“NAMA, as promoter, is seeking proposals for the provision of investment management services for a Qualified Investment Fund” Tender posted by NAMA on 25th January 2012
NAMA is apparently about to set up one or more Qualifying Investment Funds. According to the tender document “NAMA intends to establish a Qualifying Investor Fund (QIF) as an investment company in accordance with Part XIII of the Companies Act 1990. The QIF will be established as an umbrella scheme with segregated liability between sub-funds which will invest in property and property related assets inIreland, theUK andEurope.”
The services are required for upto seven years.The Irish Funds Industry Association defines a QIF thusly : “The Qualifying Investor Fund (QIF) is a regulated, specialist investment fund targeted at sophisticated and institutional investors, who must meet minimum subscription and financial resources requirements. The main advantage of the QIF is the removal of the Financial Regulator’s general conditions relating to investment policies and borrowing, thereby enabling sophisticated investors to use this structure for a wide range of investment purposes. The QIF is the preferred structure used in the regulated alternative investment sphere.”
It is understood the minimum investment in a QIF is €100,000. NAMA has not commented on the tender, but it is known that NAMA wanted to see Real Estate Investment Trusts (REITs) adopted in Ireland to allow investors invest in property and loan funds in a tax efficient manner. Perhaps NAMA got fed with waiting for the Government to deliver on another one of its manifesto pledges.
UPDATE: 27th January, 2012. The Irish Times claims that the minimum investment will be €250,000 and that individuals will need demonstrate a net worth of €1.25m or in the case of companies, the company will need have a net worth of €25m. The article referes to Central Bank rules and these have been requested, and an update will be posted when they become available.
UPDATE: 7th February, 2012. To complete the fund management function tendered for above, NAMA is now seeking the provision of a custodian and fund administration service – the tender document is here. The custodian service is to register the QIF’s interest in property and to collect income and make payments on behalf of the QIF. The fund administration function is quite diverse and involves keeping tabs of investors and their investment, preparing valuations for the fund and doing the accounts.
NAMA Wine Lake 
“The main advantage of the QIF is the removal of the Financial Regulator’s general conditions relating to investment policies and borrowing, thereby enabling sophisticated investors to use this structure for a wide range of investment purposes.”
coming from Ireland…..that is very scary, or is it an international definition?
http://wp.me/28tG9
@NWL very very minor point,but I know you like your ‘housekeeping’ the FG. link is not working may be a yank thing,’manifesto pledges’.
Very, interesting post looking forward to reviewing the materials,thanks,specifically provisions on conflicts of interest !
@JG, corrected link! Thanks.
What was the promise?
@Dreaded. apols the link wasn’t initially working. PDF page 21 says
“Kick-Starting the Property Market: Getting the property market functioning properly again is a condition of strong economic recovery. This will require NAMA to dispose of property assets secured from developers in default of their loans into the private sector as quickly as possible. 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.”
Click to access Fine%20Gael%20Manifesto%20low-res.pdf
Thanks NWL
Is that not what they are doing?
@Dreaded_estate, I am not aware of any initiative being actively worked on to provide Ireland with REITs. We have had Qualified Investment Funds for some time, it seems, though I am still awaiting details from the Central Bank.
“The main advantage of the QIF is the removal of the Financial Regulator’s general conditions relating to investment policies and borrowing, thereby enabling sophisticated investors to use this structure for a wide range of investment purposes.” Setting up NAMA as an SPV’s was not enough! This is a nightmare, tell me this is not happening!
@RB is actually quite standard,they don’t want “widows and orphans” investing here.Objective is actually to protect smaller less sophisticated investors, from getting burnt.
Most funds have similar provisions,in fact quite a few require at least 1millon minimum in liquid assets.It’s to deter potentially undercapitalized investors from participating as a cash call may be required !
@JG
“Objective is actually to protect smaller less sophisticated investors, from getting burnt.”
Hahaha, this protection is bit late given that we have already been burnt for bank losses of €63 bn and we were not even investors!
Is NAMA not wandering somewhat. I thought their mission was to flog property at the best price. Otherwise why not have the Land Commission mk2. This smacks of empire building in the worst civil service Yes, Minister mission creep gone insane.
@BF looks like you got all the downside and very little of the upside,but what do you expect,you went mad on a spending and credit binge everyone has to pay for it now!
Was that you in IT,AGAIN,on bondholders.
@JG
Just to correct you, we didn’t ALL go on a binge. Some people did with support of bankers, compliant regulators and irresponsible politicians. Sure this created a bubble which has burst over everyone as gambling losses were socialised.
Yep, again!
@Vince, That’s exactly what is is. The agency falls in love with the assets and the power – So, “Hey, there’s no market, what are we selling them for?” It may be one reason why everyone is complaining that it’s impossible to get a courteous response from the receivers, if you are foolish enough to make an enquiry. It may also go some way to explain the frustrations of the US Funds in their dealings with NAMA.
My information is that NAMA are not yet in disposal territory as far as Irish assets are concerned. They way it was put is ” We are reactive if we are approached, but won’t be in pro-active mode until the end of 2012″ Apparently, recovery in Ireland is postponed. Forget about the troika or the government, NAMA is running the country…… maybe that should be “ruining”.
This is potentially a good idea, if
1. NAMA is sure there is investor demand. (I wouldn’t be too confident).
2. It removes risk from the Irish taxpayer (i.e. doesn’t involve NAMA providing credit or Irish banks lending to investors). If NAMA want to offer a leveraged fund, they need to find a foreign credit provider to do this.
3. It is done in a transparent fashion. No secret deals. i.e. a detailed offering circular published on their webiste for each deal.
@NWL
I see now.
But the key objective to seems to me to be to sell off “equity” in property NAMA holds to private investors. Whether that is done through REITs or QIFs seems to be of only secondary importance
@AM agreed,they could also be taking more radical steps to break up the old boy network.Some,initiatives for new start up companies,perhaps more women in senior positions,
But,insurance requirements are set at 25 million,it’s not overly ambitious,may be suitable for long term holding of say development land,7 year sunset clause is included.
@WSTT only a mother or original purchaser could love some of those assets,if it provides a little competition,domestic based,creates a few jobs in comparison to rapacious hedge funds.
@BF can someone explain that to your fearless leader next time he address an international audiancece !
@jg, A Boston developer (Thomas Flatley) once told me “Never fall in love with something that can’t love you back!” Good advice, but when people get a God complex and start to control both assets and people, they are loath to move on. As Vince said above, NAMA is displaying all the signs of empire building.
BTW, I agree that REITs and QIFs should be utilised to sell the underlying assets. Just that it should be done on a commercial basis, not run by civil servants or under sweetheart arrangements with politically (or NAMA) favoured insiders.
@WSTT the line I like ” the real estate does not care or know who owns it”.
But you sceptsimsm is well founded,the info. request in the RFP is daunting and somewhat imitating,not to mention time consuming and expensive,now where did I put my mothers tax returns for the 1990’s!
Starting to appreciate some of the frustration if this is indicative of the “forms”.
Where does NAMA,fit into all this,if I’m setting up a fund or raising a pool of capital what do I need them for?
Are they contributing capital,properties or god phorbid expertise ?
Trying figure out there role in all this,have worked with two types,sighted and blind.Sighted pool is where the assets are identified and you raise the capital,blind opposite,what’s in this for NAMA.
@jg, Management and more particularly – fees…. jobs for the boys, or friends of the boys.
“and more particularly – fees”
Agreed, thanks to the 2% and 20% rule – see http://www.bloomberg.com/news/2012-01-18/hedge-funds-buy-ferraris-clients-often-get-phantom-gain-books.html
@WSTT but are they contributing the properties or actually raising equity/capital.They requested basically a manager for the “fund” but who is raising the capital.Not very clear on “plan”.
@jg, About six months ago, I heard that they intended to package property assets, tidy them up and manage them for a period. They then proposed to sell them to REITs or Funds when the market improved. It was also suggested that the likes of Davies could raise capital to purchase the smaller packages in QIFs or other tax efficient vehicles. So I’m not sure that there is any joined up thinking here. NAMA as usual is flapping around trying to learn on the job.
@WSTT all very well,but are they retaining a piece,giving special treatment to this fund,raising the capital.Not sure exactly how it gets executed.Is it a “NAMA” fund with external managers.
@jg.
I think that they intend to follow the Resolution Trust Corporation (RTC) experience and example because they are incapable of having an original thought.
From December 1992 through October 1995, the RTC created 72 partnerships in the form of limited partnerships and business trusts holding real estate loans and assets with a total book value of $21.4 billion and another $18 billion of partnerships holding judgments, deficiencies, and charge-offs.
Under the partnership program, the RTC acted essentially as a passive participant or limited partner (LP), with a private-sector investor, typically an asset management company, responsible for managing and disposing of the assets and acting as the general partner (GP).
The RTC aligned the financial incentives for the LP and GP to ensure that the assets in the portfolio would be liquidated in the most cost effective and mutually profitable manner. Factors considered in structuring the partnerships included the size of the asset portfolio, the type of asset, the expected duration of the partnership, the amount of leverage to provide the investor, and the investors’ expected equity capital rates of return.
The RTC contributed asset pools, usually subperforming loans, nonperforming loans, and real estate owned (REO) and arranged for financing of the partnership, while the GP invested equity capital and asset management services. The financing terms required that cash proceeds generated from the liquidation of assets be applied first to the retirement of the debt (usually bonds held by the RTC). After the debt was paid in full, the partners split the remaining proceeds according to the percentage of ownership each partner held.
The RTC experience demonstrated that partnerships could successfully be used as a vehicle to convey a large volume of assets of varying types and quality to private-sector ownership and management in a relatively short period of time by appealing to a range of investor profiles.
Seven different types of partnership structures were used to adapt to changing market dynamics and the nature of assets to be liquidated. The partnerships were structured using several different legal forms with RTC holding a range of residual interests.
Results achieved through this partnership model were higher than through other multiple-asset cash only sales methods, where assets were sold into a depressed market and discounted for unstable market conditions and a lack of liquidity.
You don’t have to re-invent the wheel – anyway they wouldn’t know where to start. It’s sufficient if they are capable of following the US example.
What’s that fellas name flys back forth to dispense advice,at how much !
@jg, Steven Seelig, ex IMF
@jg, John, NAMA has a legal duty to maximise recoveries on its assets. It can’t do that with its present strategy, which is more akin to a debt collection agency rather than a bank – which is what it should be.
It needs to structure transactions to allow the NAMA to retain an interest in the assets, while transferring day-to-day management responsibility to expert private sector professionals who also have a financial interest in the assets and share in the costs and risks associated with ownership.
To my mind, there are two options – where NAMA retains a majority stake or where it takes more of a minority stake. But essentially there is little difference between the two proposals.
The first is probably more suited to straight “vanilla” investments, where NAMA retains majority interest and where it is just waiting for the cap rate to revert to its mean.
Majority Partnership Transactions: In this case, after formation of an SPV and the transfer of assets to the SPV, the SPV would enter into a Participation and Servicing Agreement with NAMA (the SPV would be responsible for management), with the NAMA holding say an 80% interest in the assets (actual percentage is specific to each SPV). The SPV membership interest to be retained by the existing borrower or sold to a successful bidder.
Minority Partnership Transactions: A structured transaction in the form of a partnership in which NAMA owns an equity interest in the entity. Again, the SPV acquires the assets. A winning bidder (Private Fund) purchases a portion, typically ranging from 50-70%, of the equity in the SPV (actual percentage is specific to each LLC). These transactions could to be offered and sold on an “all cash” or leveraged basis. But I believe that in the current financial climate in the Irish property market, all should include some form of seller (or “staple) financing.
Bidders should have demonstrated financial capacity and the expertise to manage and dispose of the asset portfolio within an agreed business period and current borrowers should not be excluded as they are the ones with most knowledge and most incentive to raise the purchase money and they should actively be encouraged to do so.
Any leveraged SPVs might include financing in the form of either amortizing or non-amortizing purchase money notes issued by the SPV as partial payment for the assets conveyed by NAMA, in addition to the cash payment from the private investor for the purchase of its equity interest.
The financing could be offered at various levels and determined based on the risk and cash flow characteristics of the underlying pool of assets. A suggested range might include:
Single Family Residential range from 1:1 up to 5:1 debt to equity.
Commercial Real Estate range from 1:1 up to 4:1 debt to equity.
Acquisition, Development & Construction Loans not to exceed 1:1 debt to equity
Generally the notes should be paid off before the equity owners receive any distributions.
In certain cases, NAMA might make funding facilities and pre-funded accounts available to the SPV to fund construction draws with respect to the assets and working capital needs of the SPV. Advances would have to be repaid from the cash flow prior to the equity owners receiving any distributions.
The Equity Owner acts as the managing member of the SPV and is responsible for the management and servicing of the assets conveyed to the SPV. The managing member is obligated to enter into an Agreement to service and manage the assets in a manner consistent with industry standards and to maximize their value to the SPV.
The Equity Owner receives a monthly servicing or management fee that is specified prior to bid date to pay for the management and other internal expenses incurred in managing and servicing the assets.
Cash flow from the assets, after deducting the monthly management fee and advances for such things as taxes, insurance, and property protection expenses, are allocated first to pay off any interest, notes and any other debt outstanding to NAMA and then, to NAMA and the Equity Owner, in accordance with their percentage interests.
Transactions might include a provision that provides for a shift in ownership interests once a stated euro amount of distributions to NAMA, including the sales price received in a competitive bid sale (The threshold), is reached. Upon reaching the Threshold, the ownership interests of NAMA and Equity Owner would change. The Threshold and the amount by which the percentage interests change would be specific to each transaction and should be established and disclosed to bidders prior to the bid date.
The Equity Owner acting as the managing partner would naturally adhere to stringent monthly, semiannual, and annual reporting requirements.
To me, NAMA does not have a choice if it wants to fulfill its brief of maximising returns. If it sells in the market without funding, it is doomed. I believe that it has no alternative but to become a bank and stop acting like the CAB. In the final analysis, that’s the only way it will succeed.
@WSTT does it or NTMA,not have a banking license,word is that’s quite easy to get one at IFSC,thanks Dermot.
@jg, If it has, it isn’t using it. A different culture prevails. One of the CAB debt collector. Negative and vindictive. The atmosphere is one of mistrust. Morale very low. How does anyone go to work every morning to deal with antipathy and simmering tacit hostility from the people that you have to deal with?
@WSTT picked that up myself on the brief visits.To be honest,was always about getting out for me.Joint Ventures are a good idea,the visa thing was good.Can not contemplate it,our lenders were imbeciles.
Reporting,to them,inconceivable.
@jg, Amen to that, John.
@jg, NAMA needs to structure transactions as joint ventures or partnerships with private sector entities. Such structured transactions would allow NAMA to retain an interest in the assets, while transferring day-to-day management responsibility to expert private sector professionals who also have a financial interest in, and share in the costs and risks associated with ownership of, the assets.
By structuring the partnerships to align the interests of NAMA with those of its partners, the strategy would be expected to achieve greater returns than the other conventional sales methods that NAMA has used to date by encouraging the active management of assets by professionals with a commercial interest in attaining their long term value and maximising returns.
@WSTT, so like Russian matroshka dolls, NAMA is creating mini asset management companies? NAMA’s silence on this development of QIFs is curious; the Agency won’t say if the funds will have €10m of investment or €10bn. Potentially, QIFs could mark a major departure in NAMA’s method of operation, and involve non-NAMA personnel in the management of assets. You’d think the Agency might have produced a statement on such a major new development. It looks instead as if we’ll need a Parliamentary Question or a new Oireachtas Committee grilling to find out what is happening and what is planned.
@WSTT FDIC did a Joint Venture with Starwood for assets from a failed bank. Appears to have worked out for all parties.
There are many unanswered questions on the QIF’s,perhaps,NAMA will contribute the properties,to provide a range of investment options.
Say,a core fund then a opportunistic one.
“Chicago-based Corus Bank was once a prominent lender in the world of condominium development. But in 2009, Corus became just another failed bank, with one notable difference: Corus’ assets were transferred to a unique joint venture between the Federal Deposit Insurance Corp. and an investor group led by Starwood Capital.”
http://www.ccim.com/cire-magazine/articles/distressed-asset-joint-ventures-winning-trifecta
@NWL, I don’t really know what goes on in the heads of the NAMA executives, but I believe that they have wasted two years doing nothing in the Irish market. NAMA’s inaction has contributed in a most destructive way to the continuing collapse of the Irish domestic economy.
My suggestion relating to the formation of JV partnerships as a structured transaction proposal is a tool that they should have been using from the outset, particularly in a market with no practically liquidity whatsoever.
If NAMA wants to maximise returns and meet its declared timetable it has no other option but to start packaging structured transactions. But will it actually do it? Does it even know how to do it in a commercial manner?
@NWL, NAMA should have a variety of asset disposition methods available to it to handle the liquidation of the €70 billion plus par value in assets that it acquired. And the method that it uses at any one time should reflect and respond to the circumstances of the time. However, unfortunately for NAMA, its choices have been narrowed, due to a combination of political dogma, media and public perception and the lack of liquidity in the marketplace.
The methods could have been available to it range from negotiating and/or compromising with a borrower on any particular asset – for political reasons, it has refused to consider this option – which in my opinion is a major mistake financially; to auctions, tendered sealed bids, and negotiated private treaty sales. In the current market in Ireland, all of the latter three methods will result in less than satisfactory returns for NAMA due to the lack of liquidity in the economy. Sure, it will sell a few cherries – but what then?
That leaves only one viable alternative for the disposal of such a large loan book into such a small economy – the securitised sales of assets and equity partnerships with private sector entities.
The problem is that it doesn’t seem to know how to begin. We’ve had two years of stagnation thanks to NAMA’s ignorance and/or uncommercial civil service mentality. It is one or the other – or both.
They boxed themselves in,for an organization that takes pride in its ‘secrecy’ why the posturing on pricing.
All it achieved was turning off potential buyers,the staple financing appears stillborn.If their principal goal is maximizing the return,why the animosity and hostility to existing borrowers.A small example the leaky roof on the building that was “unlocked”.NAMA,would require insurance certificates,multiple bids,few meetings,capital approved.
A JV partner would pick up the phone have roof fixed by lunchtime.
They are going to get overwhelmed with the deterioration of their security,it’s a impossible task to asset manage these properties.Turnaround,distressed asset management by its nature is very difficult to scale up.
In many cases the learning curve to familiarize with the asset it too steep,why not work with original borrower.
But they may be able to “hide” the fact they overpaid for the loans by some sleight of hand into a new vehicle.
Significant,capital to maintain existing inventory will be required,what is the plan when all the income producing properties are sold.
@jg, it’s all becoming evident, John. As you say, the occupation of the building caught NAMA with its pants down insofar as the physical management of the assets underlying its loans was concerned. The true facts were laid bare.
BTW, NAMA’s inability to make a commercial deal, or even authorise the payment of a minor invoice on its home turf without filling in forms A,B, C and D….etc. is choking the economy to death. At this point no architect, engineer, QS, contractor or sub-contractor wants to do any work where NAMA is involved. They just don’t know when, or if, they will be paid. It has the worst possible credit reputation. For an entity sitting on billions – it’s bizarre.
@WSTT a decision was made not to dispose of assets in Ireland,they should be averaging into the market.A large part of this relates to the purchase price of the loans,it appears they overpaid and await the return of the “market”.
It going to be a long wait,why not try a few alternative methods of “selling” the assets.Fear of failure appears to be overwhelming.
i@ jg and wstt it all comes back to those words, which drew me in to begin with, a couple of years back…
“long term economic value” as applied to the assets and their loans.
What a ridiculous concept and how many millions will it cost?
“long term economic value”…..It is like something a used car sales man from El Camino Anytown USA might have said, but no, a Minister said it while selling a 70 Billion dollar highly toxic elephant.
@sfca writer, As Benjamin Ola Akande, an economist and the Dean of the Business School at Webster University in Saint Louis. said to Barack Obama “Hope is not a strategy”.
The full quote was, “….the fact remains that hope will not reduce housing foreclosures. Hope does not stop a recession. Hope cannot create jobs. Hope will not prevent catastrophic failures of banks. Hope is not a strategy.”
What he simply meant was that Obama – and any other president – needs to act. You cannot just wish away your problems. There needs to be a concentrated effort to reduce the problem and to increase positive opportunities.
Just sitting around thinking about how the current situation could be better is not going to change anything. You need to be prepared to do your part to assist in the completion of the goal.
@WSTT interesting report from FHA on public/private partnerships.
Bloomberg was reporting on it,some creative suggestions for NAMA.,but deals mainly with residential.Its worth a read.
“FHFA is exploring new approaches to the disposition of foreclosed properties (real estate owned, or REO) owned by Fannie Mae and Freddie Mac (the Enterprises). The Enterprises’ REO portfolios are now stable and their individual retail sales are achieving close to fair market values for the properties. But as more nonperforming loans move through the foreclosure process and into REO inventories, we need more disposition strategies”
Summary of Findings:
“The Resolution Trust Corporation pioneered these broad-based asset management and disposition strategies to maximize recoveries to taxpayers and other government objectives.
Other respondents recommended that FHFA adopt approaches similar to the Treasury Department’s Public-Private Investment Partnership program. That program, which included risk sharing with the U.S.government, involved the use of Treasury financing, along with private equity, to purchase troubled
loans from banks.Finally, some respondents proposed the use of Real Estate Investment Trust (REIT) structures. REIT structures give investors unique tax advantages, support longer term investment capital, and require controls to prevent practices such as property “flipping.”
Click to access REORFISubmissions_112911.pdf
http://www.bloomberg.com/news/2012-01-31/foreclosures-draw-private-equity-as-u-s-selling-200-000-homes-mortgages.html