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Archive for March, 2012

Minister for Finance, Michael Noonan stood up in the Dail shortly after 4pm today to make a special announcement regarding the renegotiations of the Anglo promissory note arrangement which was set to cost the State €3.1bn in cash in the next two days. The Minister’s statement is here and was delivered with An Taoiseach Enda Kenny sitting alongside. Immediately after the statement was delivered, Fianna Fail’s finance spokesperson Michael McGrath and others sought a debate on the announcement, but the Comhairle disallowed the request but suggested the party whips might agree that time be taken from today’s business. An hour later, and it seems that the whips were unable to agree a slot. So right now, all we have is the Minister’s statement. So what do we know

(1) NAMA will use €3.1bn of its €4.3bn cash reserve to buy an Irish “long-dated” government bond, it will presumably be a 2025 bond.

(2) The Govt will give the €3.1bn it gets from NAMA to give to IBRC (the new name for the Anglo/INBS merged entity)

(3) IBRC will give the €3.1bn to the Central Bank ofIrelandto whom it owes €41bn, and the Central Bank will take the €3.1bn outside, douse it with lighter fluid and set it ablaze, or whatever the electronic equivalent is of destroying money which the Central Bank created to lend to Anglo on the strength of Anglo’s promissory note.

It is hoped that Bank of Ireland which the Government partly controls through its 15% shareholding will buy the bond from NAMA, and exchange the bond with the ECB, but

(1) Bank of Ireland, which is majority controlled by the private sector including the trio of North American investors who bought into the bank last summer, hasn’t agreed to buy the bond.

(2) The ECB hasn’t seemingly agreed to lend Bank of Ireland cash if Bank of Ireland does buy the bond.

In other words, what is happening is the Government is taking €3.1bn from NAMA to pay off the €3.1bn promissory note payment that now falls due. The Government has failed to agree anything it seems with anyone. Save with NAMA which the Government controls despite all the blather about NAMA’s independence. It is unclear how NAMA can buy this bond which is a colossal undertaking for NAMA, an entity that operates under the NAMA Act and the European Commission approval of the NAMA scheme. Did the European Commission foresee NAMA lending billions to the Irish government under the scheme approved in February 2010? Absolutely not, and it is unclear how NAMA can, under the terms of the NAMA Act, buy billions of euro of bonds which may mature in 2025. This “deal” smacks of last minute panicking and it seems nothing has been agreed or conceded by the IMF, ECB or EU.

Expect more on the Promissory Note deal here later.

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(The new properties added in February 2012, click to enlarge)

NAMA has today published its now regular monthly list of properties subjected to foreclosure action – the list shows NAMA foreclosed properties at the end of February 2012. The full list is here, the list of new properties added is here, and you will find previous editions of the monthly list which was first launched in July 2011, here. It is hoped to have the list in an spreadsheet format shortly, available here [UPDATE 30th March, 2012. Spreadsheet now available].

You should read the full list of NAMA’s terms for accessing the lists here. But in summary, this is what you’re looking at:

(1) Real estate property subject to loans in NAMA to which receivers have been appointed. The receiver’s website is shown against each property.

(2) This is all the real estate foreclosed sorted by country, and then region.

(3) Not all of the property may be for sale.

(4) Contact the receiver with enquiries or expressions of interest in the first instance. Only pester NAMA if you’re not getting any response from the receiver and make allowances for receivers being busy with queries, particularly after a new release of foreclosed property.

(5) If you think there are mistakes on the list, contact NAMA.

There will be comment and analysis here shortly.

UPDATE: 30th March, 2012. Thanks to a member of the NWL audience, we now have a spreadsheet of the February 2012 foreclosure list available here. These are a few analysis from the spreadsheet which you might find interesting. Firstly an analysis of the 1,169 foreclosure properties by type of property and country.

 

Next an analysis of the receivers.

 

And lastly an analysis of the sales agents.

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The choreography of information releases following the Irish Census 2011 undertaken in April 2011, continues this morning with a glossy release of selected statistics which includes important new information on vacant Irish housing. Of course vacant housing has risen to prominence after the unfettered building boom of the early 2000s where our annual new housing construction numbers rivalled those of theUK which has 15 times theRepublic ofIreland population. In summary, we overshot and built far more homes than we needed, and today we are still unwinding that legacy by which I mean the available supply of vacant homes nationally outstrips the demand for homes.

This morning’s publication confirms that we still have a significant problem nationally with 289,451 vacant homes of which 59,395 are classified as “holiday homes”. This compares with 49,789 holiday homes recorded in 2006 which is interesting given the colossal economic contraction that occurred between 2008-2011 – you might have thought that holiday homes would have been amongst the first victims of the recession though perhaps the increase is driven by foreign purchases.

The overall level of vacant housing including holiday homes is put at 14.5% – 289,451 as a percentage of 2m total dwellings – which is double that of our neighbours in Northern Ireland. There were 266,331 vacant homes – including holiday homes – in the State at the time of the last Census in 2006, so the number of vacant homes has increased but because the number of homes overall has also increased proportionately more, the vacancy rate has actually dropped by 0.5% from 15% to 14.5%.

So we have 230,056 vacant homes which are not holiday homes. This is out of a total housing stock of 2m homes. Any country will have a “normal” level of vacant homes, be they second homes or vacant homes for sale. The most recent estimate from Ireland’s “National Institute for Regional and Spatial Analysis”  that I have seen, is that we still have an overhang of vacant property of 80-100,000 homes nationally and by “overhang”, this means a vacancy level above the long term normal vacancy level.. And on a national basis, this overhang is likely to be a drag on any house price recovery, and is likely to be a factor in future price declines. It should be said that although the national picture still shows an extraordinary level of vacancies, the picture at a county level (shown below) is less clear. We see thatDublin and surrounding counties have vacancy levels of 5-10% whereas much of Connacht andUlster have vacancy levels of 15-22%. And although the report doesn’t zoom in further to locations within each county, it stands to reason that there will be variations which may mean there is little if any overhang in some specific locations within counties.

But overall, nationally we can still say we have a problem with vacant housing.


UPDATE: 29th March, 2012. There is a helpful note on the approach taken in counting vacant homes, the note is available in the Appendix published by the CSO today to accompany its main release and says “Vacant Dwellings In identifying vacant dwellings, enumerators were instructed to look for signs that the dwelling was not occupied e.g. no furniture, no cars outside, junk mail accumulating, overgrown garden etc., and to find out from neighbours whether it was vacant or not. It was not sufficient to classify a dwelling as vacant after
one or two visits. Similar precautions were also taken before classifying holiday homes. Dwellings under construction and derelict properties are not included in the count of vacant dwellings. In order to be classified as under construction, the dwelling had to be unfit for habitation because the roof,
doors, windows or walls had not yet been built or installed.”

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The Nationwide Building Society has this morning published its UK House Price data for March 2012. The Nationwide tends to be the first of the two UK building societies (the other being the Halifax) to produce house price data each month, it is one of the information sources referenced by NAMA’s Long Term Economic Value Regulation and is the source for the UK Residential key market data at the top of this page.

The Nationwide says that the average price of a UK home is now GBP £163,327 (compared with GBP £162,712 in January 2012 and GBP £162,764 at the end of November 2009 – 30th November, 2009 is the Valuation date chosen by NAMA by reference to which it values the Current Market Values of assets underpinning NAMA loans). Prices in the UK are now 12.2% off the peak of GBP £186,044 in October 2007. Interestingly the average house price at the end of January 2012 being GBP £163,327 (or €195,372 at GBP 1 = EUR 1.196) is 23% above the €159,044 implied by applying the CSO February 2012 index to the PTSB/ESRI peak prices in Ireland. The average home in Northern Ireland in Q4, 2011 was worth €163,510, according to the University of Ulster/Bank of Ireland survey.

With the latest release from Nationwide, UK house prices have now risen 0.3% since 30th November, 2009, the date chosen by NAMA pursuant to the section 73 of the NAMA Act by reference to which Current Market Values of assets are valued. The NWL Index is now at 826 (21.1%) – because only an estimated 20% of NAMA property in the UK is residential and only 29% of NAMA’s property overall is in the UK, small changes in UK residential have a negligible impact on the index – meaning that average prices of NAMA property must increase by a weighted average of 21.1% for NAMA to breakeven on a gross basis.

The Nationwide also released its quarterly price series this morning which shows that during the last quarter only the North (of England) and Scotland saw price increases in Q1,2012. Other regions were flat or declined.London declined by 0.7% in the quarter whilst Wales and Northern Ireland were outlying performers with prices declining 3.1% and 2.1% respectively.London and the South East (of England) have performed best over the past 12 months however with 2.3% and 1.8% increases respectively. However given UK inflation is running at 3-4%, all regions are seeing real declines. The outlook is shaky to negative.

 

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[UPDATE: 30th March 2012. The text of both the Fianna Fail Bill, Landlord and Tenant (Business Leases Rent Review) Bill 2012 and the Sinn Fein Bill, Landlord and Tenant (Business Leases Rent Review) Bill 2012,  is now now available – both are pretty light on detail for what would potentially be a serious interference in property rights]

The most fractious issue in the Irish commercial property world last year was the uncertainty created by the incoming Government’s commitment to abolish Upward Only Rent Review (UORR) clauses in commercial leases created before February 2010. Although commercial property covers a wide spectrum including office blocks, hotels, pubs, and industrial factories/warehouses, it was retailers who were most vociferous in promoting the need for a mechanism to allow rents to be reduced to current market levels which are 50% less than peak in 2006/7. The uncertainty was ended on 6th December 2011 when Minister for Finance, Michael Noonan announced to the Dail that “it has not proved possible to develop a targeted scheme to tackle this issue that would not be  vulnerable to legal challenge or require compensation to be paid to landlords” Following the announcement, landlords were ecstatic, tenants were crestfallen and the property industry generally was pleased that the uncertainty had been removed.

Well today, a measure of uncertainty returns with the tabling of a Bill by Fianna Fail to abolish Upward Only Rent Reviews. The Bill is called the Landlord and Tenant (Business Leases Rent Review) Bill 2012 and it should be published shortly on the Oireachtas website here. Fianna Fail deputy Dara Calleary, who introduced the Bill, sets out more information about its contents and objectives here. Fianna Fail presently has 19 deputies in the 166-member Dail though it is likely to find support from other elements of the Opposition, but ranged against a Government which holds a decisive majority with 109 even after deducting the four who have lost the whip, the Bill seems unlikely to get off the starting blocks.

Elsewhere Sinn Fein has said that it will introduce a similar Bill, the Public Interest (Reviews of Commercial Rents) Bill 2012. Retail Excellence Ireland has predictably welcome the Bill though it appears not to have been tabled in the Dail just yet.

Will the whole UORR debate be re-ignited? Difficult to say, the Government took nine months last year before announcing its abandonment of any changes on constitutional grounds which was apparently after receiving advice from the Attorney General so you might think these Bills will not progress for both legal and political reasons. But you never know…

There are feature blogposts from last year on UORR here and here.

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In the Dail last week Minister for Finance, Michael Noonan revealed that NAMA had agreed overhead levels, presumably annual levels, of €55m in respect of 41 developers whose loans with the Agency amounted to €18.6bn at original par values. That according to the Minister represented 0.3% of the original par values. Which might sound like great value for money. After all, receivers and asset managers generally are said to get 1.5% of their assets under management according to NAMA – its chairman Frank Daly has said that before an Oireachtas hearing and NAMA’s 2012 projected costs also refer to insolvency/receivership costs being 1.5% of the assets under management.

So obviously 0.3% is considerably less than 1.5%. Of course the 0.3% relates to the original par values of the loans, it represents 0.7% of the value placed on the loans by NAMA with respect to November 2009 values – remember NAMA applied an average 57% haircut to the loans it acquired. And given the 20-30% declines in Irish property prices since November 2009 and the fact that NAMA paid a “long term economic value” premium of 9% of November 2009 prices, it seems that NAMA is in fact paying the 41 developers NOT 0.3% of the CURRENT MARKET VALUE of the assets under management, more like 1.1% of the CURRENT MARKET VALUE of the assets. Of course 1.1% is still less than 1.5% though presumably there is far more direct management of these loans by NAMA, whereas receivers would be expected to take practically all of the burden away from NAMA.

NAMA’s receivership costs and overheads paid to developers are set to come under increased scrutiny as the Agency continues in its asset management phase. Meantime, we learn today from Iris Oifigiul that NAMA has had receivers appointed to five more companies which seem to be controlled by two development groupings.

First up is Ashburton Construction Limited, the company controlled by directors Kevin McNulty and Conal Byrne. Interestingly NAMA made an application in Dublin’s High Court against this company and a related company PA Bello as well as the two directors personally. NAMA has now had Kieran McCarthy of Hughes Blake Chartered Accountants appointed as a receiver. This is the first time I believe this firm has been used by NAMA.

Next we have Coolfadda Developers Limited, the Cork-based development company whose current directors are listed as Vera Slattery, Conor Slattery and Geraldine Collins, the company secretary is Paul Collins. NAMA has had Ken Fennell of Kavanagh Fennell appointed as receiver to five developments in Cork and Kerry – (1) Killowen, County Kerry (2) Dunmanway Road/Convent Hill in Bandon, County Cork (3) Rathcoole, County Cork (4) Curryclough, Bandon, County Cork and (5) Sneem, County Kerry

Next up, we have what appears to be a related company to Coolfadda, Neidin Developments Limited whose directors are listed as Paul Collins, Conor Slattery and Anton Hunt, its company secretary is Conor Slattery. Again NAMA has had Ken Fennell of Kavanagh Fennell appointed as receiver to a 39-acre site in Kenmare, County Kerry and a 11-acre site also in Kenmare..

Next we have another related company, Veracon Limited whose directors are listed as Vera Slattery and Conor Slattery who is also the company secretary. Again Ken Fennell is the receiver and the property subject to the receivership appears to be 88 Main Street, Bandon, County Cork.

Lastly we have another related company, PGC Developments Limited whose directors are  listed as Geraldine Collins and Paul Collins, who is also the cimpany secretary. Again Ken Fennell is the receiver and the property subject receivership also appears to be 88 Main Street, Bandon, County Cork.

Remember you can see a comprehensive list of Irish foreclosure actions by NAMA here and in this regularly updated spreadsheet.

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Okay NAMA was really just an interested party, but yesterday in Dublin’s High Court, the redoubtable Mr Justice Peter Kelly upheld an arbitration ruling that was made late last year which said that Ireland’s second-largest grocery retailer, Dunnes Stores was liable to pay a NAMA developer, Holtglen Limited, €20.3m in respect of a shopping centre development, the Ferrybank Shopping Centre – pictured here – in Kilkenny. Judge Kelly’s judgment is here.

It was 2007, at the height of the Celtic Tiger property boom, that Dunnes entered into an agreement in respect of Ferrybank. Holtglen had then gone on to develop the shopping centre but had failed to comply exactly with the terms of the agreement and Dunnes refused to stump up the monies applicable under the contract. The arbitration ruling last year had found that, although Holtglen hadn’t delivered on the original contract, it did remedy the breaches and consequently the monies referred to in the contract were in fact payable. Dunnes appealed the arbitration ruling to the High Court.

NAMA was dragged into this because the Agency acquired the loans relating to the shopping centre in October 2010. Dunnes argued that because Holtglen is insolvent, a term in the agreement allowed it to repudiate the agreement, but this is where NAMA came in and eventually provided Dunnes with an undertaking which read “all obligations of Holtglen to Dunnes Stores under the Development Agreement whether in respect of matters arising before or after the giving of this Notice of Substitution shall be deemed to be obligations of NALM [National Asset Loan Management Limited] as if it had at all times been a party to the Development Agreement in place of Holtglen”

The judge criticised NAMA for delivering its Notice of Substitution late in the day – so late in fact that a hearing scheduled for February was deferred in order to give Dunnes an opportunity to consider the document. But alas for Dunnes, the judge has now dismissed the complaint about Holtglen’s insolvency and Dunnes must now pay more than €20m to Holtglen. NAMA will be pleased given the 65% decline in commercial property values since 2007 when the agreement with Dunnes was struck. According to the Irish Times today, Dunnes has until Friday to appeal Judge Kelly’s refusal of a stay on yesterday’s judgment to the Supreme Court.

The shopping centre itself is set to officially open next month.

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