland).


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Just four weeks ago the NAMA CEO, Brendan McDonagh took a thinly-disguised swipe at vulture funds and bottom-feeders when he said at the Corporate Restructuring Summit in Dublin “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained”

Thanks to a presentation given by NAMA’s Head of Portfolio Management, John Mulcahy to NCB last week, we now know that NAMA will sell its assets at a maximum discount of 10% below its acquisition value. So if there was a €100m loan in Anglo which NAMA acquired for €40m then NAMA will sell you the loan or the underlying asset for no less than €36m, that is a 10% discount on the €40m acquisition price. Good to know.

Of course inIreland, both commercial and residential prices have dropped by 20% since NAMA’s valuation date of 30th November, 2009 and of course NAMA paid a Long Term Economic Value premium to the banks which averaged 10% of the valuation. In other words, a loan acquired by NAMA at €40m might only be worth €29m today – NAMA is not exactly doing any buyer of Irish property a favour by offering a maximum 10% discount on what it paid!!

John’s presentation to NCB also revealed that NAMA will not sell an asset where the annual return is projected to be more than 20%. So Steve “wait for the blood on the streets” Schwarzman of Blackstone who seemed to be seeking 30% returns from distressed property assets in Europe might have to put away his USD 4bn (€2.9bn) real estate war-chest unless he lowers his sights. What is meant by a 20% annual return? Imagine buying a NAMA property for €10m and getting €2m rent per annum – that would be a 20% return. Remember that in some instances, NAMA will be prepared to lend you up to 75% of the purchase price at an annual interest rate of 4-4.5%. So you might buy the property for €10m, pay €2.5m cash and get NAMA to loan you the remaining €7.5m at 4% per annum. In order for you to generate a 20% return on your €2.5m you would need rent the property for €0.8m per annum [€0.8m rent less €0.3m paid to NAMA as interest, equals €0.5m which is 20% of your €2.5m investment]

What was absent from the presentation was criticism of the glacially slow progress being made by this Government in introducing legislation to give effect to Real Estate Investment Trusts (REITs). REIT legislation was sign-posted in the Fine Gael election manifesto in February 2011 “We are open to considering new types of investment vehicles – such as U.S. style Real Estate Investment Trusts – that can help create a new, liquid investment market in commercial property for Irish pension funds and smaller investors” There are still some locals in Ireland with some cash and they might welcome the opportunity to invest, for up to 20% annual returns, particularly within the managed, tax-efficient REIT framework.

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The NAMA CEO, Brendan McDonagh is set to appear before the Committee of Public Accounts in the Oireachtas this coming Wednesday 26th October where the discussion topic is billed as “Annual Report and Financial Statements 2010”. Proceedings are expected to get underway at 10am on Wednesday in Committee Room 1 and live video streaming should be available online here. The Committee comprises the following members : Paul Connaughton, John Deasy, Paschal Donohoe, Anne Ferris, Simon Harris, Michael McCarthy, Mary Lou McDonald, Seán Fleming, John McGuinness, Eoghan Murphy, Derek Nolan, Kieran O’Donnell and Shane Ross. The chairman is Fianna Fail’s John McGuinness.

The following open letter was submitted to the Committee this morning

“Dear Mr McEnery,

I understand that NAMA is to appear before the Committee this coming Wednesday. I would be most grateful if you might place the following before the Committee.

This is an open submission from the NAMA winelakeblog, an online blog which reports on NAMA and associated subjects. This submission is being published online on Monday 24th October at http://www.namawinelake.wordpress.com

Whilst there are myriad questions that beg to be asked about the operation of the Agency and its report and accounts for 2010, I would submit that the most pressing concern is the lack of information on the way in which the Agency is disposing of its assets which prevents any timely assessment of the Agency’s performance.

In the 36 months from the end of 2010 to the end of 2013, NAMA has set itself a target of disposing of €7.5bn of assets – loans and properties – which equates to €200m on average a month, every month. And remember these NAMA assets represent loans which were acquired from the banks at an average 58% discount. So in terms of original value at the banks, the disposals are worth an average of €500m a month, every single month. This is the scale of the enterprise over which your Committee has oversight; it is colossal. And remember these disposals are not of an homogenous commodity like electricity or gas – these are individual loans, borrowers, properties and buyers in individual locations and countries and generated by individual staff, advisers and consultants.

The accounts from NAMA, both the annual report and the quarterly management accounts do not provide a level of detail which enables you to assess how well NAMA is performing in its disposal of assets. Specifically you cannot assess the following:

(1) The gross profit on the transaction – sale price less loan acquisition cost

(2) The net profit after consultant/adviser/agent fees, loan carrying costs, foreclosure costs, tax on profit including potentially capital gains tax

(3) Evidence that NAMA has marketed the asset – loan or property – so as to maximise profit (and generally the sales price)

(4) Evidence that NAMA has achieved the best price for a particular asset

(5) NAMA’s expertise to ensure the best price is achieved

(6) NAMA’s expertise to determine the best time to dispose of an asset

(7) Estimated carrying costs for a distressed loan or property [In the UK, the standard assumption is 5% of the value of the asset in insurance, maintenance, management and other costs]

There is a compilation of reported NAMA sales on the NAMA winelakeblog but these are but a subset of NAMA’s total sales –  based upon press/industry reporting, contacts and other research – as NAMA does not report individual sales.

To make the above questions more tangible, I would ask that you apply them in the forthcoming hearing to a specific NAMA transaction. The obvious transaction is the recent sale of the €800m of loans in the Maybourne hotel group because it is the largest single NAMA transaction to date but given the mutterings about legal action, it might be better to avoid that transaction in preference to the following, which is a common-or-garden property sale by NAMA:

Number 1, King William Street in the City ofLondon was owned by a consortium which featured developer Paddy Shovlin. NAMA appointed receivers GVA Grimley who managed the disposal of the property on NAMA’s behalf. The property is a prestigious office block in the heart of the City, a stone’s throw from the Bank of England. It was widely reported in the press that it sold for GBP 67.5m in June 2011 to Nippon Telegraph & Telephone Corporation, and that the yield achieved on the sale was 5.6%. Yield simplistically means the annual rent on a building divided by its value so if the yield was 5.6% on a GBP 67.5m sale, that just means the annual rent is GBP 3.78m. Now theUK generally, and centralLondon in particular, has a far more transparent market thanIreland, with sales prices and property-related documents readily available from theUK’s Land Registry. And this transparency means that “going rates” are more readily established. The “going rate” for yields in the City ofLondon is 5.25% and if the sales price of the property onKing William Street reflected a 5.25% yield then it would have been GBP 72m not €67.5m. Also at the time, I was unable to locate the property being advertised on GVA Grimley’s website.

So in relation to the above transaction, you might properly ask about the gross and net profit, but also challenge NAMA to justify selling the property for less than the “going rate” yield would have indicated. And you might also challenge NAMA to demonstrate that the property was sufficiently marketed so as to achieve an optimum price. And lastly you might ask if now was the best time to sell the asset, particularly asLondonproperty prices continue to rise.

In response to questions about individual transactions, NAMA will typically remain tight-lipped and will invariably cite client confidentiality which NAMA is obliged to respect pursuant to section 202 of the NAMA Act. But the NAMA CEO said last month at the Corporate Restructuring Summit in Dublin that “if there is one key message I can ask you to take away from today it is: there is no point approaching us with an offer which is significantly below what we paid – it is a waste of your time and ours as it is unlikely to be entertained.” So buyers of NAMA assets are expected to have an idea what NAMA paid for the loans, and frankly given the number of valuers used by NAMA in valuing the loans and the standardised method of valuation, the acquisition value is unlikely to be difficult to establish. Sales prices are publicly available in theUK and some other jurisdictions. NAMA should be able to disclose costs associated with an historical sale. So although, you might encounter a reluctance on NAMA’s part to disclose information on individual sales, that information should be produced unless NAMA can demonstrate it will jeopardize its own business.

The bottom line is that you are going to have to establish some means of overseeing the meat of NAMA’s operation, which is the disposal of assets. Top-line reporting from NAMA will not enable you to determine if NAMA is doing a good job. Even if NAMA reports an overall profit, you will not be able to determine if a higher profit was achievable. So somehow, NAMA’s desire for confidentiality is going to have to square with your duty to oversee the operation of the Agency.

I don’t wish to finish on a harsh note, but it would indeed be unfortunate if a scandal or systemic failing in NAMA were to be uncovered in a couple of years and your constituencies rightly asked how the members of the main Oireachtas committee charged with the oversight of NAMA, failed to challenge the Agency early-on in its existence in a meaningful way which might have prevented such failing.

I wish you all well with the Committee’s important work.”

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