Property Week (free registration required) is reporting that Seamus Ross’s Menolly Investments has sold an office building in the City of London for GBP 124m (€148.8m) and that the proceeds are thought to be destined to pay down Menolly’s debt to NAMA. According to Property Week the building at 107 Cheapside was bought for GBP 150m in May 2009 when the IPD UK Property Index was at 56.4 (base June 2007 = UK Commercial Peak = 100). It looks extremely disappointing to only realise GBP 124m today when the IPD index is at 65.5. If the property had tracked the IPD index it would have been expected to have fetched GBP 174m, but it should be said thatLondon was perceived to have outperformed the IPD index, which makes the sale price reported today even more disappointing.
Property Week reports that the building has a rent roll of GBP 7.5m which indicates a yield of 6.04% which is again at the high end compared with going rates. As with any individual property transaction, there can be specific factors which skew the price away from the “going rate” but this is now the third time that NAMA has been reportedly behind a sale which has been at the low end of expectations. And remember that we never hear about the majority of NAMA’s sales.
The buyer is reported to be Invesco Real Estate.
I presume the original loan was in sterling? The loss is slightly less when expressed in € terms. The exchange rate at the end of May 2009 was €1 = £0.8729. But it looks a very bad sign indeed.
NAMA has over 4 billion in cash already. It then decides to do the following.
Pay back bonds that are not due, thereby saving 2% on these bonds.
Then it decides to sell a property that is yielding over 6%. Why?
So that it can pay back more bonds at 2%?
How to make a loss of 4% on funds in one easy lesson.
What is going on here?
I don’t like the vibes coming from this decision.
Are the decisions to sell based on commercial benefit to NAMA or the State?
Or are there other factors influencing the decision to sell property yielding 6% to pay down loans costing 2%.
Any NAMA sales that I have been aware of in London have exceeded the NAMA acquisition price but have been substantially less than the par value. And yes, as Joseph Ryan points out, they have all been good income producing properties in excellent locations.
On three properties that I am aware of, NAMA has taken 20% less than the market would have paid with more creative marketing, but NAMA chose the expedient and easy option of the quick sale.
It does indeed question NAMA’s commercial intelligence, when it sells a property producing 6% and pays back low interest bonds. But we’ve made this argument before. It is just another proof that the “Paddy” factor is alive and well in London. We are the laughing stock of the Masonic Lodges.
@Joseph/WSTT, I would say that the disposal of 25% of NAMA’s assets by 2013 did make it into the May 2011 version of the agreement with the IMF though as far as I can see, it made it no further than the Letter of Intent, which doesn’t have the status of a term stipulated in the agreement.
There was, and is, a strong argument that more difficult assets in Ireland should be disposed of first if the rate of return from British assets exceeds the likely falls in Irish assets. But NAMA seems not to be accepting this and points to liquidity and robust pricing in London to support its decision to offload assets there first.
But the point made by Joseph is spot-on. NAMA already sitting on a cash mountain which it has been using to redeem its bonds – €1.25bn so far – which cost it between 1 and 2% per annum, whilst the asset being disposed of yields 6% is farcical.
NAMA may just be getting out in time..WSTT list of lenders attached,NAMA’s staple financing should get repriced,assuming they ever do any!
“In the U.K., for example, interest-rate margins have increased by one percentage point over the past eight months, to 3.25 percentage points over the five-year swap rate, according to Savills. And loan-to-value ratios are only at 50% to 60%, compared with 60% to 65% eight months ago, according to Savills.”
http://online.wsj.com/article/SB10001424052702304177104577307410198781058.html
Maybe politics in general having been caught so badly on the hop regarding the bailout, is overcompensation in terms of preparing in case there is a catastrophic default (NAMA selling good asset cheap being an example of this )