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Archive for May 25th, 2012

Although there were signs that NAMA was relenting on its enforcement action in recent weeks, there is a trickle of new receivership action. Today’s edition of Iris Oifigiuil shows that NAMA has had receivers appointed to Versus Limited, a Dublin-based development company controlled by Sean Kelly and his wife Veronne Kelly. Glenn Cran and Mark Reynolds of Savills Ireland were appointed as property receivers on 21st May 2012.

The company is most associated with the Bolands Mill site in Dublin 2, pictured below. The sprawling building complex is located in what is now southDublin docklands and was a working flour processing mill until 2001 but was set to be developed by Versus as a hotel and office complex. It is situated partly onBarrow Street where Google has taken over much of the office space including a former NAMA/Treasury Holdings building, Montevetro.

Bolands Mill should not be confused – as the folks from the Independent seem to, today – with Bolands Biscuit Mill which was a nearby building made famous in the 1916 Rising when it was a command centre for Eamon De Valera. That complex which occupied a corner ofMacken Street andGrand Canal Street is now the site of NAMA’s HQ.

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

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An Taoiseach Enda Kenny described it as the biggest financial challenge facing this country when he spoke in front on President Bill Clinton at the Global Irish forum at Dublin Castle last October 2011. Since then, precious little has happened to alleviate the crisis with  the publication of a bureaucratic report and talk of Departmental sub-committees set up, and of course the Personal Insolvency Bill has been delayed and is not expected to be published until June 2012 and Fianna Fail leader Micheal Martin suggests that no relief will be available under the new legislation until the end of 2012, and on this front, Fianna Fail has been to the fore with its finance spokesperson Michael McGrath tabling a substantial piece of bankruptcy legislation last year which has merely gathered dust.

(Click to ENLARGE)

This morning the Central Bank of Ireland published its mortgage arrears and repossession figures for the three months ending 31st March, 2012. The picture painted is of a continuing deterioration in Irish mortgages with one in 12.9 mortgages in arrears for more than six months, with “six months” regarded in the industry as the point beyond which a mortgage is generally beyond salvation. The 59,437 mortgages in arrears for more than six months is 6,000 more compared with Q4,2011 and a staggering 24,000 more than a year ago. The number of accounts in arrears between 90-180 days now stands at 18,193 which is the smallest increase since records began in Q3, 2009 which is possibly the only bright spark in an otherwise disturbing picture. In total there are 764,138 mortgage accounts in the State so 77,630 – or 10.16% – are in arrears of more than 90 days. The number of accounts in arrears has risen by 25% since An Taoiseach give his commitment to President Clinton in October 2011 to do something about the crisis.

A further 38,658 accounts have been restructured and about two thirds of these are on interest only with the remainder paying less than that and in some cases, nothing. The total of accounts in arrears and restructured (and performing) is 116,288 or 15% of all mortgages.

And “crisis” it is. Although 85% of accounts are still being repaid in accordance with the original mortgage agreement, 116,288 are not and each represents a difficult story which in total has a substantial impact on confidence and spending in the economy. It is high time for action on “the greatest financial challenge facing the country”

There were 170 repossessions in Q1,2012 which is broadly in line with previous quarters. Our repossession rate is less than a quarter of that in our neighbour, the UK. And compared with the UK generally, 10.2% of our mortgages are in arrears of more than 90 days compared with 2.1% in our neighbour. Our repossession rate is 83 per annum per 100,000 mortgages in arrears compared with 353 in our neighbour.

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Like the first CAG special report on NAMA’s acquisition processes, there is a lack of focus in the report published yesterday by the Comptroller and Auditor General but there is also an abundance of information and detail, often randomly interspersed with a different stream of narrative. Here’s what we learn in the order the details appear in the report, rather than by any prioritising system:

(1) NAMA took over €5bn of its €32bn of loans (worth €74bn at par value) without detailed due diligence or valuation, but NAMA was due to complete ALL its due diligence and valuation by 31st March 2012, according to the report so we should now be able to see if any adjustment was made.

(2) NAMA is pursuing “foreclosure or disposal” action on 34% of its loans, 33% are at “an interim letter of support stage” and 28% are being “restructured”

(3) It seems that NAMA shaking the tree has indeed resulted in nearly €500m of additional assets coming to light that might be used to reduce developers’ debts though the CAG does say “There have been instances where NAMA identified unencumbered assets and sought that they be pledged as additional security and that debtors who want a consensual deal have agreed to do this”  And the CAG says that €221m has been brought to the table as a result of these consensual deals. Of the €500m identified, just €381m has so far in fact been formally handed over.

(4) NAMA expects to advance €3.5bn in new advances/investment in developments over its lifetime to 2020. It announced €2bn this week to be advanced between 2012-2016, it has already approved advances of €1bn so presumably there will be another €0.5bn between 2016-2020.

(5) The NAMA acquisition price “incorporates state aid of over one fifth to the financial institutions”. What this means is based on an analysis of the loans subjected to full due diligence and valuation – €26bn out of the €32bn paid by NAMA – there was an overpayment which represents state aid of €5bn or as the CAG says 23% of the acquisition price. When talking about the cost of bailing out the banks – €63bn to date – it would seem to be accurate to add on €5bn to that figure. And on here, the bank bailout will henceforth be referred to as costing €68bn. So far… By the way, NAMA points out that its structure and operation was agreed with the European Commission on the basis that it was providing state-aid and the CAG report confirms that NAMA valued and paid for its acquisitions in accordance to the scheme that was approved. NAMA comes in for some criticism from the CAG for omitting consideration of property management costs from its valuation models but NAMA says that it valued in line with industry standards.

(6) Developers are not meeting “business plan” targets on rental income, down 26% in a sample of six analysed. It seems the shortfall is down what the CAG says was NAMA not taking account of property management costs when the Agency acquired the loans, but surely such costs would have been detailed in “business plans”?

(7) NAMA’s actual approved disposals to the end of December 2011 were €5bn – not any of this €6.xbn rubbish spouted by NAMA – of which €2.9bn of the approved disposals came from the sale of property, €0.9bn from sale of loans and the remaining €1.2bn from what appears to be refinancing by developers of their own loans.

(8) Of NAMA’s 194 staff at the end of December 2011, three were devoted to “asset searches” so Developers! Remember there are three full-time employees in NAMA whose job from 9-5 is to advise on asset searches and appoint asset searchers. Three! Full-time! Developers might find it enlightening to read page 45 of the report to see just what these employees do.

(9) NAMA’s estimate of its lifetime operating costs is now €1.4bn which is substantially down on the €2.6bn in the draft business plan in September 2009 and is also €0.2bn down from the €1.6bn in the June 2010 business plan.

(10) The two key risks to NAMA’s success identified by the CAG are (1) establishing effective relationships with developers and (2) it won’t achieve its cash targets. Well, f*ckadoodledoo, you have to really sit back to appreciate the genius of the CAG!

(11) NAMA has 1,000 borrowers – of which 800 are connected parties, which is where we get NAMA’s claim of 800 borrowers. Interestingly there are 35,000 properties subject to NAMA loans of which 14,000 are residential in the State, there will also be commercial plus land.

(12) NAMA expects to dispose of half of its UK assets by 2013, and 40% extra by 2015 and just 10% by 2020. So by 2015, NAMA will have largely exited the UK market. Let’s hope they have made the right call in prioritising that territory for disposals.

(13) NAMA expects to dispose of 40% of Republic of Ireland property by 2016 with the rest by 2020. The disposal of development land appears to be put on the long finger until 2016-2020.

(14) In Northern Ireland, NAMA has a firm “hold” strategy with 70% of the assets slated for disposal in 2016-2020. Well done Sammy Wilson!

(15) NAMA expects to sell 80% of the Rest of World assets by 2013 and rest by 2015. So those Bulgarian and South African apartment buildings should be shifted sooner rather than later!

(17) The cost of full enforcement by NAMA is estimated to be 15% of its acquisition values. So if you’re a developer with €100m of loans for which NAMA paid €40m, then NAMA expects to incur €6m of costs in enforcing your loan. Which should be a deterrent to NAMA and a potential bargaining chip for developers.

(18) Between April 2009 and the date on which NAMA acquired the loans, additional advances of €869m were made by the banks to developers

(19) In 17 cases, asset transfers have been identified and NAMA is confident that its current discussions with debtors will conclude with additional transfer reversals or the granting of charges to it over unencumbered assets. In five other cases to date, NAMA has initiated legal action to reverse asset transfers.

(20) NAMA has approved strategies at board level for hotels, completed residential property, land and development, and investment assets. Presumably this is for all territories. The investment strategy is for Ireland(hold) for London (sell) for elsewhere (it depends), for land and development (hold), residential (rent if rent yield>5%, else sell), hotels in Ireland(hold), hotels in Britain and Europe (sell). NAMA has separate undisclosed strategies for golf courses, North American assets and Irish apartments.

(21) By the end of December 2011, two developers had disposed of all their property under NAMA’s auspices and a further 21 developers had commenced the disposal of their property.

(22) For each individual receivership, NAMA has a “mini-tender” amongst three suitable members of its panel usually seeks fixed fee proposals for specified periods of time, usually six to 12 months. Proposals for the assets in receivership are required from the receivers within four weeks of appointment and there are quarterly progress reports as well as day-to-day engagement with the NAMA portfolio manager.

(23) The fees charged by receivers range from €20-152,000 for six month appointments and €195-770,000 for 12 month appointments.

(24) The cost of asset searches is an issue for NAMA, and there is a concern that the costs might not be justified by the results. Take a look at PDF page 59 for the costs and benefits of a sample of asset searches which turned up results, but NAMA searches have turned up race horses, British properties, transfers to trusts, a crèche, car-parking spaces, shops, luxury cars, property outside Europe including in the US, undisclosed directorships of companies.

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