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Archive for January 12th, 2012

We should get the Q4, 2011 Irish commercial property price indices from both Jones Lang LaSalle and SCSI/IPD, in the next fortnight. I would wager that prices may have risen very slightly in the quarter for the first time in four years – the JLL index has consistently fallen every quarter, from a peak of 1,468 in Q3,2007 to 521 in Q3,2011; the reason for a slight rise would be Minister for Finance, Michael Noonan’s decisions in Budget 2012 which he did tell us about on the day – the reduction in stamp duty on commercial property transactions, the abandonment of proposals to abolish upward only rent review clauses in pre-February 2010 leases and enhancements to capital gains to encourage purchases. On the other hand, wider economic measures have tended to be weak, so it any increase is likely to be minimal. Commercial property prices have fallen 65% from peak already, and the forecast on here was that prices would decline slightly in 2012.

Today the National Competitiveness Council (NCC) published its annual report for 2011 in which it anticipates commercial prices falling further, although the NCC report suffers from an absence of quantitative support for its claims. What the NCC does do is to call on NAMA to become more transparent in its operations, publish more information on its portfolio and to dispose of property in the Irish market. NAMA is seen as one of the main obstacles preventing commercial property falling to a more competitive level. The NCC claims that commercial property prices in Ireland are still too expensive by comparison with competitors and says the prices are not justified by the “underlying potential for adding value or earning market rent”. Again, there’s little in the way of figures to support this, and although I have not seen recent comparisons, this time last year it was reported that commercial property prices in primeBelfast were still nearly twice those inDublin.

The NCC calls on NAMA to get on with disposing property, and remember that unlike the residential property market where despite the hysteria, NAMA is actually a small player, in the commercial market NAMA controls approximately €6-7bn of assets which is very significant indeed. The NCC also calls for price information (sales and rental prices) to be publicly registered, something we may get from mid-2012.

So if commercial property is presently 65% off peak, how low can it go? The Central Bank had an adverse scenario of 70% in its stress testing last March 2011, which would represent a 14% drop from today’s prices (100 at peak, 35 today, 30 bottom representing a 70% fall from peak, a drop from 35 to 30 represents a 14% decline). But who knows, it would have been helpful if the NCC had quantified values based on “underlying potential for adding value or earning market rent

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An Taoiseach Enda Kenny is in London today for another bilateral meeting with an EU leader – the second leader in 10 months having met with Angela Merkel in October 2011 and David Cameron a number of times. He took part in a Thomson Reuters news event where he gave a presentation on Ireland and the Irish economy with a particular emphasis on the upbeat aspects of which there are genuinely quite a few. After his own presentation, he had a brief Q&A session. One question related to NAMA, and Enda was asked by a questioner who used about six words about the future ownership of the Agency – an issue of currency given the erroneous media reporting in December 2011 about the findings of the Geoghegan review but also because it was a FG commitment to farm-out the management of NAMA to “3-4 asset management companies”.

Enda and his advisers really need to work on Enda’s performance in dealing with questions. In the Dail and perhaps even with the domestic audience generally, Enda might be able to get away with a response which seems focussed on avoiding “dead air” but which oftentimes ignore the question, except for the most tenuous linking. But internationally, where there’s little familiarity with An Taoiseach, the responses come across very badly indeed; this Wall Street Journal interview is typical, and it does not go down well internationally.

In response to a simple question on the future of NAMA’s ownership, Enda talked about NAMA’s engagement with Priory Hall where 37 properties were made available by NAMA and its developers to some of the 187 households who have had to evacuate their apartment block in north Dublin following the uncovering of fire safety concerns. Enda also referred to NAMA making housing available for social housing. But all he said in respect of the question about NAMA’s future ownership, was that Minister Noonan had arranged a review, that NAMA’s objective was to maximise the return from its portfolio and that it would be for Minister Noonan to bring any proposals to Cabinet. There was nothing about the plan for the establishment of an advisory board, which might well be abandoned, there has certainly not been any Direction forthcoming from Minister Noonan’s finance department.

So for the international audience, and remember that NAMA is one of the biggest property asset management companies in the world with a concentration of assets in Ireland and the UK, and remembering the FG commitment to farm-out part of NAMA’s operation and after a review which took place four months ago, Enda has practically nothing to say. And the waffle about Priory Hall – as domestically and politically important and current, as it may be – just irritates serious people who want to know how the Government will govern.

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Up to the middle of last year, the word on the street was that Treasury Holdings, the Dublin-based property giant, was close to the top of the NAMA class – not quite the teacher’s pet that Sean Mulryan and his company, Ballymore, are understood to be, but close. Then there came the annual report from a company called Real Estates Opportunities (REO) which is controlled by Treasury and which was noticeably cool, even blasé,  about its dealings with NAMA. Then there was speculation that Treasury/REO was trying to sell a stake or perhaps even 100% of its interest in the Battersea Power Station in London and then just before Christmas, NAMA and another lender, Lloyds Bank, had several REO group companies placed in administration as NAMA and Lloyds took more direct control over the 38-acre Battersea site. Subsequently Knight Frank has been reportedly appointed to market the site (worth about €500m) and one conclusion is that NAMA and Lloyds think Knight Frank will do a better job of selling the site than the former REO owners. And this seemed to indicate a deterioration in relations between NAMA and Treasury.

And so today, the Irish Times, citing “informed sources” says that NAMA has issued a demand for repayment by Treasury of loans that amount to hundreds of millions of euro. Repayment is due “this month” but no further information on timing is given – in the past NAMA has issued 24-hour demands for repayment of about €600m from the Grehans, about €500m from the Dalys and undisclosed but colossal sums from Bernard McNamara and Paddy Kelly. NAMA had to “stand down” receivers appointed to the Grehans’ assets in April 2011 after it emerged there were potential irregularities in the procedure NAMA had used to foreclose on the Galway brothers’ assets. So NAMA’s reported demand for repayment of loans by Treasury might give that company more than 24 hours but it’s unlikely they’ll have weeks.

The Irish Times doesn’t know what assets might be affected by any foreclosure of Treasury assets. Treasury Holdings is owned by the colourful Johnny Ronan (understood to be the cousin of Jack who is having some bother with Vita Cortex at present) and the more understated Richard Barrett. The company controls a vast property empire in Ireland and to an extent, the UK. Despite sunnier claims in Irish media last year that Treasury buildings were performing well in the rental market, I notice that, according to a Jones Lang LaSalle report published in recent days, there is 147,218 sq ft available for rent at Number One Central Park in Leopardstown which is a Treasury Holdings/REO property.

NAMA operates as a tenant from a building in south Dublin Docklands which is called “Treasury Building”, pictured above. It was developed by a partnership between Johnny Ronan and another prominent Irish property developer (or “investor” as he and his spokeswoman often insist) Paddy McKillen. The building might be called “Treasury Building” but it is not a Treasury Holdings asset, and is now understood to be solely controlled by Johnny Ronan.

Treasury has built what seems like a thriving property development business in China, which is understood to be completly fire-walled from problems with Treasury Holdings back in Dublin. Perhaps Messrs Barrett and Ronan have offended NAMA by concentrating their skills on Shanghai rather than Leopardstown. Perhaps neither is as exposed to personal guarantees as some other developers, or perhaps they have protected their personal wealth in better ways – no intimation of illegality here, there are perfectly lawful means of sharing wealth with spouses and family. Perhaps they are holding out for better terms in their dealings with NAMA. Who knows, we don’t even know for a fact that NAMA has issued a demand for repayment of the loans. Perhaps the front page story of the Irish Times is inaccurate, and the paper is unwittingly doing the bidding of those who might want Treasury to better engage with NAMA.

Here’s a reminder of what press reporting has suggested are the NAMA Top 20 developers and what we know about their relationship with NAMA.

UPDATE: 13th January, 2012. As expected, there is some evidence of a reaction from Treasury to what is seems now almost certainly to be a game of chicken. Treasury is reported by the Irish Independent to be “desperately” seeking US and UK property funds to refinance itself out of NAMA. Emmet Oliver claims that Ernst and Young is “on stand-by” if NAMA seeks to appoint receivers in the “next fortnight”. Emmet concludes his piece by saying “ironically, the MOU, agreed with NAMA in 2010, provided fresh working capital for Treasury, but it appears NAMA has now started to question the company’s long-term strategy.”

UPDATE: 21st January, 2012. Reporting in today’s Irish Times, Ciaran Hancock claims that the deadline given to Treasury by NAMA expires next Wednesday 25th January, though there is some suggestion this may be extended if progress is evident in Treasury’s bid to attract a new investor to its vast portfolio of €900m of loans at NAMA. Australian financier Macquarie is apparently in the frame as well as another unnamed investor.

UPDATE: 25th January, 2012. RTE seems to be the only media outlet reporting a Treasury receivership. It says that tomorrow, in Dublin’s High Court Treasury will challenge the appointment by NAMA of receivers to its property.  It goes on to say that Ernst and Young and PwC may be confirmed as receives if Treasury fails in its bid to have their appointment blocked. There is no official statement from NAMA, Treasury or REO.

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