This afternoon, Minister for Jobs, Enterpriseand Innovation, Richard Bruton has published his “2012 Action Plan for Jobs” which sets out a large number of measures, with varying degrees of specificity, to help generate 100,000 new jobs between now and 2016. In a country with an unemployment rate of 14.2% with 310,000 unemployed, and a total of 440,000 on the Live Register, any initiative is to be welcomed. The 126-page document is here – there is a discussion of the initiatives generally over at irisheconomy.ie here.
Although there is a lot of detail, it remains to be seen how the initiatives will work in practice. We can but hope. The document does deal with competitiveness issues and I see there are moves afoot to modify pay agreements, and by “modify” is meant “reduce”. The document does touch on commercial rents in the State which have come down by about 50% from peak levels in 2007 in respect of new leases; however, many existing leases pre-date February 2010 and have Upward Only Rent Reviews which maintain rents at levels which may no longer be competitive for the tenant. The document suggests that properties subject to NAMA loans be subjected to rent reviews where rents are “in excess of prevailing market rents”.
Now this is not new in itself. NAMA issued a statement at the start of December 2011 which set out a scheme whereby rents in buildings subject to loans acquired by the Agency might be assessed and in some cases reduced. The NAMA statement in December 2011 made it clear that in order to qualify for any rent reduction, the tenant would need demonstrate the viability of their business was threatened by high rents.
What is different about today’s announcement is that there is no pre-qualification at all – if the existing rent in the lease is in excess of the market rent, then the implication is that NAMA must allow rents to be independently assessed, and reduced if such independent assessment concludes the rents are in excess of “prevailing market rents”.
At this stage, it is understood NAMA feels today’s initiative echoes its own scheme and is not departing from the principle of that scheme. It should be said that there are other initiatives in today’s announcement such as the reduction of stamp duty on commercial transactions from 6% to 2% which have already been completed. So it may be that the initiative is not new and that it is still intended there be a business critical imperative before any review by NAMA takes place. But that’s certainly not clear from the jobs initiative though.
The Department is being asked for comment and any update will be posted here.
NAMA Wine Lake 
“The document suggests that properties subject to NAMA loans be subjected to rent reviews where rents are “in excess of prevailing market rents”.
Mr. Bruton now acknowledges that reducing rents is very, very, important. The government backed away from getting rid of the nonsense of UORR’s. This is an admission that they should have followed through on their promise to get rid of them. What happens to the vast majority of businesses that are not tenants directly or indirectly of NAMA? Are the government going to depend on the charity of landlords?
The promise and the response to the promise are on a 25ft x 15ft poster on KORKYS at the top of Grafton St. First, the promise, then the added word “Liars” in two foot lettering splashed diagonally across the giant poster, after it was announced that the government would be unable to do anything as it was too complicated!
@Robert, I think you might go too far in your conclusion about today’s announcement. It certainly omits any pre-qualification but that might be through oversight – reading a lot of the initiatives, some of which aren’t even new, shows that there is some pretty sloppy and verbose wording. A request for clarification has been made to the Department. As stated above, the understanding is that NAMA believes its existing scheme hasn’t changed, but that remains to be clarified.
Clarification will be interesting when it comes. One would think that if the rewriting of leases was shot down by the AG on constitutional grounds then trying to sneak a broad measure like this in the back door would suffer from a similar constitutional infirmity. (But since when has the constitution ever got in the way of a popular initiative?).
Also there must be serious competition law aspects for an initiative such as this. While retailers may be applauding the tearing up of leases and the resetting of rents to where a NAMA appointed valuer thinks they should be, one needs to consider also that NAMA occupies a dominant position in both the property and banking markets.
Look at the text of the announcement in today’s document –
“Place downward pressure on commercial rents in respect of which NAMA has acquired the loan on the underlying property, by:
o Appointing an independent valuation of market rent where necessary
o Encouraging landlords of business premises to consider ameliorating rents that are in excess of the current prevailing market levels
o Assessing rent reduction applications
o Timely engagement following direct contact from a tenant who is not getting satisfaction in negotiations with his NAMA landlord
(D/Finance, National Asset Management Agency)”
This “encouragement” of landlords in the context of engagement by NAMA with tenants, appointment of valuers by NAMA and assessing applications represents actions that will impose additional and tangential obligations on your borrowers that effectively restrict and undermine the market for other banks (who will see the value of their security fall directly as a result of the implementation of this initiative) and property companies/investors (who may have purchased assets say in the past few years since the crash).
The language used is also indicative of an initiative that seeks to “manage” the market from a dominant position – i.e. “Place downward pressure on commercial rents…..”
And before you ask whether competition law only applies where prices are going up, it’s clear that the same net impact (ie driving out other banks in the market or interested in participating in the market and other property companies/holders of property assets) can be achieved by this kind of downward manipulation of rents/prices. I suspect that this principle is long established (it used to be called predatory behaviour). The thing here is that the most difficult aspect of a competition case to prove is the fact of “dominant position”. Fortunately the EU has already flagged (in its approval) of NAMA’s “dominant position” in some markets so that’s the hardest bit done. Identifying the impact on other banks and prop cos won’t be hard to do also.
Just after we appear to have clarified the position about UPORR and might have a stable environment for attracting international capital to look at Irish assets again, we go and raise the same prospects again but by a different method. Now that’s joined up thinking at a government level.
I wonder how the supposed investors in QIFs or REITs will react when they look at the history of this kind of political interference in property contracts?
@Capoliman, Excellent analysis.
Hi NWL
I did laugh when I saw that section, they’ve completely forgotten their own commercial leases database that’s coming with the residential price database.
See
http://www.irishstatutebook.ie/2011/en/act/pub/0040/sec0087.html#sec87
Keep it going,
@NWL/ Others
re Downward pressure on rents:
Contrary to other people on this blog I believe that these are the first real signs of common sense coming from NAMA, that is if they are coming from NAMA.
It is an admission that NAMA is finally recognising the importance of a rent roll or income stream and hopefully has given up the idea of putting properties for sale in the current market (or indeed in the immediate future).
A fully rented out building even at low rents has a real value. An empty, dilapidating shell is of no use to landlord or tenant in a stagnant or deflationary period.
Regarding the anti-competitive aspects. If any company is put into liquidation, the liquidator can cancel all onerous contracts. The individuals or property owning companies whose assets are backing the loans transferrred to NAMA are all in an effective liquidation process even if NAMA for its own reasons has eschewed putting them into liquidation.
Surely the anti competitive action is in the fact that these companies have not been put into receivership and the properties sold.
One cannot have it both ways on the anti-competitive front.
@JR, I don’t disagree with your sentiments. I just smile when I see the politicians, NAMA at al try to square the circle that is political interference, commercial reality, NAMA profitability and the problem of trying to enforce and collect on personal guarantees when they admit to interfering with the market to force lower values.
@Joseph
Doubt that there will be any variation in the Nama “route 1” policy of demanding disposals. This is simply a case of the agency scratching the backs of politicians by agreeing to implement a populist policy and not really thinking through the negative consequences or caring less what this does for other players in the markets that it dominates.
There are very few serious property people who do not appreciate the value of keeping a tenant in place and having a viable business. That’s why 90% of tenants (my estimation based on some sample catchments around the country) have had rental concessions from their landlords or renegotiated new lease terms. That is different from having a lease torn up at the governments behest.
The exposure (and annoyance) re the competition issues comes not only from Nama borrowers but (quite rightly) from non Nama banks and non-Nama property companies. (Think a big institutional investor – more likely by the way to be a ‘hold out’ in terms of giving rent concessions given their strength and holding of prime property).
Nama borrowers will use it as an argument that Nama is deliberately cutting across their ability to repay. And they would be right. This is another nail in the coffin. I don’t think the agency itself is cock – a – hoop at the idea either but it wins some political pals and they need all that they can get right now. Everything else (other banks, other investors, a properly functioning market, our reputation as a place in which to invest and do business) is secondary to deflecting criticism from Leinster House.
Thing is ….(as @who-shot-the-tiger points out) …..you cannot have it every way in the medium term. The objective logic eventually catches up on you.
@Capoliman
I like your description of NAMA policy as being “Route 1”.
“Route ” and “Hoof it”.
That about sums it up so far.
A funny take on Ivan Yeats rant after Frank Daly’s interview on newstalk on Friday last —-
This is more of the usual bi-annual claptrap, cliches and spin put out by some academic theorists who have never created a job in their lives. Most of this stuff is just rehashed from previous “initiatives – digital hub, smart economy we’ve heard it all before.
And for God’s sake in the agribusiness we now have “smart, green growth vision” which turns out to be increasing milk production by 50% because of the removal of the milk quotas. Who is going to buy the stuff? Whatever about a wine lake, Our “smart” politicians want to create a “milk lake”.
But don’t worry challenges to our mater plan will be mitigated by “co‐opetition” – which I looked up in the dictionary. Co-opetition is a business strategy based on a combination of cooperation and competition, derived from an understanding that business competitors can benefit when they work together. The co-opetition business model is based on games theory, a scientific approach (developed during the second World War) to understanding various strategies and outcomes through specifically designed games. Traditional business philosophy translates to games theory’s zero-sum game in which the winner takes all, and the loser is left empty-handed; proponents of co-opetition claim that it can lead to a plus-sum game, in which the sum of what is gained by all players is greater than the combined sum of what the players entered the game with.
The co-opetition model starts out with a diagramming process called the value net, which is represented as a diamond shape, with four defined player designations at the corners: customers, suppliers, competitors and complementors. Complementors are defined as players whose product adds value to yours, the way, for example, that software products gain value because hardware products coexist with them, and vice-versa. In comparison, a competitor is defined as someone whose product makes your product less valued, the way, for example, a second brand of toothpaste would make one that had previously been the only one less valued.
The game of business is then broken down into its PARTS (players, added values, rules, tactics , and scope) as a means of viewing practices and strategies. Added value focuses on ways to improve products and services to find ways of making more money from an existing customer base. Rules specify ways of attracting customers with strategies such as price-matching. Tactics are the practices sometimes used to take away a competitor’s likely market share, for example, announcing an upcoming (and possibly non-existent) new and improved product when a competitor’s product is released. Scope is the final part, used to take a broader prospective and create links between competitor’s games and interests and see how co-opetition can benefit the players.
So that’s all right, then ….. 100,000 new jobs? All sorted.
@ wstt and Capoliman and NWl
Why are you all so afraid that tenants will get market rents? There is no fear of it. Given that high rents is what is destroying businesses and jobs, the government had to give the impression that they were doing something about it on the day they were announcing a so called jobs initiative. If it now appears that they may, in error, be doing something to assist NAMA tenants, the Fine Gael property vested interests will have got to them by today and Richard Bruton will have to issue a clarification. I daresay the Society of Chartered Enforcers will have been on the hotline to the Taoiseach. So relax lads, put the noses back in the trough, the cartel is still in place and the LIAR Government is firmly attached to its LIARS anthem – “screw the tenants” .
P.S. I know you all really mean well and what you are really concerned about is the Irish tax payer not lining your own pockets!!!!!
@patt, I’m not sure that you understand my position. It is irrelevant to me if NAMA or the government push rents down – in fact it’s probably to my advantage if they do, as by interfering in the market, they make personal guarantees uncollectable. As for the taxpayers, they pick up the tab to subsidise the tenants.
@pigs in the trough
Just reflecting on your comments. The tone of your comments is that there are a variety of vested (property) interests with their noses in the trough of public spending. In fact the net impact of what is being proposed here is that in the short term that the retail sector gets a further subsidy from the taxpayer in the form of legislated rent reductions in NAMA properties and in the medium term that this subsidy is added to by non-NAMA landlords and their non-NAMA banks. I say ‘further’ subsidy because most landlords have given concessions already and the general consensus on here is that the taxpayer owns the effective net interest in all property securing NAMA loans i.e. these concessions are effectively taxpayer funded. Down the road that subsidy is increased either because rents or values are automatically lowered (the whole purpose it seems of government policy) and so impact rent reviews of disposal values for all market participants.
Landlords have no complaint with market rents, if that is what they based their own decisions on when they signed leases. In any event the vast majority of tenants have had rent concessions made to them to help them survive. What is killing retail businesses is the lack of consumer demand and spending. That is what has changed from their original business plan. As consumer demand continues to slide, retailers expect landlords to bear the cost at a time when most landlords have their own huge financial problems to contend with. Why do you demand legislative concessions in terms of turning back the clock on what (in hindsight) were poor agreements that retailers entered into willingly? Of course I can understand why you would. But why then are you so (simultaneously and aggressively) opposed to the slightest hint of the same principles being extended to landlords who want to wind back the clock on their poor agreements? If you think NAMA is such a nice place to be just read David Agar’s comments of a few weeks ago on his experience – http://www.independent.ie/national-news/nama-treating-developers-like-dirt-says-furious-agar-3010367.html.
How many jobs have the government destroyed since they got into power by not dealing with the UORR issue? The jobs initiative is just more lies and reflects this governments cowardice in not confronting the vested interests. Retail Excellence Ireland produced stats to say 4% have achieved rent reductions. Let the LIARS lead on…..
@Capoliman,what does this mean from Agar,appears he is having difficulties adjusting to the new reality of being a dead beat.How,must that look in Foxrock!
“I am extremely frustrated and angry at how developers are being treated in this country. Nama will not be happy until every developer in this country is living in a three-bed semi-detached house and driving a Ford Cortina. And soon enough we will be able to pay for it out of our petty cash.”
“David, who lives in Foxrock with his two children, met Rachel when she came to work at Agar Auctioneers and everyone was delighted when they hit it off.”
http://www.independent.ie/lifestyle/agars-civil-rites-hit-a-hitch-in-south-of-france-495292.html
“But why then are you so (simultaneously and aggressively) opposed to the slightest hint of the same principles being extended to landlords who want to wind back the clock on their poor agreements?”
Winding back the clock………..how about a massive reset at taxpayers expense,all pretense of ever getting back the 70BILLION in original loans,from developers has been orphaned.Its unlikely,NAMA will even recoup what it paid for them.
Thanks to @PGreen for an excellent post.
Ivan Yeats on newstalk – The original can be heard at 6 mins into this clip
http://media.newstalk.ie/listenback/49/friday/4/
@John Gallagher
Enough already with the personal invective about developers! Your comment about Agar as a “deadbeat” is (on the basis of the news reports linked to above) is out of line. I have never met the man in my life and I have no insight at all about whether the facts reported are true or not but let’s suppose that they are (quality of old media etc). His companies were put into receivership and he is saying he provided no personal guarantees to the lenders. A “deadbeat” is someone who avoids paying personal debt. This doesn’t arise in this case. You appear to be knowledgeable in your posts so I think you know the difference. In any event I don’t get your point about providing a link to the circumstances of the man’s wedding in the presence of 30 friends. Is he not allowed to marry??
Most sensible commentators see our problems in Ireland as a banking problem (and a banking regulation problem). We are getting to the point in Ireland where anyone with property at any point of gearing north of 35% is underwater and now looks foolish. And even if you had leverage sub 35% your bank is either (a) leaving town and wants its money back (b) staying in town and wants its money back or (c) has been replaced by clueless civil servants who want their money back and see it as a crusade that you should be financially exterminated so that you can never work again.
You missed my point on the main topic. You shouldn’t argue for a “reset” for retailers (one of the big users of property) while simultaneously arguing against that approach for developers (the main supplier of property). It is inconsistent. Have a reset for all or for none. In any event in the commercial world if borrowers get into difficulties they either keel over dead or are “reset” in some shape or form to maximise the outcome for the bank. But not in Ireland. Here the two options in the NAMA scheme appear to be – die sooner or die later.
@Capoliman, Websters defines it as..
“one who persistently fails to pay personal debts or expenses”
http://www.merriam-webster.com/dictionary/deadbeat
Basically,Agar needs to put up or shut up,happy for him if there are no PG’s involved, however,why the burning need to vilify NAMA,chuck them the keys.Gas up the jet,call the pilot, adios amigos,unless,unless………
I referenced his salubrious, living accommodation in the leafy suburb of Foxrock,just happened to be an article that popped up to verify his current abode.Would appear to be a long way from a 3 bed semi!
Hey David,dip into the cash reserves,NAMA made a commercial decision that Agar was/is of no use FREE.Think of him like a toy that you get at McDonald’s in the kids meal,they played with him for a while now tossed him in the garbage.
Thanks @John Gallagher. “Deadbeat” is a term to do with personal debts. So not applicable. Why not submit your theory on best practice in stakeholder management to Harvard Business Review? “Treat them like dirt and toss them in the garbage”. You might have a winner there. It should make a real difference in terms of optimising the return for the Irish taxpayer overall. Good luck with that.
I actually have been taking it easy on the good Earl of Meares..
“The titles of Earl and Duke are also bestowed along with the estate. Currently, George Tracey is Duke of Mearescourt and David Agar, co-owner of the house, is Earl of Meares.”
Here,is a link to his country pile,how are we coming along with that AIB loan for 75,000,000,does he need the wiring instruction or what!
Ominously,the website states no upcoming events…….linked a few pic’s of the gentlemen/deadbeats riding to hounds.
http://www.mch.ie/history.html
http://www.facebook.com/pages/Mearscourt-House/190937476734
@Capoliman,as you pointed out regarding old media,only basis you have for the claim is a ‘gossip’ hack in sindo, regarding PG’s.
Now,surely if David could throw the keys on the desk or mail them in he would.
Unless,he is consumed with a burning desire to make good on the 75,000,000 loan from AIB.Personally,good luck to him but to whine in the Sindo via ‘Niamh’ just makes him look pompous and comical.
We await further ‘news’ on this situation,a far better example is Durkan.
“In an unprecedented move, Durkan decided to pay off €43m in Nama bank loans rather than continue to deal with the lumbering state agency.”
http://www.independent.ie/business/irish/durkan-slams-nama-as-building-firm-repays-all-its-bank-loans-2982553.html
@Capoliman & JG
Treasury, Dunne, O’Donnell, Kelly, and now Agar typify the cringe inducing new rich in Ireland who fuelled their opulent, disgusting lifestyles with borrowed money. These were talentless, ignorant speculators. Their legacy is – ugly blocks of apartments, empty office blocks, ghost estates, Dallas style hotels, and shopping centres which destroyed the fabric of real towns. Their ascent to the top was assisted by a cast of top level bankers, incompetent /lazy senior civil servants, corrupt/greedy planners, the society of chartered chancers, legal eagles (many of whom joined the orgy), silent economists, back hander councillors, politicians in their pockets and media cheer leaders. Anyone who got in their way was removed, demoted and villified – eg. An Taisce, Eugene McErlean, David McWilliams etc.
AND the result –
Today, RTE news tells us that the combined government and private sector debt shows Ireland to be by far the most indebted country in the EU in 2010, with a total debt ratio of 433.8% and rising.
AND
to get us out of this mess we have elected an inadequate, under qualified bunch of LIARS who are incapable of using their elected power to reform the country. They are busy announcing ghost jobs, creating more quangos, increasing mandarin pay, paying rent to bust developers, glad handing corrupt millionaires, hosting begging conferences for the diaspora, measuring our waistlines, paying a ransom to 9,000 civil servants, and getting down on their knees to their European masters.
AND
the political solution is to create the next bubble and try to drive the property market by propping up house prices, reducing commercial stamp duty, increasing mortgage relief for new buyers, hold on to crippling rents and introduce Reits and QIFs etc.to attract phantom investors for ghost estates into the market.
Play it again Sam!
@Patt and again,dangling false hope to stressed tenants.
I was disgusted by the whole UORR,debacle.
Once,again it’s reared it’s ugly head,be done with it one way or the other.The continued dicking around with it is worst solution of all.
The spurious argument,regarding overseas investors will be wheeled out again.
@WSTT it’s a fair post,everyone entitled to opinions,mine are off the wall sometimes!
@John Corcoran. Get with the programme, John! You believed….. and elected them.
@ wstt you might enjoy this clip then – Feb 2011
@patt thank you,I certainly did.John comes across extremely well.
All the best to him with the court challenge.
@John gallaher … Not you John…. John Corcoran masquerading as “Pigs at the trough” :-)
@WSTT,you got me once before on this,how are things in the oul sod.Do not,I repeat,do not plan visiting NY next week,the spoilt private school brats from the nouvea riche paddies,over here have weeks hols!
@Patt, You never let poor ol’ Mai Frisbey get a word in!
Fagan,had piece in IT,regarding Bannana Republic(appropriately named!),taking the old Richard Allen and ” Zereb” spaces on Grafton Street.Definetly,read it can’t locate it in archives,and I’m a subscriber.But,if memory serves me the rent was lower,that prevailing.
@jg, It’s no longer Tir na nOg, John, described as …. “a place of eternal youth and beauty, where, music, strength, life, and all pleasurable pursuits came together in a single place. Here happiness lasted forever; no one wanted for food or drink”
No, definitely not. The youth with their youthful beauty – both our own and the more exotic slavs – are leaving. It will soon be just a place for the ashen and grey faced old that remain. Like Muirshin Durkin, in time, we will all be digging praties again.
@WSTT,despite the disappointment of the game being cancelled Saturday,quite a few of the diaspora decided to make a day of it.Finished,the evening in the lower east side or LES,a place I rarely go,with load of “youth”.
It was shocking and disturbing,extremly highly educated,ambitious Irish everywhere.Most with great educations and very bright prospects,the level of distiain and anger towards “Ireland” was striking.
My generation,had a soft spot or at least good memories,this one can’t abide the current situation,leaving in droves.
Any skinny on “Bannana” Fagan,definetly had a piece?
@jg, Is this the one you meant, John. Fourth article down, last paragraph:
http://www.irishtimes.com/newspaper/commercialproperty/2012/0208/1224311454724.html
The emigration will become a flood after the summer. The government’s jobs programme was a joke – only it wasn’t funny.
@WSTT,thank you,Fagan had big piece,rental info who owned it etc,it was pulled from IT site.
Hope,you are not upsetting Frank,he appeared a little irate…
“Next time you hear some typically anonymous comment about NAMA being slow and lumbering, you can assume that in the background is probably some debtor or indeed low balling investor who is pushing his own financial agenda but is happy to camouflage it in terms of the national interest.”
NWL linke the speech.”
Did not get chance,review job thing,the finders fee was a litte desperate.
@WSTT found that link,its out there in cyberspace,print editions,have a subscription but appears the article was ‘pulled’, Feb/01/12.No correction in IT,so assume numbers are correct,the paper of record and all that !
Owner is/was McNamara now with receiver Farrell Grant Sparks.
Combining,the two stores results in 4,000 sq.ft ground and 3,000 sq.ft. overhead.
Reported rent is 750,000 half rent from prior tenants of 1.5million.
Utilizing,6 cap. imputed value is12.5 million,bit of a drop from the asking price of 43 million in 2008!
Deduct,from the 12.5 the developmental cost.
So the landlord who did reduce the rent from 1.5 to 1.2million,has now ‘lost’ two long term tenants,will incur substantial down time and lost rent ,development costs to receive 750,000!
Silent,on whether or nor UORR’s played a part but hope this ‘deal’ is not indicative,of the impact they are having on ‘value’.Perhaps,the ‘landlord’ could have worked out a rent of 750,000 from current tenants and still be ahead,but maybe not.
John Corcoran is ‘paying’ 500,000 !
Here is the link.
http://www.pressdisplay.com/pressdisplay/viewer.aspx
There was a prior piece on the Richard Alan situation,tenant on Grafton St. since 1935.
“Rents on Grafton Street shot up during the boom years, pushing many traders into the red and forcing others out of business. In 2005, the rent on the Richard Alan store increased from €240,000 to €750,000 – a jump of 212 per cent.”
http://www.irishtimes.com/newspaper/commercialproperty/2012/0118/1224310394970.html