Archive for April 17th, 2012

Jones Lang Lasalle (JLL) has today published its commercial property series for Ireland for Q1, 2012. The JLL series is one of the two Irish commercial indices referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page. The other quarterly Irish price series is published by SCSI/IPD and will be available on Thursday 26th April 2012 at 3pm; because it is generally published after JLL’s, it is not used here to help compile the NWL index, but the SCSI/IPD index does historically show a very close correlation with JLL’s.

The JLL Index shows that capital values fell in quarter one, 2012 by 1.8% – this means that with the exception of Q4,2011 Irish commercial property has declined in value for 18 of the last 19 quarters and the aberration in Q4,2011 when a 1.2% increase was recorded was due to the exceptional measures set out in Budget 2012 – the reduction in stamp duty on commercial transactions from 6% to 2%, the abandonment of proposals to abolish Upward Only Rent Review terms in pre-February 2010 leases and the enhancement of capital gains arrangements for commercial property held for several years.

Overall since NAMA’s Valuation Date of 30th November, 2009, prices have now declined by 22.0%. Commercial prices in Ireland are now 64.9% off their peak in Q3, 2007. On an annual basis prices are down by 10.2%. The NWL index is now at 817 which means that NAMA needs to see a blended increase of 22.3% in property prices across its portfolio to break-even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

Rents increased by 0.7% in the quarter which is the first increase since Q2,2008. JLL says “Overall the Index results are best described as stable which, given past fluctuations is encouraging for the commercial property market in Ireland.”

UPDATE: 27th April, 2012. Yesterday, Ireland’s other commercial property index – the one produced by the Society of Chartered Surveyors in Ireland, in conjunction with industry researcher IPD, – was published. It showed that in Q1, 2012, commercial property prices fell by 1.8%, precisely the same decline recorded by JLL. To date SCSI/IPD say that commercial property is now 65.2% down from peak compared with 64.9% from JLL.



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For those of you wondering how NAMA could possibly spend €33m on foreclosures and receivers in 2012, look no further than today’s edition of Iris Oifigiul where NAMA is recorded as having had receivers appointed to another nine companies, all on Friday 13th April, 2012. They all appear to be connected to Treasury Holdings which blunts the news, as NAMA has already had receivers appointed to a swathe of Treasury group companies. Remember that Treasury has sought and won permission to pursue a judicial review of NAMA’s dealings with its loans in a case that is set to be heard later this year.

The nine companies to which William G O’Riordan and Declan McDonald of PricewaterhouseCoopers have been appointed receivers are Chermontvale Limited (directors John Ronan and John Bruder), Mainbrook Limited (directors John Ronan and John Bruder), Swinwood Limited (directors Richard Barrett and John Bruder), Alleycastle Limited, Belchertown Limited (directors John Ronan and John Bruder), Glamorama Limited (directors John Ronan, Richard Barrett, Rory Williams and John Bruder), Movard Limited (directors John Ronan and John Bruder), Vistabrook Limited (directors John Ronan, Richard Barrett, Niall O’Buachalla and John Bruder) and Temple Holdings (Dublin) Limited

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

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Today sees the publication of the March 2012 IPD Monthly Property Index for the UK. The IPD (Investment Property Database) index is the only UK commercial index referenced by NAMA’s Long Term Economic Value Regulations (Schedule 2) and is used to help calculate the performance of NAMA’s “key markets data” shown at the top of this page.

The Index shows that capital values fell by 0.3% in March 2012, following a 0.3% also in February 2012 and preceding that, several months of almost flat performance. Prices reached a peak in the UKin June 2007 and fell steadily until August 2009 when the current rally started. Prices then increased by 15% in the year to August 2010 but since then prices are up a measly 1.4% and in the last 12 months prices have actually decreased by 0.2%. Overall since NAMA’s Valuation Date of 30th November, 2009 prices have increased by 10.5%. Commercial prices in the UK are now 34.7% off their peak in June 2007. The NWL index  remains at 825 which means that NAMA needs to see a blended increase of 21.2% in property prices across its portfolio to break even at a gross profit level (taking into account the fact that subordinated bonds will not need be honoured if NAMA makes a loss).

The table below shows the change in value of an index set at 100 at 30th November, 2009 and applying the month-on-month % increases in a compound manner.

The overall outlook for the UK economy is muted in the short term. The UKhas a so-called Office for Budget Responsibility (OBR) which is independent of Government and produces its own economic forecasts and commentary on fiscal policy. The latest report from the OBR was published on 21st March, 2012 and it forecasts GDP growth from 2012-2015 at 0.8%, 2%, 2.7% and 3%, deficit of 8.3%,5.8%,5.9%,4.3%, debt:GDP of 72%,75%,76%,76%, unemployment rate of 8.7%, 8.6%, 8.0%, 7.2%, house prices of -0.4%,0.1%,2.5%,4.5% and inflation of 2.8%,1.9%,1.9%,2%. The UK will have breathed a sigh of relief at the re-affirmation yesterday by S&P of its top Triple A credit rating with “stable outlook”. Both Fitch and Moody’s have put the UK on a negative credit watch

Monetary policy is overseen by the independent Bank of England and the  current Bank of England rate is 0.5% and has been since February 2009. And there might even be another round of quantitative easing that has so far seen almost GBP 300bn pumped into the GBP 1.5tn UK economy.

About half of NAMA’s portfolio was located in London which has so far performed very well from Aug 2009 to Dec 2010 but has been more subdued over the past year. Supply shortages and money chasing a relatively stable investment have maintained prices and there might even be a short term fillip from this years Olympics. Beyond London and the English south east, there is evidence of prices waning amidst sluggish economic growth and stunted lending.

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It is indeed curious that the Woolgate Exchange building at 25 Basinghall Street in the City of London– pictured above – is not apparently in NAMA. It was bought in 2006 for GBP 325m (€395m) by Dublin developer/investor D2 Private and was partly funded with a GBP 32m loan from Anglo (now part of IBRC). D2 Private is understood to be in NAMA and you might have expected all of that company’s loans at Anglo to have been acquired by NAMA. But like Sean Quinn’s loans and the Hume Street hospital, apparently not.

In any event, the 315,000sq ft 9-storey building has been on the market for some time, and it was recently reported to be under offer for GBP 270m (€325m) by a Malaysian sovereign wealth fund, Permodalan Nasional Berhad. That sale fell through, and you might have expected the marketing of the building to continue and that an alternative buyer would be found.

Not so, according to British commercial property portal, Costar, it has been decided to “asset manage” the property. Now some of you might start scratching your heads at this point and wonder what’s the difference between selling the building and asset managing it – after all, our own National Asset Management Agency is supposed to be “asset managing” but it has most visibly been flogging property and loans – €8bn of approved disposals so far according to the NTMA yesterday, €2.7bn according to the latest management accounts for Q3,2011 and 90% of disposals have been outside Ireland, mostly in London it is understood.

So “selling” is not necessarily the same as “asset managing”

Again, some of you might be scratching your heads, but remember NAMA’s primary objective is to maximise the return from its portfolio of loans and when it comes to asset managing buildings there are all sorts of strategies that you can pursue which don’t involve a sale.

If you are “asset managing” a shopping centre for example, you can increase the rent in various ways – changing the mix of tenants and trying to get more upmarket tenants who might pay you more, you might also consider changing the rent arrangements for example to a share of revenue, or change the term; you can reduce costs in the management of the space; you can identify better use of space, you can seek planning consent for changes including enlargements or you might decide to sell the centre, but even then there are choices, you might decide to sell it as part of a portfolio, you might seek a percentage of any subsequent uplift in prices.

For its part, NAMA has most visibly been flogging property and there has been little evidence of “asset management” generally, though in fairness not no evidence whatsoever, NAMA has apparently decided to rent its residential Irish property which is evidence of asset management because the rental market is more stable and there is little mortgage finance available. But in the main, and particularly in the UK, NAMA’s “asset management” seems to have focussed on flogging property as quickly as possible for the cleanest price possible – by “cleanest price”, I mean NAMA seems not to be interested in sales prices which might provide for future uplifts in prices.

In the case of the Woolgate Exchange, Costar reports that “asset management” is expected to focus on improving the rent income prospects over the next few months before placing the property back on the market.

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Later this morning, Ireland’s so-called “Troika” which is providing the country with loans of €62.5bn, will commence the sixth quarterly review of the country’s compliance with the Memorandum of Understanding – latest copy here; in addition to the €62.5bn of loans from the Troika, Ireland is also receiving €5bn of bilateral loans from the UK, Denmark and Sweden – these countries also have the right to review things, but have so far resisted what would be a highly humiliating intervention, and calling it a “mission” wouldn’t improve the reality of the UK overseeing our finances as is their right under the bilateral agreement..

So later this morning representatives of the EU, the ECB and IMF will turn up at Ireland’s Department of Finance in Dublinto see how things are progressing. They’re likely to be relatively satisfied because despite gloomier forecasts for growth in the Irish economy, the Exchequer figures for March year-to-date show the country is on target with reducing the deficit this year pretty-much in line with plans; at least so far.

This time around the Troika is unlikely to provide a public press conference. You can probably blame Vincent Browne for that because of his trenchant and persistent questioning of the ECB at the last Troika press conference in January 2012 about the repayment of bondholders in bust Irish banks; the official line that is emerging though is the Troika don’t want to be seen to be interfering in the debate on the forthcoming Fiscal Compact referendum or the ongoing so-called “negotiations” to restructure Anglo’s promissory notes and deal with loss-making tracker mortgages at AIB and Permanent TSB. An official with Sinn Fein tweeted this morning that the Troika will also not be meeting with opposition parties as has been the usual practice each quarter – a request was made last week to the Department of Finance and permanent representatives of the Troika and the request was turned down with no reason given. So it seems that the Troika will be on lock-down – or “Ard Fheis” as we’re beginning to say in Irish – for this review.

Here’s what we were supposed to have achieved in the first quarter of 2012 in terms of chores for our missionaries.

An emerging concern on here is that the Troika is primarily concerned with the reduction in our deficit, and that reform, for example by establishing a proper fiscal council which will provide independent commentary on Government policy, or opening up professions to more open competition and equal opportunity are of secondary importance – “nice to haves” – and that economic growth is of tertiary importance.  With respect to the controversy du jour, water meters, it is noteworthy that the Memorandum requires our Government to “In light of the results of a public consultation process, the authorities will provide programme partners with an update on progress toward the transfer of water service provision from local authorities to a regulated water utility and plans for the roll-out of a domestic water metering programme with a view to starting charging by the end of the EU –IMF Programme period.”

So there has been a “public consultation process”?

Sadly it seems, we will not be able to question the missionaries on such matters in public this time around.

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