This time last year, Fine Gael was in full electioneering mode in advance of the General Election on 25th Feb, and general commitments, off-the-cuff commitments, carefully-worded commitments, cleverly-qualified commitments and Leo Varadkar’s commitments were being flung about the place like confetti at a Moonie mass wedding. One such commitment was contained in the FG manifesto and related to Real Estate Investment Trusts, or REITs
Word on the street and from mortgage expert Karl Deeter is that the Department of Finance is at last considering legislation for the introduction of REITs.
What are REITs? They’re investment funds in which you can buy a share, much like a share in a company traded on the stock exchange. The investment fund buys property, rents it, maximises income from property and sells property. The hope is that a profit is made and that investors get a regular dividend, and that if an investor wants to sell his share, he can do so at a profit. The fund is professionally managed and shares are freely bought and sold. The fund is revalued periodically which involves a valuer assessing current market values of property owned by the fund. It allows small investors to invest in property, but in a tax-efficient way which also allows them to sell their shares quickly and cleanly and allows them spread risk over a number of properties. They’re big business in the US and the UK – take a look at these two property reports today on two different UK REITs – here and here. It might only be a matter of months before they’re available in Ireland. As we saw a few weeks ago, Ireland already has some vehicles for investment in property, notably Qualified Investment Funds, one of which NAMA is developing, but REITs should have much wider appeal.
NAMA generally supports the introduction of REITs because it will increase the demand for its property. As with any investment, values can go up as well as down, but the view on here towards REITs is favourable and if there is to be a recovery in Irish property prices, then REITs will allow smaller investors get a slice of the action.
NAMA Wine Lake 
Very small but important distinction stateside is the taxable treatment,basically it avoids double taxation that a corporation or property company would incur by distributing 90% of its income.With small floats,in times of volatility the much promoted liquidity has proven delusional.
But they should absolutely be approved,fast tracked,their are mortgage REITS,and also private REITS.
My guess its an exit strategy for performing loans,basically passive investments with good coupon, dependent on underwriting!
“The final, and probably the most important, advantage that REITs provide is their requirement to distribute nearly 90% of their yearly taxable income, created by income producing real estate, to their shareholders. This amount is deductible on a corporate level and generally taxed at the personal level. So, unlike with dividends, there is only one level of taxation for the distributions paid to investors. This high rate of distribution means that the holder of a REIT is greatly participating in the profitability of management and property within the trust, unlike in common stock ownership where the corporation and its board decide whether or not excess cash is distributed to the shareholder.”
Read more: http://www.investopedia.com/articles/03/013103.asp#ixzz1lzRH3LbD
REITs? Sound like CDOs to me. A big bundle of loans and properties, all stuffed into one big AAA coated bun with toxic sludge defaulting mortgages for filling.
We don’t need more money in the property market in this county. We don’t need house prices to fall. We don’t need to return to the property speculation of 2006.
We need a competitive, value-adding economy. Lower house prices will help us achieve that.
@OMF,Real Estate Investment Trusts and Collaterasied Debt Obligations are not in same sentence.Completly,separate different in so many ways.
REIT,legislation shoud be immediately passed,it’s a great and proven concept.
The real “question” is do they track the stock market or RE market what is the corealation,are they the proverbial canary in the coal mine.Some people have even done dissertations on this !
REITS a v good idea and had we had more transparency in market oversight during the boom that might have been a good idea also..OMF, you need to read some more on them. http://papers.ssrn.com/sol3/JELJOUR_Results.cfm?form_name=journalBrowse&journal_id=1492470
The purpose of NAMA is set out in the Act. I wonder if the powers that be have questioned whether or not it is acting outside its remit by purchasing the properties underlying its loan assets?
The relevant sections of the Act state:
“Purposes of NAMA:
10.—(1) NAMA’s purposes shall be to contribute to the achievement of the purposes specified in section 2 by—
(a) the acquisition from participating institutions of such eligible bank assets as is appropriate,
(b) dealing expeditiously with the assets acquired by it, and
(c) protecting or otherwise enhancing the value of those assets, in the interests of the State.
(2) So far as possible,NAMA shall,expeditiously and consistently with the achievement of the purposes specified in subsection (1), obtain the best achievable financial return for the State having regard to—
(a) the cost to the Exchequer of acquiring bank assets and dealing with acquired bank assets,
(b) NAMA’s cost of capital and other costs, and (c) any other factor which NAMA considers relevant to the achievement of its purposes.
11.—(1) In order to achieve its purposes, NAMA shall perform the following functions:
(a) acquire, in accordance with Part 6, such eligible bank assets from participating institutions as it considers necessary or desirable for achieving its purposes;
(b) hold, manage and realise acquired bank assets (including the collection of interest, principal and capital due, the taking or taking over of collateral where necessary and the provision of funds where appropriate);
(c) perform such other functions, related to the management or realisation of acquired bank assets, as the Minister directs pursuant to section 14;
(d) take all steps necessary or expedient to protect, enhance or realise the value of acquired bank assets, including—
(i) the disposal of loans or portfolios of loans in the market for the best achievable price,
(ii) the securitisation or refinancing of portfolios of loans, and
(iii) holding, refinancing, realising and disposing of any relevant security.
etc.,”
A great litigation lawyer once told me that the law is not creative and that the expression “the letter of the law” should never be forgotten.
If one reads Clauses 10 and 11 of the NAMA act, I cannot see any expression that gives the Agency the right to acquire and resell the property supporting its loans to QIFs or REITs. 11(1)(b) would seem to be the nearest to doing that, but it reads only in the context of holding, managing and realising the acquired bank assets (loans); not in the context of purchasing and acquiring the underlying collateral independently itself and reselling it.
Like I said, I believe that in doing such a thing NAMA would be acting unlawfully and outside its remit. Even money says it will be challenged by judicial review.
I often wonder if the inhabitants of Treasury Building think before they speak. Frank is mouthing about his negative equity wheeze for the past 6 months, but it is evident to anyone with half a brain that, as proposed, it contravenes European Competition Law.
Article 82 prohibits ‘any abuse by one or more undertakings of a dominant position in trade for any goods or services in a substantial part of the Community’.
Which means that Article 82 has the objective of prohibiting anti-competitive behaviour. The Commission has also been criticised for being somewhat inventive in finding that inter-state trade has been affected through the joint infringement of Article 81.
NAMA should note the the Commission has the power to impose fines of up to 10% of turnover on undertakings where it finds that they have infringed Article 81 or 82.
And now we have the Agency apparently considering acting outside its remit by acquiring the assets underlying its loans in order to sell them on.
Seeing that they spend all this money on legal advice, surely someone somewhere has a clue? Or is the Agency just too hubristic to be aware of its limitations?
There should be a health warning with the NAMA proposed REITS. If you watch the recent “fair and balanced ” programme, you’ ll see why:
http://video.foxnews.com/v/1455423666001/latest-victims-of-investment-fraud-retirees
Of course if you are gullible enough you might just prefer the sales pitch of Bill Nowlan whose son Kevin just happens to work in NAMA:
Click to access REITs.pdf
@WSTT they are actually a decent ‘tool’ for the box,must be some chilly elevator rides over at Treasury Building..